If you are looking for funding of your business plan, you may have thought that the best option is to find one or more investment partners who share with you the risks and benefits of the project, or as a complement rather than opting for a bank loan financing. These are some of the most important questions to which you must answer.
1- Who cares?
When you have an innovative business idea, it is normal to think that shopping is good, and you’re going to add value, but most people, especially investors, are very skeptical about new proposals. Not that they are closed to innovation, but they will not take anything for granted. They want to hear you explain why your product or service is attractive to potential clients, and much better if you have evidence of this interest. Therefore, talk to potential customers, and demonstrates with facts that would be willing to buy.
Undoubtedly the best argument you can offer are sales that have already achieved. A product that has already sold a lot more credibility than a simple project on paper. It is one of the advantages of opting for an inspired Lean Startup.
2- Who are the customers?
It is the logical continuation of the previous question. Once you know what problem you solve your value proposition, then you have to clearly define who your customers. Some entrepreneurs are too general to a definition, arguing that in the end, anyone is a potential customer. But the reality is that products and general services are scarce. Maybe in time you go conquering a wide spectrum, but even in such cases begins a segment of highly defined customer. Private individuals or companies? If they are businesses, what sector? If they are individuals, what demographic, economic, geographic, and others are differentiating?
You have to prove to investors that you have very clear what your target customer.
3- How are you going to get clients?
No business without sales. In all projects, the aspect of attracting customers is key. The business model more beautiful on paper may explode on contact with market realities. Not enough to say you are going to invest X in marketing and advertising. You have to convince investors that the customer acquisition strategy is really successful and effective. Again, it has already attracted customers is a great advantage because you demonstrate on a small scale the validity of your marketing process.
4- How big is the market?
An investor seeks to maximize the return on money that you will put in the company. To have any hope that that can happen, you need to be convinced that sufficient time for your company to grow and create market value exists.
Calculate the size of the potential market is not very easy, especially in highly innovative products and services, but you can support data of substitutes, or experiences of similar products. The important thing is that the investor understands that go fishing in a lake or at sea, not in a pool.
5- What are the competitors and how they are going to win?
Entrepreneurship competes. Even when you have a new service, you will have to face more or fewer substitutes, and if your proposal is successful, new competitors will surely try emulate and even improve your offer appear. But things first:
- At this stage, you bring a new product or service, which may have direct competition(then you have to detail it) or indirect (and in this case may cost you a little more work to identify and detail it. In either case, you have to emphasize with what weapons they’re going to win, using your competitive advantage.
- In the future, assuming your proposal is very successful, you may be leaving new competitors. In this case, you should be ready to fight them, and save some ideas in the room to beat.
6- Why you are the most suitable for carrying out the project people?
It is an idea that I have repeated many times in this blog, and often I have to tell people who have me ideas of interesting business but do not add much (or anything) with their own profiles. A project is only as good as his promotion team. The execution is much more important than the idea itself. It’s something that I explained in the article is not the idea, it is the team.
It may be that many entrepreneurs this argument does not convince them. They agree it would be nice if their profiles encased best in the business project but do not see it as a major impediment if it is not the case. To those people, I have bad news: it does what investors look very closely. They know that the projects succeed or fail according to their leaders, and if they are not convinced that you are the best people to conduct business, they will not put money into the project.
So get to work on all the points that enable you to direct this project; and be ready some explanations and action plans to counter data that do not fit and that the trained eye of a professional investor will not let escape.
7- What results have you achieved so far?
The end results are voluntarily vague because it encompasses different realities in each case.
- If your company already sells, it has a tendency to growth and needs financing to continue to grow and consolidate, it is probably the most favorable to convince an investor because it has proof that things are running situation.
- Maybe your project has not yet begun to be monetized, but can teach some metrics that demonstrate that there drive, such as a growing number of users of your website or App.
- In less advanced projects, major achievements can be closed agreements with suppliers or distributors, they have drawn a prototype, or any other relevant thing to prove to investors that are investing in more than one project, but something real.
8- How are you going to use the money invested?
You’ll notice that in this article have not raised the issue of the amount. It is something that question in the article asking much money an investor. It is clear that you are going to ask how much you need, but more important than that is the use you will make of it.
You may be tempted to say that you will use the money to pay salaries, particularly when the company was launched from the start without the founders charge anything, but not the most appropriate. The investor thinks recoup their money, and therefore, your use of funds should serve to increase the value of the company. It may be to develop some new features, or to spend on a marketing strategy whose return can be demonstrated, or it may be for something else. But the important thing is that this money will enable the company to grow.
9- What return on investment can we expect?
I have already been repeated in this article obvious: if an investor puts money, it is because expected to make a profit. For that, you need to show what the expectations of company performance. It needless to economic forecasts, especially a business plan, but more than an estimate of revenue, which the investor is expected to have made a consistent study with special care spending and growth assumptions.
Consistency is what counts most. Nobody knows what will happen, but if your expectations are rational, will show the investor that you thought well you plan your business and you can tell your return on investment with greater credibility.
10- What kind of relationship with the investor you want?
As in all relationships, we must find a compromise. Surely, most entrepreneurs would like to have investor money without accountability, and maintain total control over the management of the business and strategic decisions. Instead, the investor wants to continue as things are going, opinions and participate in decisions.
There is no predefined format, but you must be able to explain the type of collaboration that you expect. Often, in addition to the money you can count on the professionalism and previous experience of people who were already involved in other projects, and that it is very valuable.
Not only do you have to define how much the investor will be involved in the project, but also how that relationship will evolve over time. Many times, your partner will want to put the money for a defined term (3-5 years, for example), after which goodwill and hopes to move onto something else. Other investors want to participate in the long-term project.
11 – What is Plan B?
One element that demonstrates your professionalism is that you have taken into account the possibility of things not go as well as expected. If you are aware of the risks and threats that hang over your project, you will also be able to devise a plan B or have an idea of what will happen if anything goes wrong.
Make no mistake, we are not saying stop believing in your project. Of course that is highly valued passion and motivation. But it is also very important to be realistic and have foreseen what might happen in case of failure.
12- How much have you invested in the company?
The last question could also be the first. You’re asking someone to trust your project enough to invest in it and accept the risk of losing your money. What level of involvement have you shown? Have you risked something? It is very common for investors wary of projects where developers have not risked anything more than their time (although time also has value).
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