5 Steps Startups Should Consider Before Asking For Investment.
Have you recently launched a startup and are you looking for an investor?
Have you already identified an investor for your business but you don’t know how to present your team and your product?
Many factors can hinder an investment if you don’t know how to take the first steps and what to do before looking for and getting an investment for your startup.
The most common mistake is to focus exclusively on the famous pitch: a short presentation that has the task of telling the idea of the startup in a very short time and capturing the attention of investors.
There are some actions to take before looking for an investment and contacting an investor, which help prepare the conditions for financing your business
In this post, I suggest 5 things to do before looking for investment from an investor.
1. Do your investor due diligence
What is due diligence?
(If you don’t know the meaning of the word due diligence, stop and investigate this issue before looking for an investor, it is one of the most important things to know).
An investor always carries out due diligence before investing money in a startup; that is, it deepens certain aspects of the team and the company through a phase called due diligence audit in which it seeks information on the team, on the product or service, and so on.
It is perfectly normal for him to do this because before giving money to strangers he must make sure that everything is in order.
The good news is that you too can think about doing due diligence on your investor or something similar…
But what does it mean to do investor due diligence?
It means studying in detail the investor’s activity, range, and network, drawing up a real due diligence report in which to verify the startups of his portfolio, the failures, and exits of his previous investments, the main sector in which it invests.
I’ll add a final gem: remember to interview and ask for opinions from startups that have already received money from that investor.
The best way to gather useful information about the people you are partnering with is to talk to those who have already done so before you.
2. Build a relationship with your investor
The first thing to keep in mind when dealing with investors is that they too, like you, are people who are doing business, and, like in any other sector, there must be a relationship between people for the success of the business.
Remember: they are people, not piles of money.
There are a couple of practical tips for building an investor relationship:
a. Let someone introduce you
Getting in touch with the investor through his network is undoubtedly the first step to building a solid relationship. If you have done the due diligence I mentioned earlier you will know where to look and who to ask.
If his answer is not immediately positive, remember that you can try again at a later time; in the meantime, keep the relationship alive and update the investor on the changes you are making to your business and how your business is evolving.
b. Give your relationship time to grow before making a request.
It would be far too early to ask someone you just met over the phone for the money.
3. Pay attention to the timing in which to request an investment
Trivially ask yourself when it’s time to bring an investor into your business.
Are you sure that to start you immediately need an investment?
The timing of the request for investment is essential for the success of your startup. Asking for investment too soon can mean presenting an idea or a product that is still immature for the market; doing it too late could cause you to miss out on opportunities and deprive you of the power to negotiate with your investor.
Keep in mind, in any case, that the investment process is not solved in a short time, but takes quite a long time (at least triple what you think).
4. Evaluate the investment amount well
One of the main problems of approaching an investor is related to the evaluation of the investment figure; simply how much money to ask the investor.
The figure depends on many factors including the due diligence which I have already talked about in the first point.
However, also in this case, as for the timing, it is necessary to maintain a fair balance in the amount to ask your investor: do not ask too much, otherwise, you risk losing many shares of your company, but not too little, otherwise, you will not have the necessary tools to achieve the objectives established and assessed by the investor during the due diligence phase.
5. Always look for “smart money” (and find out in due diligence)
The smart money is the added value that the investor will give you your time, and there’s only one way to know in advance: do the due diligence of your investment.
As you can see, knowing in advance your investor’s network, potential, and range of activities help you create a solid relationship with him.
Bringing in new partners (investors in this case) shouldn’t just mean having new capital, but quality relationships to reach customers and partners you can’t reach today, skills in key roles you currently lack, and so on.
Remember that investing is always a long-term relationship and that it is in the long term that you will need to evaluate your investor investments.
I can’t wait for you to implement the steps written above. If you have any questions, do leave a comment. Can’t wait to hear from you!!