In part II we discussed how to proactively address your weaknesses and how to build a message model that lets your business do the talking. In our final part we discuss the final and most important aspects of securing investor funding to help get your business off the ground.
Don’t be desperate for cash
This is a difficult task to do when you are getting ready to go into a meeting with an angel investor or a venture capital firm and you know that you’re running out of money, or an even worse feeling of knowing that this investor’s investment in your business might be the last prospect that you have to secure funding. In a situation like this, never act like you need any amount of money for your small business.
This sounds counter-intuitive, but it can convey to an investor an air of desperation or make an investor ask, “If this potential investment is such a wonderful idean, why are they out of money?”. Even if you lack a single dollar to your name, never act like you need the money. Acting like you want the money to capitalize on an opportunity in the market allows for you to demonstrate value and a greater return on investment, providing your company a perceived high net worth.
Never negotiate from shortcomings
Leverage is one of the key pieces of negotiation. The reality is though that most businesses in the early stages have very little leverage to use for any type of investor. The cards are stacked against your business. You are underfunded, an unknown business, you have a business plan that has little backbone than the words that inspired it, and you are subject to the statistical likelihood that your business is going to fail long term. Discovering leverage when you have no cards requires you to think creative about your offering like:
- Setting a timetable that you are expecting to have your investors secured for funding.
- Aim high for your investment amount and be ready with a smaller number. Investors might push back on the initial amount, be ready to adjust the expectations with an investor, by doing so your provide options for investment levels, but are able to communicate to an investor what the value of their investment is.
- Set the expectation that they need to act and take advantage of the investment opportunity and that you are looking for venture capitalists that are ready to take advantage of the opportunity you are providing to them.
Developing the necessary leverage is a real skill, especially when you have no cards. It will take time to work through setting the right talking points and delivering them with the right amount of attitude.
Gain commitment from investors
Letters of intent aren’t just for high school athletes. Signing a letter of intent happens when an investor has decided to make an investment and includes the valuation and the terms of the investment. One thing it does though is it does not commit the investor to actually make the investment. At any time after the letter is signed, they can back out without any liability.
Normally the letters though can include clauses that will limit any other investment seeking for a period of time. This period of exclusiveness can last anywhere from a few months to even a half a year, and can undercut your ability to have any negotiating power with investors.
Getting an investor to reword your deal structure can help to protect you, as well as insure that the investor is serious about their decision. Look to have them make a large portion of their investment as a loan similar to a financial institution, for an amount like 25 percent from the date of the letter being signed. By stating this in the valuation in the letter, you can have a more vested investor. If the Investor does decide to back out, then the loan is still there and the investor becomes a creditor to the company for the value of the loan.
Gaining an investor is never easy, and requires you to diversify your messaging and communication approach in order to gain the commitment of a potential investor. Business plans can only take you so far in the process of securing an investor, the overall presentation of your business, your employees, and most of all, you can have just as much if not more impact on earning an investment. Remember to deliver your presentation with precision and confidence that makes it easy to say yes and always look for opportunities to improve your skills as an entrepreneur.