For when you’re so successful that you’re ahead of yourself.
Entrepreneurs eventually get to the stage in their business where they are considering taking it to the next level.
This is when you’ve done all you can with what you have, and you know an infusion of cash will allow you to meet the orders you have coming in.
If you’re so successful that you need an investor to help you keep up with the orders, that’s a great place to be
Asking for money in this situation is one of the easier times to ask because you’re offering something for the money — a rate of return.
Some business owners feel it’s an admission of failure. “I couldn’t do it on my own so now I need help.”
This approach isn’t a great feeling and it’s also counterproductive.
If you’re asking for money, you’d better be confident
Why would anyone give money to someone who thinks they’re a failure. Even if you don’t admit it, your presentation and attitude will show them something’s not quite right.
Consider reframing that negative thought.
- You are so successful that you’re ahead of yourself.
- The business is more than you ever imagined.
- You’re expanding to the next level.
There is a hierarchy of investors
Every one of them deserves the respect and approach that you would give to a venture capitalist.
- Friends and family are more likely to invest in your idea, so they might be the first group of people you approach.
- Use them to practice your presentation skills.
- Hone your elevator pitch.
- Listen to their questions and be prepared the next time.
- After friends and family come, private investors, banks, and venture capitalists. The one that suits you the best will depend on your specific needs.
There are several things to consider when you meet with a potential investor.
Give information, be transparent, be honest, give bad news upfront.
- The old adage goes — you can never be too prepared.
- Anticipate the questions they will ask and have the information at hand, at your fingertips.
- If you keep saying I’ll get back to you on that, I’ll get back to you on that, the investor isn’t going to invest.
- Know your business. If you haven’t thought about the metrics, or that’s not your skillset, bring along someone who knows.
Know what you’re talking about
- Know the business, your product, and your competition.
- Who are your customers and how does your product exceed their expectations?
- Why should they invest their money?
- What’s in it for them? Have a plan that shows the potential investor when they can expect their money and their profit to come back to them.
Be transparent, and be honest
- Be polite and appropriately modest.
- Arrogance won’t buy you any favors.
- Give people a chance to think about it.
Follow up, even if you don’t think you will get the money
- After the meeting is over, send them a follow-up note, thanking them for their time.
- After you’ve given them some time to think about it, follow up and see what they are considering
Keep them informed
- Let them know how the investment that they might have made is doing.
- A no might turn into a yes in the future.
Have a great track record
- Provide a good return on their investment.
- Give people evidence that you are reliable and it’s a solid investment.
- If you have a good track record, you’ll be able to raise a lot of money. If you have a bad track record, no matter how polite you are when you ask, it’s going to be difficult for you to raise money when you need it.
Don’t ignore your investors/donors
- A big mistake many people make is not keeping in touch.
- The next time you talk to your investor shouldn’t be when you need money again.
Even if you don’t treat people well and your returns are good, they are likely to reinvest.
But if you need them to invest when things are riskier, it will help if you’ve built a relationship as well.
What mistakes do people make when they approach an investor and ask for money?
The most common mistake made by newbies
Don’t be sorry
- A common mistake is when a business owner apologizes for asking for the money.
- If you’re sorry, don’t ask.
- Tell people why they should give you the money.
The most important thing you can do when you approach an investor is to be prepared. Your confidence will improve and that will make your investor more confident in you.
"A banker is a man who will lend you the short sleeve shirt off his back and demand a long sleeve one in return." JAROD KINTZ, It Occurred to Me
And here’s a little bit of history:
Carried interest. This term comes from the time in history when people were exploring the new world using ships. The ship would carry back goods for the investors to sell and the captain had a carried interest in what they were bringing back with them.