The most common questions I come across when meeting entrepreneurs are related to funding and investment-seeking. Incubators, venture capital, angel investors, crowdsourcing… the choices here are numerous.
Raising money for SMEs and start-ups, however, is not an easy job, especially because it tends to be a rather underserved sector here in the UK. In such a competitive environment, information is your best tool. It’s similar to a treasure hunt: you need the correct map, a competent team and the right tools.
When looking for opportunities to invest their capital, innovation is an angel investor’s favourite word. Eager to invest their solid capital in promising opportunities, they tend to place their bets on businesses where they see real potential for high return on investment.
As an entrepreneur you’ll need to do more than just pitch your business; you need to convince potential investors that the business will be successful.
As a high risk investment, it is natural for investors to be cautious. In the US, for example, where majority of funding comes from private investors, more than 50% of angels don’t have the expected return on investment.
Although your business idea is important, the “people factor” plays a massive role here. Having the right people around you is essential – they’re the ones who will take care of your day-to-day and, with it, your investors’ money.
Due to the difficulty in evaluating the real potential and risks of a business, it is common practice for angels to invest in the potential of an entrepreneur, rather than the proposal itself.
While some give preference to start-ups in a very early stage, others want to build up on SMEs with a successful track record. Therefore knowing what the investors are looking for is essential in this process.
Being able to demonstrate competitiveness is no doubt vital when it comes to seeking investment. At the same time, it is important to show how your business has an edge, something that makes it stand out.
A useful exercise is to ask yourself from time to time whether your business competes on product, price or quality and what you are doing to achieve that.
Despite the growth of tech start-ups in the last few years, you don’t have to be the next Mark Zuckerberg in order to secure investment for your business.
An experienced investor knows when a business is worth their capital – and it can be in any industry. Smartphone apps are still very popular, but some angel investors also see great potential in fast-growing sectors such as green energy, biotechnology, services, healthcare, science, entertainment, education and e-commerce.
In practical terms, the biggest risk to a start-up is not achieving a viable business model. Therefore, the best way to get investment is to prove that there is viability on a small scale, and that you just need the financial input in order to increase volume.
Having an initial client-base that demonstrates a clear demand for your product is definitely the best way to show investors that the risk is small enough to justify the investment. It is unquestionably much easier to build an initial client-base first than get investment.
Whatever your strategy is, make sure you are well prepared and get your numbers, facts and figures right. The recipe to success is based on your ability to inspire confidence, reliability, passion, intelligence and integrity.
Aaron Etingen is the founder and executive chairman of the London School of Business & Finance (LSBF).
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