Investment is essential for startups with a committed founder and a great idea but a lack of funds to make it a reality. The opportunities provided by investment at this stage are huge. Without it, your idea will probably never become reality, or at least it will not be you who makes it one. Thus, one sign that you should start looking for investment might simply be that you believe in yourself, and your idea, as well as in your capacity to make an investor believe in those things too.
It’s in your business plan
This point might be obvious, but if your business plan calls for investment, that is a sign you should start looking for investment. It makes this list because finding the right investor for your business takes time and you should start well before the need for investment becomes imminent – if your business plan calls for investment in April, do not leave it until March to start looking.
Failing to secure investment in time could lead to cash flow problems, an inability to purchase inventory, affect productivity strategies or the ability to hire staff in crucial positions, thereby derailing your business strategy. Allow yourself plenty of time to secure that investment because there will be much to discuss and negotiate. How much investment does the business need? How much equity should you offer in return for funding? Will the investor be involved in the business and to what extent? In short, if finding investment is in your business strategy, start looking for one well before the deadline.
You need to stay ahead of the competition
Many initially successful businesses flounder because of a failure to innovate both in terms of the product or service provided and/or the way it is marketed. If you feel like your business is being copied or chased by competitors, and you cannot ward them off with your existing resources, you should seek outside investment so that you can invest within your business to improve efficiency, productivity and ultimately, your final output. This will keep the competition at bay and keep your business on the road to success.
Investors are generally more willing to invest if you have shown a successful model in the past, so businesses in this situation might find it easier to get investment than those without a track record.
You need more clients
Do you have a satisfied and recurrent, but small and local, client base? This is a sign that your product or service is of a high standard, valued and ultimately viable. It is also, however, a sign that with significant investment in marketing, your business has the potential to grow much more quickly and substantially than it currently is. If you don’t have the capital to invest in this marketing, it may be a good idea to start looking for investment. Depending on whether investors are active or not within the businesses that they invest in, you could find someone not only willing to invest money, but also their time, expertise and contacts to help you scale.
Your business is over-subscribed
Another signal that you should be seeking investment is when you find yourself turning away clients because their demands are too stringent, either in terms of scale, timeline or diversity, for you and your business to meet. Seeking an investor will enable you to improve your cash flow immediately, facilitating an increase in your ability to meet the demand for your products and services, whether this be through the purchase of inventory, the hiring of staff or financing infrastructure spending and productivity strategies.
These are just some of the scenarios that would indicate you need to start looking for investment. There are probably many other scenarios, which should give you the same message. If you are running a business, you will usually know when it needs investment, so don’t rely solely on these signs.
Raj Dhonota is a pre-seed investor, mentor and entrepreneur