You’ve got a great business idea that you feel will be the next Google, Apple, Amazon, or Walmart. Or you have a small business that you are eager to expand. Or you’ve been pouring heart and soul into your startup, but now you’re running out of resources to keep the doors open. You need to raise capital, now.
Unfortunately, for most entrepreneurs the world of outside investment is difficult to understand, much less navigate. For every company that is funded, thousands of startups never get the money they need—simply because they don’t know where to look for funding, or what funders are looking for in a business investment. How can you “crack the funding code” that will let you access the right investors and close the deals that will provide you with the capital your business requires?
Based on my thirty years’ experience connecting hundreds of entrepreneurs with the right funding sources and then guiding them through the deal-making process, I can say with confidence that the decision to invest in a startup is based less on the numbers and more on the entrepreneur. Investors must know you, like you, and trust you before they will fund you. And they are looking for what I call the three Cs in a business founder: character, confidence, and coachability.
Every time investors say yes to a deal they are taking a leap into the unknown, so they regard the founder’s character—which includes qualities like commitment, grit, and persistence—as critical. Character is often the only thing that will pull entrepreneurs through the stresses of their startup businesses. Even if your startup has enormous financial potential, unless investors don’t feel your character is trustworthy, they won’t invest. In assessing character, investors will ask questions like, Are you competent? How hard do you work? Do you tell the truth? Are you trustworthy? And will they be happy to introduce you to their networks?
Character is also critical because most investors plan to invest not just their capital but also their valuable time, expertise, connections, and guidance. So they need to feel that they will enjoy the relationship with you and your team.
Investors know that entrepreneurs need confidence in themselves, their ideas, and their teams, so they can make it through the challenges that inevitably show up. You must be able to demonstrate confidence in your ability to produce strong returns on their capital, and back up your confidence with facts and figures, not just dreams and unproven assumptions. However, you mustn’t appear overconfident or arrogant: Investors need to see that you are confident enough to accept the valuable coaching they are eager to give.
Many investors regard their contributions of knowledge and connections as equal to, if not more important than, their capital. So they want to work with entrepreneurs who are willing to listen and learn. Considering that more than 73 percent of startups end up having to pivot to a different product, market, or business model, the ability to take in quality feedback and make changes quickly are critical skills. Your receptivity to outside feedback indicates both your adaptability and your willingness to learn from mistakes and change whatever is needed to succeed.
Unfortunately, demonstrating character, confidence, and coachability is not enough to close the deal. To be in the 1 to 4 percent of startups that are actually funded, you also must avoid these deal-breakers:
- Being dishonest. Most investors will verify your claims before giving you their money, and misrepresenting any aspect of your business or yourself sows doubt in their minds. You must never fudge your numbers, hide information, exaggerate past business successes, fail to mention past failures, or hold back important data.
- Saying that you have no competition, or you only need 1 percent of market share. Being clear about your competition shows that you have done your research and are realistic about your startup’s potential. You must prove to your investors that you understand your customers, their needs, where they are, how you will find them, how long it takes to acquire them, and how much it will cost.
- Failing to meet your commitments. Right from the start, investors will evaluate how you respond to their requests and take it as an indication of your ability to run your business well. When you promise to get anything to an investor, do so in a timely manner. It’s an indication that you take their requests—and their assistance—seriously.
- Being desperate. Most startups don’t have a lot of money, but if you come across as desperate, investors may worry that they’re putting their money into a lost cause. Even if you’re down to your last dollar, you need to inspire their confidence in you and your business.
- Being defensive when investors ask questions. If you regard questions as attacks on you or your business and come across as defensive or evasive, you’re unlikely to get funded. Remember, investors want to help your company succeed, so approach their questions as opportunities for clarifying your systems and goals, or as suggestions that will help your business be better.
- Not being willing to listen to input. When speaking with investors, it may be tempting to interrupt their questions and deliver what you think they want to know without really understanding the issues they want to raise. However, this can send a message that you’re not open to input or feedback from them or anyone else—and failure to take input is a serious red flag.
Whether it’s a friend or family member, bank, nonprofit, angel investor, venture capital firm, family office, or a “crowd” you reach via a crowdfunding campaign, any investor needs to have confidence that you and your business are the best place to put their hard-earned capital. Prove to them that you are the right founder with the right business by demonstrating character, confidence and coachability.
Here’s to your funding success!
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