If your business is interested in growing, it’s likely that at some point or another, you will want to seek out financing from investors. Investor financing works a bit differently from debt financing. Instead of paying the investor back over time, you give them a stake in your company. How big of a stake they receive depends on your negotiations.
When you approach an investor, you pitch your company to them, including your products and services and what makes your business unique. During your pitch and any other interactions you have with investors, there are a few things you want to avoid doing.
1. Not Being Honest and Upfront
When you talk to investors about your company, it’s very likely that they are going to have some questions for you. It might also be the case that you won’t have all the answers to their questions or that you might be unsure how to respond to particular questions. If that happens, remember that honesty is the best policy. Don’t feel that you need to come up with an answer or that you have something that you need to hide from your investors. If you foresee any challenges or difficulties on the road ahead, your best option is to bring them up and confront them head-on with the investor, rather than to try to pretend that they don’t exist.
2. Ignoring the Relationship Aspect
Working with investors isn’t a one-and-done project. When you decide to take financing from investors, you are inviting them to become part of your company. Depending on how big of a stake they have in your business, they might have a considerable say over how your company runs. For that reason, it’s essential that you consider the relationship aspect of your interactions with any investors.
Investors aren’t just human-sized ATMs. They are people and the odds are likely that they are people who have a fair amount of knowledge and experience and who might be willing to share some of that knowledge with you. Taking a holistic approach when choosing and seeking out investors can help you develop a long-lasting relationship and help you move your business to the next phase of growth.
3. Being Unrealistic
You want your company to succeed and an investor who decides to invest in it also wants it to succeed. But there is a fine line between hoping for success and being unrealistically optimistic. If you aren’t sure of your numbers or if you assume that everything will work out for the best, even if there are plenty of signs to suggest otherwise, an investor might be less willing to work with you.
It’s a good idea to set goals and have targets that you want to reach. It’s also a good idea to make your goals SMART ones so that you can track them and reach them and show investors what you plan on doing to help your company grow.
4. Acting Like Your Company Is the Only One of Its Kind
While you do want to have a unique selling point and an idea of what makes your business different from the rest, you don’t want to act if your company has invented the wheel or that it is the only one doing what it does. If you act as your business has no competition, that is often a red flag to investors that you haven’t fully researched your new product or idea yet and don’t know what is out there.
A similar thing to avoid doing is asking an investor to sign a non-disclosure agreement before they have agreed to invest in your company. It’s unlikely that an investor will agree to sign and it might make your business look as if it has trust issues, which can make an investor question whether they want to work with you in the long run or not.
5. Taking a “Wait and See” Approach
You don’t want to bother an investor, but you also don’t want to lose contact with them when you are trying to get them to fund your business. Taking the time to follow up with an investor sends the message that you are interested in building a relationship with them and that you are hoping things will go forward.
New Direction Capital understands the importance of building relationships when you are trying to finance your business. We can work with you to help figure out the best sources of capital for your company and to help you connect with the right investors. Hire your virtual CFO today.