People often approach to me as a business and startup lawyer with plans or ideas for launching a new company and seek for my assistance in acquiring finance. This is because they understand that outstanding ideas that do not have the necessary financial support seldom see the light of day. Unfortunately, convincing an investor to support your company concept may be difficult, and the initial meeting will decide whether you receive the funding or not. Nonetheless, preparing for your first investor meeting might set you up for success and make it simpler for the investor to support your company idea.
Table of Contents
Here are four important tips to consider while preparing for your first investor meeting:
Strengthen your Business Plan
A partly completed business plan informs investors that your strategy is only partially completed. Often, an investor’s initial impression is formed by the company plan. A badly written or insufficient business plan can turn off potential investors since it raises more questions than it answers. Make a good first impression with a well-thought-out and comprehensive business plan or investor package. This is particularly critical for pre-revenue businesses who don’t have any real data to provide.
Run the Numbers
Others investors are more knowledgeable than others, and some are specialists in certain areas of business. Prepare to explain your figures while creating a pro forma for your organisation. Your investor, for example, might have worked in the insurance sector or have specific understanding in business insurance. So, if you assign $10,000.00 to company insurance and the investor is aware that this amount is incorrect, the investor is likely to conclude that all of your statistics are also incorrect.
The simplest approach to avoid this is to offer the calculations or quotations underlying your pro forma statistics, or to be prepared to explain them sufficiently.
While revenue predictions sometimes include a significant bit of guesswork, it is nevertheless vital to run predicted revenue statistics, if only to determine what revenue is required to break even and how much profit you would earn at various revenue levels.
Know what you’re asking for.
The key to obtaining the desired investment is to understand what you want from the investors and what you are willing to give up. When discussing prospective investment with my startup clients, it is not uncommon for them to have asking prices for their enterprises that are higher than the market. This is common; most company owners and entrepreneurs believe in their companies, and this strong confidence leads to the owners overvaluing their holdings.
It is critical to consult with experts in the subject. Not only accountants and attorneys, but also other businesspeople in your industry. You can obtain a solid notion of what is a reasonable offering price and what asking price may offend or drive away investors.
Understand When to Walk Away
One of the most common errors I’ve seen entrepreneurs make is failing to recognise when it’s time to walk away from a possible transaction. It’s important to realise that not every trade is a good match. This error is especially common with customers who are establishing their first company or who are afraid of losing out on a business trend if they do not move soon.
After exchanging many offers or letters of intent for an investment, the arrangement may morph into something altogether different. This is often caused by the fact that when the agreement is filled out, unexpected complications develop, causing the investor to revise or restructure their offering. When an investor senses a company owner’s eagerness to close a transaction, he or she may simply decide to shift the goalposts or ask for more. For example, the investor may raise his or her equity ask, impose a board seat demand, or impose other corporate governance restrictions that give them undue influence over the organisation.
This is referred to as “boiling the frog.” If the investor had wanted everything from the start, you would have most likely severed ways after the first meeting. However, if they gradually raise the temperature throughout the discussion and add new conditions over the course of multiple sessions, you may wind up “being cooked” and walking away with an investment contract that you never wanted in the first place.
Simply said, if it’s a terrible offer, don’t accept it, and the simplest approach to avoid taking a bad deal is to have alternative deals waiting in the wings. There’s nothing wrong with speaking with many investors at the same time — this isn’t a monogamous romance, it’s a commercial transaction. They are most certainly analysing many investments, just as you are evaluating other investment sources. Concentrating on a single investor or investment group may lead to tunnel vision, causing company owners to leave money or stock on the table.
The Bottom Line
These four recommendations can assist you in preparing a successful presentation. While the investor may only listen to your presentation for a few minutes, having a well-thought-out business plan, being armed with solid numbers, and knowing what you want and when to walk away will make your pitch more effective and make it that much easier for the investor to say, “Where do I sign?”