For entrepreneurs and small business owners, there’s no better time to secure funding for your startup. Thanks in part to Congress passing the JOBS (Jumpstart Our Business Startups) Act in 2012, many startups and investors are working together to achieve greater financial goals. As a result of the new legislation, startups can use a variety of methods, including crowdfunding, to find the right investors. But as private investors have a greater reach into the culture of startups, they have become increasingly careful.
Entrepreneurs and small business owners who are looking for startup capital need to understand what private investors look for. Cover these 5 basics and you may just watch the capital roll in.
1. Need and Value Proposition
All entrepreneurs and small business owners should be able to look at the market from the perspective of a consumer. Your product or service should address a need. If not, it’s unlikely to attract the attention of private investors.
2. Direction
In this case, we mean the direction your startup is heading. Are you gaining momentum and demonstrating growth? Too many businesses confuse growth with the bottom line. Are you building management team? Developing a brand personality? You need to be able to demonstrate to private investors that given your stage of evolution, you are headed in the right direction, and a direction that is well planned.
3. Private Investors Respect Team
You are a company developing a startup for the market. But does your team have the experience, skills, or expertise to succeed? Your team is just as important as your product or service. For startups, the personality of their brand and the professional potential of their goods and services is represented by the management team. Make sure yours is in good order before collecting larger investors.
4. Cash
One of the hardest parts of getting a startup off the the ground is attracting those initial investors. This is one way crowdfunding has changed the game. It does this by allowing cash infusions from smaller investors to attract larger investors. Your investors will want to understand your money management and cash flow. Make sure your management team or ancillary services includes business accounting and granular reports. What investor wants to bring cash to the table if they aren’t certain it will benefit the business?
5. Opportunity
Investors are going to want to understand your relationship to the market as a whole. Some of this might include the positioning of your competition. What is the possible market share you can capture? If the economic landscape doesn’t demonstrate room for your product or services, investors are likely to stay away. Your value proposition should include the need you fulfill. It should also include the potential market share you can own with an infusion of capital.
Find The Best Startups
Wondering what the innovators are up to? Studying the success stories of entrepreneurs in similar situations, like Michael Krasman of UrbanBound may help you chart your course. One thing is certain: there are startups succeeding every day in this economy. You can learn from what they do right, as well as the moves they regret. And it’s easy to find the latest innovative startups and learn what they are up to.
Check out our database of recent innovative startups to learn more about the best new companies.
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I am a live theatre producer with many successful productions over 35 years.
I have a new production of the smash hit movie JUNGLE BOOK. It is a global tour over the next 5 years.
The investment is $8 million with a breakeven of 38%
I look forward to hearing from you so I can send the full memorandum and budgets
All they are going to care about is the ROI for their money. Most of the time I wonder if investors even really care about the actual product.
You are right. And if there is any investor that is going to tell you that they are in the “game” for the businesses, they are lying to you. Just show them the money!
Cash. I guess that would be something important to an investor. If you cannot have cash on hand in your company than what does that say about it? Investors are only intersted in getting their cash back WITH more attached to it. If you do not have a stock pile, you will need to have an answer to why.
Cash money speaks a lot of languages to the investors out there. I agree with this list and also that it’s a great place to start if you think you are going to be asking for investments.
There are very good tips. I am going to share this on my LinkedIN page thank you.
I can understand why investors would respect “TEAM”, but does that mean you have to have one behind a good product to succeed with your crowdfunding campaign? I wouldn’t think it’s 100% important.
By opportunity do you mean the chance to get bought out by a larger company? I know that some startups seem to really push the envelope with their businesses with that hope might come down the path one day. Sometimes it does, while other times it may not.
Probably. I think investors are always looking for the quick cash. When a smaller startup gets bought out, that is usually pretty fast cash.
I would have assumed the same thing. Quick cash investments have to get the most attention!
Just like having direction, is there a lot of importance to having the cash to back up your business? I understand that having cash in your pocket is a good thing, but when you are a startup, cash is being spent left and right to get the thing going. Also, if I am going to be asking for investors, the amount of cash I have would be irrelevant, right?
I think so. If an investor sees that you have cash on hand, even when you are trying to get a business going, it might mean something to them. Its a good thing to start with cash then try and make cash out of thin air with a business that might now work out.
Is it 100% bad to not have a clear direction? Especially with these companies that go viral and really just come out of nowhere with one product. By the time they craze has wore off, they can barely figure out the next move.
Well, even the startups that get lucky, get some sort of direction right away.
I’ve seen Shart Tank. They all want to know who is making the money and where they are going with the company. If you are not 100% on those two things, the investors don’t even give you the time of day.
That is true. If you are not going to have your head on straight during that show, you can kiss your investor money goodbye.
Do you really need to find the attention of the investors just to get started? In some businesses, you can get started with very little and there is less of a need for big money just to get things going. I fear that with big money, the management suffers and the company might actually go nowhere.
It might not be a requirement, right? But it does help, otherwise the show Shark Tank would not be on the television.