Editor’s note: This article was first published in March 2011, in the context of Spain’s financial crisis; its remarks on honesty being especially valued given recent events reflect that period.
We continue with the biggest problem an entrepreneur faces when trying to get a business idea off the ground: finding financing to develop the project. We’ve discussed before how a large part of the problem lies in the business plan, which may not be professional or detailed enough.
Now, you may have come up with the business of the century, but if you don’t know how to sell your idea so that it sounds attractive to that investor, you really have nothing. It works the same whether the investor you approach is an individual, a bank, an investment fund or a company that invests in projects. They all want to know the same thing. In fact, behind all the questions they’ll ask you, they only want the answer to one specific question: “How much will I earn, when will I get paid, and what risk am I taking by investing in this project?”
That’s why I like to combine the two subjects, entrepreneurs and investors, because I believe that to invest you need business knowledge and to start a business you need to know about investing. In the latter case, if you lack financial education, it would obviously be wise at least to get advice from a specialist.
Once you think like both an entrepreneur and an investor, you know in advance that when you look for financing for your business idea, there’s no guarantee that everything will go smoothly. You know it and the investor knows it. In that climate of mistrust is when you have to fall back on your sales skills, and the best strategy of all is… honesty.
What the investor really wants to hear, crazy as it may sound, is that you don’t know whether your business idea will succeed or not, but that you’ll work hard to make it happen. You’d expect those words to scare off the vast majority of investors, but in reality they show good sense, and there are still people who would rather invest in a sensible individual than in a “snake-oil salesman”. Letting the investor know that you’re also going to risk some of your own capital in the idea helps build trust.
The investor will want to know who is involved in the project, how many partners and investors there are, and of course each one’s track record. That’s why you need to surround yourself with the right partners. (How to choose a partner for your business.)
The investor will want to know when they’ll get their investment back, how you’ll pay them and how much they’ll have earned by the end of the agreed term. That’s why you should have done the numbers properly beforehand, to show that your business is viable and that its returns can cover the interest on the investment (if there is any). One way to give them confidence and involve them in your project is to give them a stake in your company’s shares.
If at some point you want to distribute shares among your investors, I don’t think I need to tell you to always keep at least 51% yourself.
I’m sure you’ll find 100,000 tips and techniques on how to sell your business idea to an investor, but believe me when I tell you that in the end people invest in the person, not the project, so you’ll have to convince investors that you’re someone worth investing in. You’re ambitious, honest, sincere and hard-working, and you can bring experience and knowledge in a field the investor doesn’t know. If that person sees those kinds of qualities, you’ll have won 70% of their trust. Your business plan presentation will do the rest.
Remind the investor that nobody can guarantee 100% that an idea will succeed.
Even so, always think about what you’d want to hear yourself as an investor before investing in a business that you know in advance carries a risk.
In short:
- Prepare your answers to the questions you know you’ll be asked.
- Prepare a professional and complete business plan, simple yet detailed.
- Be honest: these days, given everything we’ve seen, honesty is appreciated.
- Surround yourself with professionals and capable people to inspire confidence.
- Put yourself in the investor’s shoes. That will change your “pitch”.
And finally:
If after several meetings with investors you can’t manage to find financing for your business idea, never give up, because the most profitable companies around today were the ones nobody would bet a single euro on when they started.
Further reading
Featured image: U.S. Embassy and Consulates in Canada, Public domain, via Wikimedia Commons.
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