One of the most exciting, and most frightening time for a team that is launching a startup is when it is time to pitch your products or services to potential investors. In fact, it is a bit like presenting your baby to the outside world and hoping everybody loves it as much as you. When you work to attract investors to your startup, you actually have several things to accomplish. The first, and most obvious is obtaining the funds you need to get your company to the next stage. However, in addition to this, you also want to get the best terms possible, and maintain as much control over your business as you possibly can. In order to accomplish these goals, you have to convince potential funding sources that you are capable of running a business that is successful enough that they will make a profit from their investment. Fortunately, if you have great product or service, the skills required to run a successful business, and a solid plan for attracting investors, you have a great chance at succeeding.
Show Proof of Market Traction
Market traction is your ability to convert customers, and grow quickly. For investors, proof of market traction indicates to them that they will be able to get returns on their investment relatively quickly. If they do not find evidence that your startup has traction, they aren’t going to invest.There are many ways you can prove traction. For example, you can provide investors with information about the success you have had with test releases and selling your product at trade shows. However, the best way to prove market traction is to simply tell the story of your product or service in the right way. For example, if you tell a potential investor that you have sold 50k units in 5 years, that may not seem like very much to them (depending on your product). On the other hand, if you tell them that you did your first manufacturing run and sold 15k units in the first two years, spent a year in redesign, launched again, and have sold 35k units in two years, that tells an entirely different story. The first is slow growth. The second is demonstrable growth and proof of traction.
Prepare a Well-Written Value Proposition
Your value proposition is a written statement that clearly defines what it is that you do, who will benefit from your product or service, and why they would select your business over other businesses in your niche. You begin this process by clearly outlining the problem that you are solving, as well as why that is a problem. However, you cannot simply show that there is a problem. You have to show that the problem is worth building a business solving. This means showing that the problem is widespread, or that has deep impact on those it does affect. Finally, you will need to show that your solution is in some way better than solutions that are currently being provided. Not only is a well-written value proposition impressive to potential investors, writing one will help you to solidify your vision as well.
Put Together a Dream Team
Since your company is only at the beginning of its destiny, there isn’t a lot of proof that you can give that truly guarantee you have a hit on your hands. This is why many early stage investors focus on the skills and talents of the team you have, almost as much as they do your products and services. When you make your pitch, be sure you can show investors that you have put together a team that can become successful. You can do this by talking about each team member’s skills and how those benefit the company. If you have had past successes working as a team, you should bring that up as well. Investors want to see a deep and varied skill set, that every member has a role and is making contributions, and they want to see proof of cohesiveness..
If you don’t think your best way to get funds together is through traditional sources like VC, you might consider starting a crowdfunding campaign. Crowdfunding is a way to earn small amounts of money from a large number of people. This can be a great option if you lack proof of market traction, or are still in the incubator stage. However, if you choose to go this route, it is important to understand that there is much more to do than simply creating a crowdfunding page and then telling your story. You’ll need to determine how you are going to demonstrate your product or service, who the targets of your campaign will be, and create a plan for launching and promoting your campaign. You’ll also have to shoot and edit video and determine what it is you will offer those who fund your startup. You will also have the challenge of selecting your crowdfunding platform.
When crowdfunding does work, the results can be absolutely amazing. One startup, Chilango, a Mexican burrito restaurant successfully raised 2.1M Euros in order to launch their fresh, Mexican cuisine based operation.
Create Barriers to Entry
If investors believe that anybody can jump into your space and replicate what you are doing, they aren’t going to be compelled to invest in you. This is why it is so important to create barriers to entry. Barriers to entry are essentially roadblocks that you put up to make it difficult for others to become your competitors.You can create barriers to entry by setting up exclusive deals with vendors and retailers, getting patents on your technology, creating proprietary technology, truly being the first in your space and growing quickly, developing strong branding, or earning strong customer loyalty. Every barrier to entry that you can create makes it less attractive for potential competitors to come up against you. If you create enough barriers to entry, you can make it nearly impossible for them to do so.
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