“How to approach the investors?“. Here are five things to you must do before approaching investors for any amount of money
Clean up your credit: Even if your business doesn’t have any credit history, at times your personal credit history can play a pivotal role in decision making of the investors. Hence, you should know your own credit history, because lenders and investors are going to take a close look at it. Get credit reports from the major credit-reporting agencies and keep a close track of your credit history. Investors might be less concerned with your credit score than lenders, but they’ll be wary of entrepreneurs with major blemishes such as a bankruptcy or loan default on their record.
Have your Team in Place: The big question for nearly every financial backer is: Can you do this? They’ll want to know that you and your co-founders or management team can execute the ambitious business plan you’ve presented and pay back your loan or generate a return for investors. They would want to have a gut feeling they can trust you and your team. Make sure you and your key people can talk about what may be ahead for the business, what the later phases of growth might be, what can go wrong, and how you might handle those things.
Business Plan:Writing a business plan is easy. Writing one in sufficient detail for investors can be tricky. Entrepreneurs often leave out key numbers and are overly optimistic with those they provide. For starters, know your burn rate, which measures how much money a not-yet-profitable business is spending each month, and break-even point. Also calculate a realistic growth rate and how your costs will scale up as your sales do. A good plan will also cover who your customers are, how you will get them to buy your product, and your cost of customer acquisition.
Understand what kind of Investors you are looking for: Entrepreneurs should do a lot of research before deciding what kind of outside money they need and who to approach for it. Match your business strategy and financial needs to the right backers. If you won’t have strong cash flow — necessary for debt payments — for quite a while, then a bank loan is out. Venture Capital investors rely entirely on capital gains to make their money, so if you absolutely don’t want to sell your business, then VC shouldn’t be an option. Pre-qualify backers the same way you do potential clients, by learning how they do business and what their criteria are.
Have an Investor Wishlist in place: Draw up a list of ideal investors. Accepting financial assistance means taking on a new relationship, one you’re likely to have for a long time, be it with a bank or investor or a different relationship with your friends and family. Sometimes the relationships go on for some time before any money changes hands. Try to work on this list to find out who you actually want to build the relation with.