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Let’s assume for the moment that you are seeking some sort of traditional venture capital investment. It can be quite intimidating if this is your first time in front of a professional investor. To help you prepare for the experience, Evolution Accelerator compiled a list of the top three most frequent questions we hear from entrepreneurs.
Should I ask an investor to sign an NDA before discussing my idea?
The short answer: not if they are a professional accredited investor. If they do investing on a regular basis and you ask them to sign an NDA, all you’ve done is show them that you don’t know the business.
No reputable investor or money manager would ever put their reputation on the line to steal your idea. They may listen to 100 ideas a month, many of which are great concepts. You need to remember that reputable professional investors are looking for business opportunities and have zero desire to take anything from you.
It is really difficult for professional investors to find good investments. This basic fact can be difficult for the entrepreneur to understand. From the entrepreneur’s perspective, there is a shortage of cash and capital is scarce. This perception is simply not true. Capital has been plentiful for many years; it just needs a place to go. It’s your job to make the investor understand that your business venture is that place. Generally speaking, you will not make your case by asking a professional investor to sign an NDA as they most likely won’t do it.
How do I prepare for an investor meeting?
Do your homework first and know your investor. Investors usually like to invest in a “line,” a category of related businesses. When you send them your deck, the investor will immediately ask themselves if your business could become one point in that line. If the answer is no, you’ve wasted their time and yours. Do not ask an investor who specializes in biotech startups if they’d like to put money into the development of your fruit-picking machine.
Once you have found an investor who seems interested in your business, you’ll need to develop a relationship with that person. It may take some time to do so. When they finally have a clear picture of you and what you propose to accomplish, that’s when they will be ready to write you a check.
If you know that you have an incomplete story, Evolution Accelerator recommends that you are cautious about asking for an investment. Instead, ask the investor if they perceive any holes in your plan. If you know that your plan doesn’t have the right team or doesn’t have a good story on how to return investor capital, ask the investor for advice on fixing those holes. Asking for help is okay!
Often times when you are presenting in-person to an investor, you might not make it all the way through your entire deck. If you know or are aware of your investor’s interests, it is okay to front-load an allusion to that interest in your pitch deck. Grab their attention. You want to put the most important stuff first.
Why shouldn’t I raise more money than I need?
You need $100,000 investment and are willing to give up 10% equity. Your investor offers you $500,000, for 40% equity. Should you take it?
Early on, your company isn’t worth as much as it will be. If $100,000 is all you need to get started and take you to the next level, then you have the opportunity to raise an additional round of capital, if needed, at a higher valuation later.
Instead, raise the $400,000 after meeting your initial milestones. Because you took the original investment of $100,000 and made your business more valuable, you now have a little more negotiating room. Also, you may come to regret signing away a huge chunk of equity early on, especially if your business grows rapidly.
Remember, investors are people just like you and me. They have areas of interest they are passionate about, a family, and a desire to give back to their community. Because you are building a long-term relationship together, finding the right investor for your startup is important. Don’t be too quick to jump on the first money offered if the investor isn’t aligned with your personal goals and your company’s mission.
Need more advice on how to approach investors? Visit Evolution Accelerator or leave Marsha Rogers a comment down below!
This article originally published on GREY Journal.