Some entrepreneurs seeking venture capital may think that their business idea is enough all by itself to attract investors, like it's a no brainer and will pay off within a year. While your enthusiasm for your idea is vital, this line of thinking is dangerous. Venture capital may be essential for funding your company, so never assume your idea is all you need. You also need a plan and a team.
Here are three key things that are crucial for attracting investors.
It's like a rule of thumb: if there is no team to back it up, the idea ain't worth much. Putting it bluntly, investors favor teams over individual entrepreneurs. A strong, talented team means a startup can generate more revenue and garner more investment. Why? Because the team wants to make it work for their own sakes and the owner/entrepreneur will lose much more than sweat if it goes down the drain. So, more team members is better for attracting investors and venture capital. In addition, when you sit down with investors to convince them to get involved, the team members can contribute their knowledge and energy. That team carries more weight and persuasive power than you on your own. Stack it with smart and capable people. Investors will notice when a team is bristling with energy, drive and commitment.
So, remember it well: team works well when looking for venture capital.
Venture capital investors will look for an idea that is scalable, able to grow, and could make more money than predicted. Having a small lifestyle idea with little potential to grow, progress, and be made better... nope, not attractive to investors. Even a bigger idea is not enough by itself; it must have potential to expand. Opening a restaurant is an idea, for sure, although that idea is still not necessarily complete. It will merely give you a steady income. A "one and done" concept is of no interest to investors who want to see major return. If you are serious about venture capital, present it as one restaurant that marks the beginning of a chain. Show that your innovation will progress.
To convince investors to get involved in your idea, you need to show a plan about how it will work. This is not the same as the "acorn idea" above. If we continue with the restaurant example, offering the first restaurant as the beginning of a chain is not the plan. It is the idea. The plan is separate and needs to be worked up as a long-term strategic asset that will help both you and your investors. Venture capital means putting money on the line, so the investors need to see where your idea is going and how it will get there. Your plan must show strategy, direction, and the skills and value of your team. It's not necessarily a long-term commitment that is set in stone. Show two aspects to the plan: (1) what you currently have and achieved so far and (2) future goals and proposals of how to reach them. This way you show the solid work you have already done leading the team alongside the plan to make the idea grow.
After working on these tips, take a shot with the first investor that comes to you. We can’t guarantee a venture capital firm will cash you up, but with these three things in place, they should take you more seriously. If they don’t buy in, don’t be discouraged. Ask them why, learn, improve, and be better prepared to impress the next one!
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