Finding investors

If bootstrapping is out of the question, or you simply don't want to take that risk with your own money, then it has to come from somewhere else. As I mentioned in chapter 2, most people start with the three Fs: family, friends and fools. These are people who believe in you, think you are onto something and want to see you have a go in a low financial risk environment.

This money could be in the form of a gift (if you're very lucky), a loan or maybe you'll grant them a share of your business in return for the money. At this stage it's purely a discussion on what percentage you're willing to offer in exchange for their money as the business isn't proven. It's really a gamble on both sides and should only involve money they can afford to lose if things go awry.

If family or friends are not an option, you could look for what's known as an ‘angel investor’. This is usually someone who has built a business previously, has had the experience of growing a business and exited, and is now keen to invest and help others for a measured return. This person may act independently or be part of an angel investing group or network. A key question to ask yourself at this stage is What type of person do you want? Do you want the person to be a silent investor who only contributes money — known as ‘dumb money’ — or do you want someone who can add real value to your business in terms of contacts, networks, technology or skills that can help fast-track your development? If the latter is the case, you need to spend time getting to know the person first, and ensure you're absolutely compatible and that the investor shares your passion. This is known as ‘smart money’.

Angel investor networks can be found on the internet or through your research, or you may have found a couple of key industry people you would like to target as early investors. Either way, you'll need to entice them to hear your presentation pitch. Maybe you can plan this through an introduction, which is the best way, so that you have time to present in detail. Sometimes it can be more strategic: you might ‘bump’ into them in the elevator where you have a couple of minutes to quickly engage, get their attention and hopefully score a chance to meet them later to discuss your opportunity in more detail. This is where the term ‘elevator pitch’ comes from. Professional online networks such as LinkedIn offer an easier, though less personal, way to connect — but you'll still need that elevator pitch!

Pitching your idea

Pitching or professionally presenting your business and its strategy is critical at all stages of the business — gaining investors, reporting to bankers, selling to customers, impressing suppliers to get favourable terms and a market advantage — so you need to get used to talking about yourself and the business in a professional and engaging way. Doing a short course in public speaking is a good idea if you haven't had that experience or if you're an introvert by nature.

So what's covered in a good investor presentation and how long should it go for? It has to be impactful — in fact, hard hitting enough to smack you between the eyes in a ‘no brainer’ kind of way — and you should prepare a 10- and a 20-minute version. A good graphic designer with a marketing brain is always helpful for creating the necessary impact. To be taken seriously, the presentation must look professional and credible because a potential investor will be using this to gauge your ability to run a well-crafted, fast-growth business.

The content for an investor presentation deck needs to include the following:

• What the problem is you're solving and why the timing is right. Present it as a day-to-day frustration that people can easily relate to in their own lives.
• Market opportunity. The size of the market globally/regionally in dollars and the percentage of that market you're targeting with your product.
• An introduction to your product and brand. Explain to potential stakeholders clearly what makes your product different from anything else on the market, identifying competitors and the advantage you have over them.
• Whether you're disrupting or re-inventing a market. Explain clearly how you are changing the industry model and the sustainable advantage this will give you over your competitors.
• Intellectual property protection. Do you have a trademark or patent over your brand, invention/technology or methodology? Is it in process or secured? Also be aware that coders of websites or software and designers have automatic copyright of their work so you need to ensure that the person coding or designing has ‘assigned’ or transferred their ownership of the copyright to you. If they don't, it can be problematic down the track as you expand. (You can read more about this in chapter 13.)
• What your go-to-market plan is. How are you going to reach your market and communicate your marketing plan to create demand and enquiries? What is your sales strategy (how will you convert enquiries to sales)? What operational/management experience does your team have to successfully manage and deliver your product or service to the market, obtain feedback and continually improve your offering to maintain your point of difference and stay ahead of the market?
• Your growth, revenue and profit forecasts for the first three years. When will you break even (stop any cash burn)?
• Your investment needs. What is your ask? How much money do you need, how will it be used and what percentage of the company are you willing to give in return? What was the basis for your current valuation of the business? The investor will fundamentally want to know how you are going to use their money to add value to the business and provide them with a significant return on their funds in return for the risk they are taking.
• Investor support. What involvement or support are you looking for from the investors to enable the business plan beyond the funding (remember smart money vs dumb money)?
• Your exit plan. How are you going to get out of the business and realise the value you have created for yourself and any investors? Who would buy it and how would you target them for a future sale?

You must demonstrate excitement and passion for your business and know the numbers inside out so that potential investors come away convinced of your plan.

Remember, the more you can prove a business model in the marketplace before raising capital, the lower the risk for the investor and the less equity (percentage of ownership) you will need to give away in return for the investment.

The ‘pre-seed’ money is what you use to get your business ready for a significant commercial trial to prove your business model. This also graduates you into stage 2 of the process, which is the scale-up phase. To run a significant commercial trial and successfully commercialise your business will, in most cases, take a serious amount of additional money and time. This round of fundraising is generally known as the ‘seed round’, and again the amount required varies significantly from business to business and depending on the speed at which you're growing, but in general can range from AUD$500 000 to $5 million.