In today’s fast-pacing business world, just having a smart idea for a tech business isn’t enough to get investment. Investors track down multiple pitches a week, sometimes a day, meaning that you need to make it difficult for them not to invest in your idea.
Contrary to many inexperienced beliefs, a millionaire isn’t just going to walk past your open garage entrance and offer you the money you need to get big next week.
What’s to be done, then? You have to put you and your startup out there, and get networking within your industry, connect with other business owners and get yourself invited to multiple business networking events. Here’s our guide on how to hit the investment criteria.
Know Your Market, and Take Note
On your way to success, you will need to get your ideas clear and organized. First, you have to write down all the connections and contacts that you’ve already received with investors that might be useful for your small tech business.
There are thousands of venture capitalists ready to invest out there, yet you just need to contact a steady 30-50 of them to be in with the likelihood of getting financial support. When looking at where to go, always follow the advice you gain along the way, namely that the best investors come with a recommendation.
And since you want your investors to come with a solid recommendation, which is way better for you to come wrapped in good words – you need to take advantage of all the connections you’ve picked over the years.
- Work – consider all the people you’ve collaborated and worked with over your career.
- Social – your social media platforms and real-life peers and friends can be invaluable when it comes to investment.
Look for those in the investment companies or communities who know people who do and build up a list of these people so you can systematically approach them. Bring together multiple strategies and approaches depending on your connection with them and see if someone in your extensive circles can connect with useful individuals. It’s never a bad idea to ask people to help you.
What Qualities Should Your Startup Possess?
Solving a Strong Customer Pain
Are you solving a real problem? Because investors will know when a worthy startup funding solves some sort of problem in the world. Ask yourself the following:
How did you discover the issue?
How big is the issue, and how much pain does it cause?
How many people are affected by this problem?
When you can explain what issue your startup solves and prove that it affects a lot of people, you’ll be demonstrating your idea’s potential for success. That’s no longer a business secret. A business solution that could have a strong positive effect on someone’s life has a great chance of ensuring your clients part with their hard-earned income. Simply put, the likelihood to purchase your service/ product should be high.
It’s pretty clear that not every idea can be as successful as Airbnb, Uber, or Facebook, however, it needs to at least have the potential to do so. Emulating existing models, also known as “me too,” brands can make money but do not usually make a great investment option. Top investors will always look back to new, innovative concepts that alter the way we live for the better.
Your service or product, of course, also needs to be able to do “what it says on the label.” Bold unsupported claims are usually brought to the light with due diligence.
Much like interviewers checking CVs, investors are known to review hundreds of startup plans and pitches every year so that details that don’t really look right immediately become obvious. Instead, you could over-deliver, and under-promise and your investor will always be content.
As a matter of fact, most innovative brands look to secure at least 1%-5% of any particular market over a period of 5 years. When calculating your market size, it’s vital to sort out your TAM, not only the overall market. That’s because if you’re retailing widgets in Europe but there are potential clients in Japan, will you convincingly be able to sell your product in Japan? If so. How much will exactly cost you to create brand awareness in those foreign countries? That said, it’s often smarter to focus on a market that’s close to home.
Didn’t find competitors yet? Well, there’s a chance that your concept is not very good. As you know, some competition is good because it means:
1. Someone else believes what you’re doing is a great idea.
2. Their marketing efforts will help you increase awareness in the market, which should benefit your sales lie.
Unless your concept is a completely smart innovation that is truly disruptive, old markets are typically not attractive because it’s challenging for a startup to compete with huge executives.
Sustained Competitive Advantage
Often referred to as “unfair advantage” – you will need to offer your investors the “why.” The reason why they should be supporting your startup over anyone else. What will make you stand out in the current market? Looking into the future, will you still be above your competitors? Oftentimes a source of competitive advantage in year one rapidly fades away, and you risk ending up trying to compete on a price, for example, which is labelled a “race to the bottom” for a reason.
Bear this in mind – in the modern world of tech startups, “first-mover advantage” is no longer referred to as a supplier of competitive advantage, and in fact, a “fast-follower” position has oftentimes proven superior, so it’s best to try to focus your efforts on something else. Also, try to imagine your investors as more than just providers of capital – they become your partners in the business. Accepting their support is the start of a relationship, so make sure you choose wisely.