Figuring out how to raise money to grow your business is not easy.
The key complaint of most investors in this market is that there aren’t enough investment-ready deals for them to invest in. Many are scouring the market to find new opportunities, but find entrepreneurs are coming to them unprepared and without the fundamentals to be investment-ready.
How many of you have approached an investor before you were ready? Normally, your first impression with an investor is your last impression!
This is a checklist of business essentials originally created by Harvard Business School (and modified by Sinapis) that some of the best investors in the world use to evaluate whether to invest in new business opportunities. It’s a comprehensive look at the potential of your business!
Even if you are not looking for investment, these are the key drivers of business success, so you want to also look to see how strong you are in each of these areas and what you need to work on.
The team is more important than the idea, especially to investors and even more so in the early stages. Many sophisticated investors would rather back a rockstar entrepreneur with a mediocre idea than a mediocre entrepreneur with an amazing idea.
“When management with a reputation for brilliance tackles an industry with a reputation for poor fundamentals, it is usually the reputation of the industry that remains intact.” - Warren Buffett
Warren Buffett is saying that even amazing management teams usually can’t overcome the consequences associated with being in a bad industry that just presents fundamental problems for businesses operating in the industry. Usually a great management team that tries to compete in a terrible industry will fail and lose their reputation for brilliant management. There are positive benefits from just being in certain industries where the fundamentals of that industry are more conducive to success.
This means: what does the investor get out of investing in you? Would an investment in your company represent a significant potential for financial return for an investor? Is there a clearly defined exit strategy for the investor? Is there any collateral provided for this investment? An entrepreneur must think through a number of questions that an investor would want to know in order to meet their consumer needs. Remember, they're evaluating this investment in terms of ROI to them and their company, not just because they like you and want you to succeed.
As you do your due diligence on your investor, keep in mind that some investors may also be motivated by social returns. If you company has spiritual or community impact goals, and metrics to prove impact, they may be motivated to consider that into their deal structure.
Systems are those areas in your business where an investor can really know how important operating well is to you. Strong systems give investors confidence that they can trust that they will have a greater opportunity for a return on their investment. Investors don't expect everything to be perfect, but they do expect you to have awareness for what's not working well, why, and what you're doing to address the challenges.
Questions to ask yourself: Have you set clear milestones for your business with a timeline attached to them? Do you have a clear organizational structure that lays out reporting structure and responsibilities? Are there clear and written boundaries for activities that are off limits for strategic or ethical reasons? Have you outlined the company’s beliefs, values and vision?
Now that you have looked through the full requirements, how ready are you for investment?
Ask yourself: How sure you are that you’re pursuing a good business opportunity? Where are you strong? Where are you weak? Did you realize that there were so many things you needed to understand to have a healthy business and be investment ready? If you went to an investor today, do you think you would get a yes?
If you would like to become investor ready in 2022, then join the Sinapis Entrepreneur Academy where you can spend 16 weeks solving each one of these questions for your business with a community of peers and expert trainers ready to work through this process with you.
You will be stronger as a leader. Your vision for the future of your business will be clearer. Your employees will be stronger. You will be ready to pitch to investors that are right for your business.