Seed funding for startups is one of the first challenges entrepreneurs face. Fortunately, there are investors out there on the lookout for the next fruitful business venture. We have listed what makes a business venture attractive to investors and how to persuade them to get on board.
How Do You Attract Seed Investors?
Seed investors are attracted to startups if they like 1) your business idea, 2) your company, and 3) you. Let’s explore each of these factors.
Your Business Idea
One way to attract seed investors is to have a business idea with a compelling value proposition. Be prepared to answer tough questions as we put your business idea in the shark tank.
What makes your business idea unique?
Many entrepreneurs focus on what their business idea can and can’t do; they do not research what has been done already or hasn’t worked. Investors will pick up startups from industries they know well. You need to not only understand your industry but also what previous attempts have been made, how your idea fills the gaps of other ideas or adds a valuable tool nobody has created before.
Is there a real-world demand for it?
Another thing that investors would be looking for in your business idea is if it has real-world demand.
There are many ways to determine market demand for your business idea. Most investors would look for the Total Addressable Market (TAM).
TAM is the overall market demand for your business idea. It shows your profit potential if 100% of the market is obtained. Keep it realistic. Seasoned investors aren’t impressed by unrealistically high numbers.
Serviceable Addressable Market (SAM) is based on the number of qualified leads willing to pay for your product or service.
Serviceable Obtainable Market (SOM) showcases the market potential you can realistically capture in the short term.
What is its growth potential?
A unique business idea must have evidence of rapid growth in the future. If you can capture SOM at the established short-term, then the business idea shows potential to capture SAM and TAM.
Remember, seed investors put more priority on long-term prospects than quick paybacks. Set realistic expectations on quantifiable growth metrics. Then, work to exceed them.
Your Company
While your business idea may be exciting, investors want to know the company that would pioneer it. Here are a few questions investors typically ask:
- What is your company about? A clear goal and mission help investors know what kind of company they are considering investing in.
- Is this business legit? Legitimize your business with government registration, which will help you keep track of finances and avoid lawsuits.
- What are your financials? Prove how your business model can generate sustained revenue and reasonable operation costs.
- What are your goals and what is your roadmap to accomplishing them? Share your goals and demonstrate how your business plan can achieve the goals and revenue projection you’ve outlined.
- How will you reach target clients or customers? Present your platforms and marketing strategies to increase visibility and online presence.
You
Investors don’t generally invest only because of your business idea or your company, they also invest because they trust and believe in you and your capabilities to produce a significant return on investment. Don’t sell yourself short or give up control. Convince them you’re the right person to get the job done.
Crafting an Effective Pitch Deck: Capturing Investor Interest
A pitch deck is a presentation startups give to investors to raise investment funds. Your pitch deck components must present a problem and showcase your business idea as the solution among its competitors.
Engage investors with your business idea’s market demand and growth potential, then reel them in with your plan to harness it with your business model and growth strategies.
How to Get Angel Investors on Board
Angel investors are the investors to look for when the company is still building its case around a business idea. These investors are more willing to take on the risk in return for having an early piece of the pie that can grow over time. They have the expertise, leverage, and connections to help younger companies grow. However, angel investor relationships rely on the younger company to do most of the decision-making.
What Angel Investors Want to Hear: When pitching to angel investors, focus on the vast market and growth potential with market traction demonstration.
How to Get Venture Capitalists on Board
Entrepreneurs will need venture capitalists as investors if they want more significant investments, resources, and operational assistance.
Venture capitalists are professionals who represent a risk capital company. Risk capital companies use other people’s money to invest.
Since they’re a company, they can invest more but require further due diligence to examine your company thoroughly. They are also more involved in the decision-making within your business.
What Venture Capitalists Want to Hear: When pitching to venture capitalists, emphasize measurable growth metrics. The investment preferences of venture capitalists are more logical regarding growth potential. They will need in-depth information on your business model, plan, and potential risks.
Because they will be more involved with how you run your business, be prepared to walk away in venture capitalist selections if they don’t align with what you want.
Receive Investments: Building Investor Confidence
Investors don’t need you to paint a rose-colored vision to build trust. Answer the hard questions related to investor concerns. Whatever challenges and obstacles your company faces, increase investor confidence by being transparent about your business obstacles and how you plan to overcome them. Highlight your team’s expertise to show that the money they invest is in good hands.
If you’re looking for more investors, why not start with us? Our Equity MVP Program allows for early seed funding that you may be looking for.
