How do you get your company in front of the right investors to land an investment, especially in a world gone virtual? In reality, it is often a balance between solid business fundamentals, strong planning and a healthy dose of savvy. So here are a few tips to help strike this balance on your own investor engagement and fundraising journey.
Investors want to invest in businesses, not products, so to get noticed, establish strong business fundamentals before engaging in the fundraising process, including:
- Understanding financial basics such as revenue growth and sales velocity
- Knowing the drivers of your gross margin to show a grasp of product input costs and trade spend dynamics
- Reviewing your burn rate and how much capital is available for use, (cash flow) on a weekly basis, which is an essential discipline
- Having sound supply, production, distribution and operational techniques and being able to articulate these processes when asked
To gain investor interest and get discussions moving toward the investment stage, try to see the world through their eyes and be ready to explain the value your company will bring to them. This should be clear not only in conveying numbers on which your pro forma is built, but in the key story and assumptions that underpin it, as well. A critical component of this story is of course product, so be sure to clearly differentiate yours from others on the market and explain how that difference translates to investor return.
To connect to investors, conduct research into how they look for investments and find ways for your brand to be more discoverable, especially online and in social media. Join virtual conferences, meetings and presentations in lieu of travel, and leverage chat features on virtual meeting platforms for quick, non-invasive introductions.
Ready to raise capital? Take into account company stage and size to properly set expectations. Pro formas and cash flow statements are both core to determining how much capital is needed to raise, keeping in mind that the company will go through several fundraising stages. Later-stage raises provide opportunities to set valuation, but more often, potential investors will negotiate the valuation amount, depending on the funding vehicle being discussed. SAFEs and convertible notes used in early rounds can defer the valuation process, while a ‘priced round’ trades equity for a cash infusion. It is important to understand these different vehicles, and what their use means to your company and current and future investors.
It can take a long time to find interested investors and negotiate terms, so patience and planning are necessities. During (and after) this process, keep investors current on important updates as part of the relationship building process. Like with any other relationship, find common ground. Listen, respond, be open to feedback and ask questions.
A primary objective for investors is to mitigate risk, so they are always looking for ways to say “No.” Your job is to turn every “No” into a “Yes” to keep conversations moving forward. Being well prepared, knowing business fundamentals, and building a strong relationship all preserve momentum toward that ultimate “Yes”. Remember, not every ‘No’ is final. While an investor may not be ready right now, get feedback on what they would need in order to invest, and reach out when these objectives are accomplished.
It takes perseverance and a lot of positivity to successfully navigate the fundraising process. Months of effort can lead only to getting turned down (sometimes multiple times) before getting the ‘Yes’ that propels you to the next level. Every interaction with an investor brings knowledge and a greater understanding of what to improve on, which is an invaluable outcome of the process!
Tom Malengo is a founder at Brandjectory. He can be reached at tmalengo@litchfieldfund.com or 216-780-3752. Visit brandjectorynow.com for more information.
