Raising funds or investments is a critical process in the growth of startups and small businesses, enabling them to grow rapidly. However, gaining access to funds needs more than just a great idea; it demands a solid business plan, projections, and a strategy aligned with what investors look for in a business.
We are experiencing a massive jump in funds raised by startups in the past 2 years, with many unicorns being minted in India. According to a Statistica report, startup funding increased over three-fold from 2020 to 2021. With many businesses seeking funds in the Indian market, it is essential that business owners know how to get their venture investment ready.
Understanding Investment Readiness
Investment readiness involves all aspects of getting a business ready to seek funds from various sources such as angel investors, venture capitalists, or even crowdfunding platforms. There is a prescribed series of steps and actions that showcase what a business can do to highlight its growth potential and future roadmap to potential investors.
Here are some of the most essential components of getting a business investment ready:
1. Clear business plan
Whether your business is brand-new, or whether you have been running your business for a while, you need a business plan that covers your vision, mission, values, target market, growth strategies, and financial roadmap for the coming 3-5 years.
Think like an investor! What would they consider a good value proposition? What would be attractive for somebody to stay invested in your business? Make sure your business plan not only communicates your business goals but also your understanding of the market and economic fluctuations that could happen during the time period.
2. Strong Value Proposition
Your business should offer a strong value proposition for your customers as well as investors. From the customers’ point of view, what need are you trying to fulfill? How well do you understand your customers and competitors? What is unique in your product or offering compared to your competitors?
Interestingly, your investors would also find value in your understanding of the target market and their requirements. A strong value proposition for your customers is also a strong value proposition for your investors. It shows the attractiveness and growth prospects of your business. In addition, your commitment to the business is a very compelling value proposition for investors.
3. Market Analysis and Validation
Hunches and intuitions are good when it comes to understanding your customers, but not when you are seeking investments. Investors need solid evidence that you understand your target market, industry trends, and competitor strategies.
If you are creating a product, can you create an MVP (minimum viable product) and test it in a small audience group to see if it provides value? If you are offering a service, can you get a small target group to use it, and get feedback before you target the entire audience universe?
These are a few market analysis and validation methods you can use to prove to your investors that your business is attractive and well-received by your target audience.
4. Scalability and Growth Potential
This is especially important for companies that have been operating for a few years. Investors are not interested in companies that want to go on forever at the same size and scale that they have been doing. They want growth, and most of the time, rapid growth.
Your business plan should include details on how you plan to grow your business in the coming 2-3 years, how you plan to utilize the funds you receive to grow your audience base, enter new markets, or create diversified offerings.
5. Strong Team for Execution
Your employees are your greatest strength, especially those who have stayed with you for enough time to understand your business well. Most investors would be willing to give extra incentives to retain these star performers.
This also means that your team members should be aware of the fact that you are looking for investors, especially if the investor would have a majority stake and control in your company.
Get your employees to understand how they would benefit from the extra money that would come in, and how that would change their career trajectory. Having a skilled and dedicated team on your side is crucial to attracting the right investors and pulling off a smooth deal.
6. Financial Data and Projections
Your financial data will be analyzed and scrutinized very closely during the investment process. It is imperative that you have real-time financial data of your past performance, and also projections for your future performance.
Startups should be able to present realistic revenue forecasts, cost structures, and a clear roadmap of what they plan to do with the funds coming in. Demonstrating robust SOPs and processes along with proof of effective financial management can give immense confidence to potential investors.
7. Legal and Regulatory Compliance
Compliance is not easy. Whether you are just starting your business, or you have been running a successful business, you cannot your eyes off the legal and regulatory compliance that a business must follow. Along with filing your returns and procuring the required licenses, you also have to be ahead of intellectual property protection, patents, legal contracts, and so on.
Establishing that your business is 100% compliant is not a bonus, but a mandatory requirement when you seek investments. We at Finavi CFO have developed an easy-to-use, proprietary tool called COMPLY to help organizations stay ahead of all government-mandated compliances.
8. Setting Ambitious Milestones
Goals or short-term milestones should be a part of the business plan and vision that you present to potential investors. Proof that you have already set milestones and achieved them in the past, is a great way to show your credibility and grasp on the business.
Whether it is acquiring X number of customers within a certain period, achieving revenue targets, reaching product development milestones, or launching new offerings, tangible milestone-based progress speaks volumes to investors, about your drive and commitment.
How to attract the right investors
Partnering with the right investors is not just about the financial support, but a shared vision, values, and the drive to see your business succeed. As a business owner, you might already know that the biggest bid might not always be the best one.
You will need to work with the investor over a reasonably long time frame. So, you are looking for a partner and mentor who can guide your business, along with being an investor. Here are a few preparations you can do to find the right investor:
Create a Compelling Story
Your narrative of why and how you started your business, along with where you envision your business in the future should resonate with investors. Numbers are important, but your story is more important since that encapsulates the problem you are trying to solve, and how passionate you are about solving that problem.
Attend Networking Events and Conferences
It’s important to participate in events, conferences, and industry-specific gatherings where you can meet potential investors. You can spread the word that you are looking for investors, while you also enjoy these opportunities to showcase your business, build a network of founders from other startups, and gain new customers.
Seek Guidance and Mentorship
Engaging with founders who have already gone through the process of fundraising, mentors who are from your industry, or joining startup incubators and accelerators can provide valuable guidance during this stage. These mentors will have extensive experience and also the right expertise to help you define processes, and formulate strategies that work for you and the potential investor.
Learn and adapt
At this stage, your business should be agile and open to feedback. If you need to make modifications to your structure to facilitate smoother transactions like splitting or joining business units, closing certain areas of business, or redefining your audience, you should be able to do it quickly, and efficiently.
Do not be inflexible in thoughts, strategies, ideologies, or business plans – be ready to embrace the better and more efficient ones immediately.
Do not sacrifice your greater vision and purpose for short-term gains. Choosing the investor that gives you the best valuation or the most funds might be beneficial in the short term. But an investor who understands you and your industry, and somebody you can connect with is crucial for long-term sustainability.
Also keep in mind the environment, societal impact, and human factors while growing your business. You owe it to the environment and society to keep its welfare in mind.
Being investment-ready demands rigorous preparation, planning, and effective communication of your value, growth potential, and team capabilities. If you need help with finding the right investors for your business, reach out to Finavi CFO today.