Corresponding with Investors
Off and Running..
You have signed up a BBB accredited funding network, created a profile and made the final edits on your business plan. You are finally ready to post your funding request, upload your business plan and start contacting investors. You wait for a period of time, and you get some solid responses to your postings and your inquiries.
You see a first name and a last name initial, and one person has a company listed in their description response. The other two responses don’t mention a company, just a first and last name, and only one of the two potential investors has a telephone number. What now?
What Next After I Get Some Responses?
First, you have to look at what types of funding providers and investors generally belong to an accredited funding network. The idea of being part of an investor’s network is appealing to most investors and funding providers because it creates an organized approach for finding many great start-up companies and funding requests without having to sift through hundreds of telephone calls and written funding requests that may not suit their interests. Some funding network members enjoy a degree of anonymity, while some want to promote their company when they do find the right investment seeking matches.
Some investors may ask for your business plan, or they may ask that it be posted online or sent to their email address. Some investors may not want anything sent to their email address until they get a chance to further evaluate what you are trying to accomplish.
To NDA or Not to NDA, That is the Question
Start-ups and other business ventures that require funding will sometimes wonder: What if the investors steal my idea? Yes, this can be a legitimate concern. However, to appreciate the full picture of communicating with investors you need to know that 99% of those on a trusted funding network are out to make money by looking at many, many deals and would rather benefit from your idea by investing and not by stealing. Some investors don’t mind signing non-disclosure agreements ( NDAs), while some do, and some have their own NDAs that they may provide.
Who are These Investors?
A trusted funding network that is accredited usually pre-qualifies investors and funding providers with telephone interviews and/or by checking out websites, but that would be the extent of the prequalification process. The process is designed to not exclude the small individual investor that may have $20,000 to invest in a good business idea and to not limit larger individuals or groups that prefer a degree of anonymity. Usually the initial prescreening process weeds out most of the scammers trying to pose as investors. Ultimately, practicing due diligence is up to you prior to releasing any information other than your business plan and your telephone number and prior to paying fees.
Funding providers typically found on a trusted and accredited funding network include Angel Investors, Venture Capital, Individual Investors, Investing Groups, Institutions, Foundations, Micro Lenders, Banks, Brokers (nominal prepaid fee) and Brokers (paid at closing).
How Do I Know if an Investor is Legitimate?
Typical red flags indicating an investor may not be legitimate include not having a track record of successful deals and representing themselves as having been in business for a period of time though you can’t find information on their company through the state or country of their office of origin. Another red flag is an investor that wants an upfront fee prior to financing. However, there are successful brokers that have a proven track record that do require a nominal fee.
It’s a good practice to have an experienced attorney do some research on potential investors prior to accepting any funds. It works the other way too. Investors should never release funds without investigating business investments. If you find an individual wealthy investor, you may want to travel to meet him or her as you establish your correspondence. It is not uncommon in larger deals that are $1million or more for investors to require a nominal fee be placed in escrow while they pay to conduct some due diligence of their own, appraisals etc. The criteria for return of the funds should be spelled out.
Preparation is Important
When you decide to move forward with an investor or funding provider it is always good to clearly have your terms defined prior to your postings and before contacting them. In that way, if an investor starts negotiating any additional terms, you are ready to defend your position and stand your ground. It is important to be patient and not to rush. Let the investor make the next move.
More detailed information and useful advice can be found at http://www.funded.com or the Funded Blog at http://www.funded.com/blog.
In The Eyes of an Angel Investor
One of the best ways to prepare for a search for startup funding by angel investors is to pretend you are one. Investors have money they are willing to put into new enterprises, but they also want to minimize their risk as much as possible even with the understanding there is always a certain higher risk associated with a new business. If you consider what you would require if you were investing personal funds, the element of risk becomes much clearer and you can hone in on what information you need to assemble to prove your venture is a good investment.
The truth is that funding requests in the form of business plans submitted to any type of investor, whether for venture capital or to equity partners or to angel investors, should focus on answering questions before they are even asked. So it only makes sense to ask yourself the questions first as if you are investing your own funds.
It can be difficult to look at a new business with an objective eye when you are excited about a new idea, and it’s your business under the microscope. Looking at the proposal from the angel investor’s viewpoint can help you keep your proposal targeted on the ultimate goal which is new funding.
Question: Am I It?
In the eyes (and mind) of an angel investor approached about a potential investment, your new business is untested. The initial questions that will arise include:
- What other potential sources of business funding is available to the new enterprise?
- Could the startup business find funding through more traditional sources like business loans?
- How long has the entrepreneur been looking for funding and is there any interest in the project by other investors?
- Is it possible that several angel investments could be pooled to establish business funding while spreading the risk?
- Is the entrepreneur asking for funding able to prove that he/she is a legitimate requestor with a solid business plan and not simply an “idea” person who has trouble following through?
These types of questions are just the beginning of a detailed analyzation process. Angel investors considering startup funding will want comprehensive information about projected income and expenses, marketing, project team members, business organization, a SWOT analysis, management, legal matters, future capital needs and more.
Question: Is Break Even in the Picture Anytime Soon?
One of the reasons some entrepreneurs are unable to attract any type of investment including venture capital, equity partners or angel investors is because they have not looked past the initial startup. Lack of capital is one of the main reasons small businesses fail according to the Small Business Administration. In the excitement of bringing a new business idea to the marketplace, the details are overlooked like when will the business break even?
Question: Do You Have Answers Prepared
Pretend you are the investor as you prepare your business plan including the financial section. What would you expect to get answers to before approving any investments or business loans? If your business plan doesn’t answer those questions about your venture then angel investors are going to see the proposal as too risky before it even gets off the ground.
More detailed information and useful advice can be found at http://www.funded.com . Created by Mark Favre, it offers expertise and assistance with developing and funding your concept, including a private forum for queries and discussions. If you need to access a vast network of business people, entrepreneurs, partners and service providers to help you start, finance and run your business, check out http://www.funded.com.
Attracting Equity Partners for Strategic Success
Two of the main reasons an entrepreneur or business may want to attract equity partners for business funding are: 1) to fund a particular project, or 2) to fund general business operations for the purpose of advancing the goals established in the strategic plan. It is critical that you precisely define your reason for needing additional investment dollars to insure that you target the investors most likely to fund your financial needs.
When you talk about funding a particular project, the word “project” takes on a broad meaning. A new project can include introducing a new product line to the marketplace or buying another company that sells products or services that will enhance your current company market position. A new project can also include expanding sales into foreign markets or expanding production. Also qualifying as a new project would be the acquisition of equipment that will strengthen the company’s ability to meet customer demand.
On the other hand, equity partners may also agree to fund company operations based on a long-term strategic plan. Instead of a finite project, the investors may agree to provide startup funding for a new business that is equivalent to venture capital. Unlike most venture capital and business loans though, the equity partners will take part ownership of the company and participate in the management of the business.
Minority or Majority Ownership
What makes equity partners different from other types of investors like angel investors or venture capital is that the institutional or private equity investors will require a share in the ownership of the business (thus the use of the term ‘equity’). When the equity partners invest in a project, they will remain business owners usually up to the point the project is completed and the expected returns have been earned. In these types of funding arrangements, the equity partners are often willing to take a minority ownership share.
When the equity partners offer business funding for general strategic operations, the requirements often include taking a majority share in the company. This makes sense if you consider that the equity investors are putting cash into the company with the expectation operational expansion or revisions will lead to higher profits in the future. The longer term nature of this type of funding naturally means the equity partners will want to control operating activity.
In the final analysis, it is clear that there are equity partners willing to consider almost any type of business financial need including startup funding. One of the steps a business should always take when preparing a request for funding is to consider the various investment alternatives including business loans or angel investors that can fund the type of activities whether they are project based or based on strategic operations. If searching for equity partners is the best option, the business plan will be written to make it as attractive as possible to that particular type of potential investors.
Learn more at http://www.funded.com. Created by Mark Favre, it offers expertise and assistance with developing and funding your concept, including a private forum for queries and discussions. If you need to access a vast network of business people, entrepreneurs, partners and service providers to help you start, finance and run your business, check out http://www.funded.com.