5 Keys to Raising Capital for Your New Business Idea
Learning how to raise capital for your business idea is often difficult for many otherwise very capable would be entrepreneurs. Raising finance, be it from a bank, a venture capital firm or a business angel, has a lot to do with being able to sell your business idea, and less about how good that idea actually is. The best business idea can get nowhere if you cannot convince your prospective investors of its potential as an investment and your ability as a business owner of making it a success. You should keep the following key points in mind when trying to raise capital for your new business idea.
Prepare a business plan
Writing a business plan is often a lot of work and distracts you from doing what you want to do, which is running your business. But you won't get any funding without a solid written business plan. Telling an investor or your bank contact that they should give you money because you had a great idea is just not going to cut it. A business plan will explain exactly what you plan on doing with that money, why you need it and real numbers proving your business idea potential. Among other things, you'll need to be able to prove that you know your audience and the size of the market you plan on targeting, your marketing plans, your expected cashflow for the first few years and how will you deal with risks such as another competitor entering the market. If you are unsure about how to write a good business plan you can also hire a consultant to help you prepare it, but make sure you know exactly what's in it, since the consultant won't be with you when talking to the potential investors.
Practice your pitch
Looking for investment is like selling your business idea to somebody who knows a lot about what makes a good, profitable business. While a good business plan is the basis for your pitch, you will still need to deliver it the right way. It's worth investigating your potential investors, and adapting your pitch to that information. For example, a bank is often conservative and would be more interested in you showcasing how your business idea is a safe bet and has a solid base, without extravagant expenses or high risk taking. However, an investor with an existing portfolio of cutting edge technological business may be more interested in listening to how your business is highly innovative and will use the money to create the next big thing online. Do not go into any meeting with your investors without researching all you can about them and their style, since they will have no doubt researched you to see if you, as a person and a businessman, are likely to succeed.
Plan for threats and weaknesses
Remember when at job interviews people asked you to name your weak points? Your investors are going to do exactly the same about your business idea. While it's clear that you wouldn't be asking for investment if you didn't believe your business idea has a high potential for success, you should also be aware of what things could make it fail, and be able to plan for it. Do not say "Nothing can go wrong, I have everything covered" because at best you'll get a reality check from the investors about the many things you had not considered, before politely being shown the door. Being secure of yourself is great, but realism is highly appreciated in business.
Know your USP
What makes your business idea unique, and so makes people choose you over anybody else to buy from? Your unique selling point, or USP, will be key to your marketing strategy since it's the reason why people will buy from you. A generic business with no unique selling point is not likely to make venture investors interested, because if anybody can do it, it's probably not going to be very profitable. Investors want a high return on investment, and that means that your business should grow and not just be good enough for you to make a living. On the other hand, a bank may be less demanding with your uniqueness, as long as you are using a proven business model on a niche that has room for new players, but a bank knows that they'll get their payment through your loan interest so they are satisfied with you just breaking even and paying your loan.
Show that you the right person to lead your business
This is another challenging issue when trying to get finance, and a question that few investors will ask you directly so you need to show it by your actions and your sales pitch. Some people are great at having ideas, but are very bad at making those ideas into a real business and managing the day to day of said business. As a business owner, you'll need many skills that aren't directly related to your business core idea. Even if you are technically the best developer in the world, and the person who can best implement your idea, you may not be the right person to actually manage it and many investors will notice that unfavorably. Make sure you come across as a savvy businessperson, and not just a great inventor or a proficient salesman.