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September 17, 2012 Know How

How To Pitch To Private Investors

Are you looking for someone to invest in your business and inject it with needed capital?

Finding a private investor and presenting your business plan to him or her can be trying. The internet is a good place to search for angel investor groups and venture capital firms. Once you have created a list of potential investors, be sure you focus on these four important points — all of which should be well defined in your business plan ahead of time: your market, market strategy, business value proposition and the knowledge and experience of the management team.

Your approach to potential investors should include a brief, one-to-four-page summary accompanied by a cover letter. Having a PowerPoint presentation can add value. Better yet, if you can arrange a personal introduction through an attorney, business advisor, CPA or any person who interacts with the private investment market, it will speed up the process for you.

When there is interest, the investor may request a meeting or ask for a full business plan. Then they may request additional backup material or a formal meeting. Private investors have ample deal flow, so the real task is to attract attention: not everyone who approaches an investor obtains funding. (To see how this can work, watch the ABC-TV series “Shark Tank” on Friday nights.)

The Approach

Once you have an invitation to meet, it's imperative that you make every effort to look professional and not use pie-in-the sky or vague statements, such as: “Do I have a deal for you!” “We are going to make a lot of money!”, or “My financial projects are very conservative.” Private investors are very knowledgeable about investing and don't want to be approached with a sales song and dance.

Never ask directly for an investment in your business until you're in the negotiating stages. It's paramount that the business enterprise you represent be worthy of a potential investor's consideration. Be specific about any hurdles the business anticipates, with a strong answer about how you would address them. It's important that the potential investors understand the terms of the investment. Is the transaction going to be an equity investment, a lending structure or a combination of the two?

Private investors are looking for high returns. It's not uncommon for an investor to want to see annual returns in the 20-to-40-percent range. They also require knowledgeable and experienced management teams that exude confidence. Savvy investors invest in people, not businesses. No one has ever obtained capital if the investor did not have high confidence in the management team's ability to achieve corporate goals.

The Mission: Get Them Hooked

It's essential that the presenter articulate the vision of the company and why it will achieve its stated objectives. The presenter's mission is to generate interest to the point where an investor wants to continue reviewing the investment opportunity. A lack of interest is surely a bad sign.

So remember: You never get a second chance to make a first impression.

Neil C. Gould, a Holden resident, is a veteran business consultant and founder of The Business Resource Library (www.businessresourcelibrary.com)

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