Pitching to an investor is not quite the same as TV’s Dragons’ Den, but there are lessons that can be learnt from the show. You have to be prepared if you want to make a success of your pitch and, if you are serious about obtaining capital, you need to put the work in to prove your idea is worth their time and money. Here are four things to consider before your pitch:
Ensure you can present a detailed business plan
You need to convince potential shareholders that your product will be profitable, that your aims are achievable, and that you’ll spend any money they invest responsibly. In your plan, consider how much capital you already have, how you will manage cash flow, potential risks from competitors, staffing needs and the business environment.
Prove you have a customer base
You should be able to prove there is considerable demand for your product/service by conducting market research. If you have a new product, one way to persuade investors is to get firm orders or letters of intent from customers in advance. If you can afford to, you could try selling a limited batch to prove there is a demand. Even if it’s a small number of sales, this will be more reassuring to potential investors than none at all.
Be realistic with forecasts
There’s a fine balance between exciting a potential investor and lacking credibility. The financial projections in your business plan must be realistic. Projections that are pie in the sky will be spotted immediately and discredit your attempts to secure finance. Ensure you have thought through the cost base of the business and its break-even level of sales. Also consider doing two sets of forecasts, a prudent scenario and a more optimistic scenario. Using scenarios will show investors what the business will look like under different assumptions.
Don’t ask for too much…
Overbidding can raise suspicions that you’ll be a potential liability as you are increasing the risk of the investors. You should consider investing more of your own money into the business first, as it may otherwise indicate a lack of faith or commitment. If you ask for too much, potential investors may also be afraid it’s a scam, or that you will spend their capital unwisely. Put time into figuring out exactly what you need before you even approach investors.
…but don’t ask for too little either
You may think you have a better chance of investment, but you risk not being able to deliver and your potential investors will be suspicious of this. If they do invest and your idea stalls because you don’t have enough funding, their initial investment may be lost unless they put more in – and they may not be willing to take this risk. What’s more, you risk ‘burning yourself out’ to meet impossible deadlines. Think of running your new business as a marathon rather than a race, and keep everything realistic.
Find out more
As part of Boost Business Lancashire, Lancashire LEAP delivers a series of boot camps for new businesses which includes marketing, management and finance. To apply for a place on the programme, complete our online form or call 0800 488 0057.
Rona McFall, Enterprise and Employment Manager, Regenerate Pennine Lancashire