If you want to pursue equity investors for your business, then you need to know what investors are seeking. Knowing investors’ wants will help you as a business owner tailor your investor pursuit which typically includes the following: the people you talk to, your “elevator pitch”, and the information you provide. Equity investment is a relationship business. Hence, the best way to initially engage equity investors is to either leverage your existing relationship with an investor or obtain a referral or an introduction from someone else.
If you do not personally know any equity investors or cannot think of anyone who could provide a referral or facilitate an introduction, then be prepared for rejection. However, do not get discouraged. Continue to refine your message and meet investors through networking opportunities.
Yes, A Connection is Best but…
It is not always a given that equity investors reject you when you there is no pre-existing relationship. While it is true that you have much higher credibility when introduced by someone whom the person or entity you are pursuing considers credible, you can leverage other ‘connections’. You can find investors who may be alumni of your school, who may belong to an organization you belong to, or who may have a strong affinity for your particular industry. Or, if your company has won awards especially for growth, creativity, or customer service, you can tout your awards to potential investors. Any kind of connection that will encourage someone to take a call from you or read an email is a connection that works.
Not Sure Where to Start?
If you still have no idea where to start, consider entering a business plan competition or attending (preferably participating in) an angel or venture capital conference or investor presentation series. You can meet people who may be able to help you. In addition, the exposure can definitely help you hone and refine your messaging. At the very least, exposure to other entities seeking investors will help you see the holes in what you are saying or doing, and how to correct those issues.
Investor Profile Sheet
Another way to pursue equity investors when you do not yet have entities or individuals who have expressed interest in your company, is to “shop the deal”. That means that you put out ‘feelers’ to generate interest in your company. For smaller companies seeking angel investors, the best way to do this is to create an Investor Profile Sheet, a one-page summary of the company that provides a snapshot of the company, its market, its competitive advantages, and its performance to date. Send this Investor Profile Sheet to everyone you know and ask them to forward it on to anyone they think would be interested in investing. If an investor is interested but does not believe your company is a good fit for him/her/it, then the investor will forward the Investor Profile Sheet to others who may think your firm is a worthwhile prospect.
Once an investor expresses initial interest, or as the first step if you are pursuing private equity or venture capital, send the Executive Summary. The Executive Summary should only be 3-5 pages in length and provide an overview of your company, market, management team, growth prospects, strategy, and plan. You should include basic historic and projected financials. You want to paint a positive picture. If there was a glaring issue in the past (such as a huge drop in revenue), mention it here and how you solved the problem. This will enhance you and your company’s credibility as you go forward. (Some business owners try to hide problems and only bring them up when the investor finds out. This creates suspicion and undermines credibility.)
Documents to Provide…Later
Once an investor expresses serious interest and has signed a Confidentiality Agreement (CA) or Non-Disclosure Agreement (NDA), or better yet, a Letter of Intent (LOI), then share the complete business plan. This includes full details on your market, your prospects, your goals, and your plan and methodology for achieving these goals. Finally, after all parties have signed an LOI or equivalent agreement, share all requested material with your now fully engaged prospective investor.