How to Raise Capital from Investors

Why do you need money

The first thing a potential investor will ask you is why you need money. The same rule applies here as in any other sales. Know your customer and their problems. Tell the investor how their money will be spent and what result it will bring. I think it would help if you did not say that you need it to develop the business. You need to be more specific; you need money for the R&D department, marketing, distribution. 

It will show that you have been managing the business for a while and do not confuse the budget with a henhouse. This is an indicator of the professionalism of the company’s financial management and strategic planning of development. 

Preparation of the use of funds statement, as an explanatory note, is an important moment in fundraising. List where and how each dollar will go in detail. It would be better to add that the money will go for growth, innovation, and strong position capture in a particular market. Send a general unprepared statement like this to your mother – and you will hear some sweet mother’s words as a response.

Find out what type of funding you need

There are several types of funding for a business. Debt, Equity, and Convertible. Some believe that a business can be sold 51 times, but in reality, 5–7 times is enough. By the way, if you are still not sure what to look for and how to get funding, you can read a more detailed analysis in the article How to obtain a business loan. 

Debt. The usual business loan, simple as that. Pay back the money with interest. For the investor, this is the safest way, as he does not lose his money, provided that you do not go bankrupt. On the other hand, the business owner must take on the risk of borrowing and return all the money and interest to the investor. The money can come from banks, private investors. 

Equity. This is when you sell the company (equity) or part of it. The investor gives money and expects the company to grow in return. You do not have to return the money, but the investor becomes an equal participant in the development of the business. 

Convertible. This is the best option for both the business and the investor. Convertible notes are a loan that changes the status of the lender to an investor. He does not lose his money and can wait and see the development of the business and when he receives a percentage of the company for free. There are various options here, some depend on the amount of debt repayment, others on the duration of the loan. This is one of the safest ways to lend to a company, as the investor is insured in two different directions. 

Decide which type of funding suits you best, your business development stage and the associated risks. Prepare a plan of action in which the path of money will be the best and least painful for both sides.

A business plan

The foundation, core, the very basis. A well-thought-out, very well-written business plan, I am not joking, is a big part of the future funding. This is your plan of action, a play that you will show to your investor. He will look at it and come to the conclusion that he likes you and your actions or not. 

Show him a very big benefit, how you will develop and by what means you will make money, show your position in the market, show your superpowers and what this business is like. The entire future of your business is already being formed in this document. 

Listed are the main, must-have points in the business plan: 

Executive summary. The very summary of your business, in just a few words, what you do and why. 

Market. Research your business environment, competitors, customers, and their location and needs. 

Offer. Product or service. You are looking for a way to show that your product is the most important. 

Financial section. The place where you are just a little, with analytics, forecasts, and cold money. Try not to be too exaggerated here; it will be visible through you. Build a financial model of your business and show it to an investor. 

Add anything else that may seem important to you. If there is a large chance that this business plan can be used in the future for different actions, make it more complete and professional.

Financial model

Numbers do not lie – show your investor how your business will make a million and will not end in the red. It would help if you were prepared for this moment; do not be lazy to build a good financial model. We created an article in detail on this subject. 

Financial planning is analytics, cash flow, how you will make money and how much. This section should, like many others in the business plan, be very visual and illustrative. Show numbers and just run your fingers through the numbers of profit and income. 

Show past, current, and future financial indicators. It would be great if you had time to calculate the average numbers of the first year of the business; there is no excuse that the business was just built. That’s it, with this model, you can show an investor just one or two analytical points.

The investor does not want to crunch numbers and meditate for hours. He comes to you so that you, in turn, show him the light at the end of the financial tunnel in which he will have to travel to reach the top.

A value proposition

Every investor is faced with several hundred proposals a year, the same goes for your one. You have about a tenth of a second to catch his attention. This time, he will remember a short text about what you are selling and whether he is interested in it. 

The value proposition is formulated, as already mentioned in the first step, the problem with its solution. Next, place the value for which you are going to sell, and the position where you are in the market and your benefits in this position. The more concrete you are, the better you show that you have not only a project and a business plan but that you have already put the financial model into practice. Show that you are unique, have a strong position, and offer value.

Suitable investors

An investor for whom your business is just one of several hundred a year is the best choice for you. He is not familiar with your project, nor is he interested in it, so it will be difficult to catch his attention. It is better to start with those investors or angels with whom you have an interlocutor. Experienced, those who do not have to ask a lot of questions, and money can already be transferred. 

There are a lot of different investors, large and small, there is no uniform system in this business. Angels for you are probably the best solution at the moment. Professional investors, who have big money, can start looking for large businesses or at the initial stage invest in five at a time. If you are lucky, then among your friends, you can find someone who will be interested in business. 

Find investors by using social networks, search for a conference where you can meet them face to face. There are also good angel networks, where you can find a like-minded person for business. There are many paths and places where you can find investors. The main thing is that you started moving.

Pitch deck

Pitch deck or Pitch deck. They are also your play, your little game that you play with your investor. The investor already had time to look at your business plan; a pitch deck is a set of slides to show at a meeting or in an interview. 

A deck is designed to show a business, growth strategy, financials, and other important information to a potential investor. It is necessary to compose it clearly, so that the investor can read it in five minutes and knows the main thing. That’s it, with this deck, you can show an investor just one or two analytical points. 

The investor does not want to crunch numbers and meditate for hours. He comes to you so that you, in turn, show him the light at the end of the financial tunnel in which he will have to travel to reach the top. 

Do not get hung up on this, 15 slides is enough; try to be as concrete as possible with each slide, with information and messages that you want to convey. It is better to have too little than too much text, this one reduces concentration and interest. 

In the deck you should be able to show investor, as already mentioned in 1: 

• Vision and mission.  
• Problem and Solution.  
• Market.  
• Your superpower that you offer, with analytics.  
• Financial section  
• Traction  
• Pitch deck rules and principles. 

Pitch deck demonstration

Pitch decks are great, but you need to show them to an investor. In our time, it is not even necessary to do a live pitch; a large number of platforms are designed specifically for this. The investor simply views the deck, views the business plan, and if he likes it, he calls you for a conversation.

Investors in business, as a rule, are already working people. What to do so that an investor calls you, what to say in a video call, how to get that check at the end of the meeting. 

• Rule No. 1. Do not be lazy, prepare. Make a list of standard questions, and get answers for an investor in advance. Practice, practice, and practice again in front of a mirror with friends, in order to bring to a perfect pitch. If everything is done right, in 99% of cases, you will get money for your business. Everything is very simple and is reduced to an interest in the project, professionalism, and, of course, money. 
• Rule No. 2. Tell your story, engage the investor and interest him in what you are doing. But for that, just run your fingers through the numbers of profit and income. 
• Rule No. 3. Talk not to bore but to be interesting. Listen to the investor, ask questions in return, be interlocutors, and play an interesting game with the investor. An investor loves to see a person with whom he can work in the future and not one who simply wants to throw a business card and disappear from his life forever. 

The deck should be short so that the investor can quickly get all the main information. Ideally, at the end of the video call, you can almost give money and put a check in your hands. Before the call, do all the necessary preparations; a free deck on video shows an investor.

In conclusion

All of the above is the very first stage of work that a business goes through before receiving funding. Each step is important in itself and a big time cost, but the future of the business depends on this, whether there will be funding or not. 

You just need to work hard and put your soul into it, because what you will not put in, will not come out. Try not to be lazy, create and think through everything to the smallest detail, so that there are no questions on the part of an investor, this will help you get to the future stage much faster. 

Let everything turn out for the best, and the investor does not wait for you with one hand behind his back, but on the contrary, all his money in front of your face and a commission.