Funding is perhaps the most important aspect of many startups. You can have all the ideas possible but if you do not have the capital to develop those ideas into a marketable product or service, your business will not get off the ground. Funding is especially important if your business will require a brick and mortar location, equipment and materials, employees, and capital equipment and other tools that inevitably require a significant amount of money. For these reasons, it is essential for every new business owner to consider how to make themselves as attractive to investors as possible to maximize funding.
There are generally two types of funding available to companies. The traditional model is debt financing. Simply stated, the company gets a loan, typically from a bank, which is secured with collateral and is paid back with interest. The newer model, common in Silicon Valley, is equity financing. Simply stated, the company gets an investment, typically from an incubator, accelerator, angel investor, or a venture capital or private equity firm, in return for stock in the company, the value of which can vary immensely over time depending on how well the company does.
This blog focuses on equity financings. When pursuing such an investment, typically your startup will have to convince investors to take a risk on your idea and your potential. The following are only some ways you can make yourself more attractive to the right investors.
Go Big! Investors are looking for jackpots. They are generally not interested in the safer, more limited opportunities. If for example, the company is looking for $2-3 million in investment and has a very good chance to reach a $10 million valuation, that is not as appealing to an investor when compared to a riskier $2-3 million investment in a company that can reach a $1 billion valuation.
Build Your Team. Most startups have great ideas and their founders are passionate about them. To investors, that is virtually a given. To make your idea a reality, it takes the right team of passionate people. Typically, there will be different people on the team with different strengths, e.g. technical, finance, business development, etc. If these people are not “locked” into the company, i.e. they are contractors, that could be a problem. If there are questions about the team, that could certainly be a red flag to any sophisticated investor.
Be Prepared With The Right Presentation – The investor presentation is typically done with a power point slide deck. However, most founders use the same presentation that they would for potential customers. The typical slide deck will highlight the start-up’s product or service and go into technical details spotlighting the competitive advantages that the startup is trying to exploit. While that is great for closing new business, that should not be the focus of an investor presentation. A presentation that is geared toward the investors is what would set your startup apart from all of the others that will be pitching the investors. Creating an investor-focused presentation is key.
Consult with Experienced Silicon Valley Corporate Attorneys
Any business owner can benefit from the advice of seasoned and professional corporate attorneys who are well-versed in all aspects of helping startups attract investors. The team at Startup Company Counsel can help you with matters from presenting to the right investors to documenting the investment and even helping with any post-financing issues or disputes that may arise. Please contact us to learn more about our services today.