The least answered question when preparing for investment
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SETsquared Bristol
Kevin Simmons, Entrepreneur in Residence at SETsquared Bristol, reflects on the best way to improve the odds of getting investment for your tech business.
“No matter how ‘investor ready’ you may be, if the investor is not ‘ready’ for you, then your business will not secure the investment it desires.”
“How do I make my business investor ready?”
This is undeniably one of the most frequently asked questions in the world of startups and tech investing. Tragically, it is also the question that is answered the least.
This is because there is no exact answer to this question since ‘investor ready’ is not an actual thing and is not the goal any founder pursues. No matter how ‘investor ready’ you may be, if the investor is not ‘ready’ for you, then your business will not secure the investment it desires.
The greatest hits album of tips
In the last decade or two, a veritable cottage industry of advisers, practitioners and experts, coaches, writers and researchers have sprung up and written millions of words and failed to effectively answer this impossible question. A quick scan of the hundreds and thousands of articles and blog posts about ‘investor readiness’ will reveal a greatest hits album of tips that could generally reduce your chances of getting investment if you did not do them.
Quick tips such as:
- Develop a rock-solid business plan
- Master the elevator pitch
- Be ready to walk away
- Use a CRM to manage investor relationships
- Network with potential investors
- Provide clear financial projections and success metrics
- Know where to find investors
Yet, few of the tips on these greatest hits lists directly improve your chances of securing investment.
Even when the advice is expanded further, founders are usually instructed to behave in various ‘investor friendly’ ways – to know specific things; to think in a certain way, or to adopt various approaches. Real examples of this are:
a. Know your numbers – One of the most important aspects of becoming “investor ready” is knowing your numbers. This means describing your revenue model, giving profit predictions from market research, and outlining how your business will spend its investments.
b. Think like an investor: One way to feel more confident as you approach investors is to create a list of their potential objections or questions. In doing so, you can prepare quality responses and investors may find your readiness impressive.
c. Adopt the right approach: The right investor can catapult your business to success. With the right approach, you can stand out from the pack and connect with the right people.
Even ChatGPT fails to answer the question and advises that investor readiness is a combination of clear financial projections and KPIs, legal compliance, strong and diverse teams, and well-articulated market, customer, and revenue models.
“Securing investment for your startup requires careful preparation, strategic planning, and relationship-building. By understanding where to find investors, making your business attractive to them, and ensuring investor readiness, you can increase your chances of success on the path to entrepreneurial growth.”
What matters most to getting investment
“Instead of thinking “is my business investor ready?”, the correct question to ask is ‘how investible is my business?’”
The hard but truthful answer to that most asked question is this:
It does not matter how much you know your numbers, or how prepared your answers are, or how much you connect with investors; what matters most to getting investment is that your business itself is a really compelling investment opportunity. Instead of thinking “is my business investor ready?”, the correct question to ask is “how investible is my business?”
The simple fact is that investors are trying to invest in the best business opportunities they can find. As you build your business, make certain that you are doing everything that creates a really investible business opportunity. Make sure that you are addressing the most painful problem that a very large group of customers have. Make sure that you are solving this problem in the most innovative way and in a manner that makes it easier to grow than it is to stay at the same size. Make sure that you are solving it in the most cost-efficient way possible and that you create more ‘real value’ than what everyone around assumes is possible for that solution. By focusing on these key areas and demonstrating that your startup has a strong foundation, significant growth potential, and a compelling investment opportunity, you can increase your chances of attracting investor interest, and securing the funding you need.
Marc Andreesen says it most clearly (he knows a thing or two about investing in tech businesses!). He says, “You’re almost always better off making your business better than your pitch better.”
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