Raising Investment: Expectations vs. Reality
Starting a new company… or expanding an existing one has its challenges, but the biggest one of all is raising the money you need. In most cases, it isn’t that people don’t want to invest. It’s more a case of not knowing enough about a project, to make a decision.
Here are some of the expectations that business owners may have when raising investment and how reality can be surprisingly different.
Seeking Substantial Investment Too Early
Although you will be excited by your new product or venture and may have put a lot of time and effort into its development, you need to gauge when the right time will be to ask for funding.
It can be easy to get caught up in the project and not be objective enough to see that it may need more work before you can sell the idea. Investors are often cautious as they are using their money to help you. So you need to convince them that it will be worth it.
Try to put yourself in their place and see if you would invest in the project as it is. If this is hard to do, then consider enlisting the help of a business friend or partner. Pitch the idea to them and see what their thoughts are.
If you still need funding to continue but don’t think a major investor will come on board, then you may need to start with your own money or ask friends and family to invest first.
Thinking That Your Idea is Perfect
Learning to accept help can be tough. It can often be perceived as criticism, especially if the idea is something you have worked hard to develop. Although there are some ideas that start out in a good place and need only minimal alteration, many will need tweaking and flexibility to succeed.
Investors are not just there to give you money, they also want to help you make your project a success. They will be as keen as you are to make a profit. But they will also have experience in business and have the contacts that can make your idea a reality.
While you want to be true to your original idea, it is sensible to stay flexible so you can get the best chance of finding the investment you require.
Expecting a Positive Result Overnight
Seeking investment takes time. You should expect at least six months if not more, before you get the funding you need. Most investors will rightly want to see all the details of your idea or product and scrutinize them before coming to a decision.
Good investors will also have a number of people all pitching their ideas to them, so you may be in a queue. This shouldn’t put you off, even though it may still end up leading to a ‘no.’ The process will be a good experience for you.
Every encounter with an investor can be a positive thing, regardless of their decision. These types of people are often accomplished and know many other investors. Even though your idea might not be what they are looking for, they may know someone with a keen interest in your product niche.
Expecting Friends and Family Investors to be Lenient
Sometimes, there is no alternative but to seek support from your friends or family. Your idea or product may need further work to attract outside investment and those closest to you will often have the advantage of seeing the whole process. This together, with their close ties to you will often encourage them to invest.
However, these same reasons can also lead to complacency. As you might think that they will be happy to let you use the money, without being concerned about the outcome. It is vital that you treat their investment as you would any other. Ensure that you are keeping them up to date with your progress and show them where their money is going.
While they may not expect a return as soon as the product starts selling, you should consider giving them a return on their money as soon as you can.
Believing that Crowdfunding is an Easier Option
Many inventors and new startups think that ‘crowdfunding’ is the best way to get investment. Although there are sometimes news reports of new products that have become a success out of crowdfunding, these are by no means a common occurrence.
You still need to convince the people looking at your crowdfunding page, that their money will be invested wisely. Don’t try to raise more than you absolutely need to continue. Even then, some never reach the threshold they require.
With the right preparation and an objective point of view, you can sell your idea effectively and get the investment that you need.
By Dan Wheatley, Co-Founder
CEO/Co-Founder of Straight Talk Consulting, a business consultancy that gets our hands dirty. We work with organisations to achieve product market fit before transitioning into scalable and repeatable growth