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3 things you need to know when asking for financial backing

Photo: Shark Tank/ Facebook.

Very few truly successful startups can pride themselves on being self-funded. But most startup business models require some outside capital to start with. That’s because as a startup, you usually to want conquer the world in a short period of time.

Big market opportunities don’t last too long and that rules out organic growth. If your entrepreneurial instinct is telling you to start looking for investors, it’s probably right. However, how do you go about looking for one? Here are some tips to help you get through this process.

1. Sell

It’s sad how many entrepreneurs keep forgetting the most important aspect of successful fundraising –- selling. The internet is full of advice on how to pitch investors and write “killer” pitch decks.

They fill the entire pitch deck about how amazing their product is and what cool features it has. It’s nice to have a nice product, even a great product, but 12 months from now, 95% of great products built today will be forgotten.

With this in mind, 90% of your pitch should talk about how big the opportunity is, why the timing is great, what makes your market a billion dollar market, how big the customer pain is, why people desperately need your solution and how your startup will generate incredible ROI.

A lot of investors talk about financing because they love startups and want to make a change in the world. They also do it for money, they have to. Their business model relies on finding unicorns and they have to show ROI to their clients as effectively as VCs run funds. So even though many love technology and cool gadgets, what they really, really care about is ROI.

2. Traction speaks louder than words

If you sound like a salesperson, you suck at selling. So, you don’t want to go from one extreme to another -– from someone in love with her product to someone who sounds like a used car salesman. Always have evidence to back up your claims.

Before you start pitching investors, go out and validate the problem. Show them what the customers said and why they’re willing to pay for a solution. Profile your customers and show there are enough of them to make it a billion dollar market.

But most importantly get some traction. If you have traction in what seems like a great market, investors will get on board. If you don’t have any, you need to show a team with a track record and a great market.

If there is no traction and the market doesn’t seem large, investors won’t care about your product, team or company.

3. The more you need it, the less likely you are to get it

I recently read a quote from Jon Callaghan of True Ventures: “The best entrepreneurs made me feel like the train was leaving the station whether I got on board or not.” A friend of mine, a 75-year old VC veteran told me the best investments they’ve made to date were in the companies that didn’t need the money.

Fear and greed are two emotions that guide most investors, to some extent. They guide most of human behaviour in fact. That’s why on Wall Street, machines now outperform humans – they have no emotions.

Investment is something that should give your startup a boost. It shouldn’t be something you need in order to turn your idea into a business. If you’re determined, you’re going to build a business with or without a VC; and once you’ve built enough traction to grow organically, you’ll have much easier time raising funds.

Charismatic founders attract more capital. Knowing that you’re going to make it happen either way and taking steps towards it will make your actions, words and thoughts align when you pitch.

Mark McDonald is the co-founder and co-CEO of Appster, a leading mobile app and product development company with offices in Melbourne and San Francisco.

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