How to knock an investor’s socks off

September 15, 2014 10:18 am The UK Domain

With more than 30 years of international business experience, seasoned Angel Investor, The Pitch judge and business mentor David Hulston shares his wisdom on attracting potential investors…

At what point should a startup consider seeking investment?

“Customer engagement is everything. For a potential investor, it is the proof of the pudding that there is a market for their business and it is going to make money. Until you’ve got engagement then it is just an idea, and ideas are easy. Once you have positive feedback on your proposition you are ready to seek investment, not before.”

Once they’ve decided to pitch for funding, what’s the best way for a startup to approach an investor?

“An introduction is the best way to start the ball rolling. Most approachable investors are people who invest in very early startups in their local area, not international tycoons seeking big business. If you don’t have immediate connections, my advice would be to seek out other startups and find out who they have spoken to. Finding investors in the right industry sector and in the right geographical area is a great start.

I’m well known by the startup community in Cardiff, so people seeking investment regularly approach me. Mostly this is face-to-face at networking events or often in co-working spaces that we run. For me it’s all about enthusiasm, so when people ask to discuss their businesses with me and I can see their passion I’m much more open to having the conversation.”

How can they prepare before they meet their potential investors?

“A great way to prepare is to be able to articulate what your business is in a few simple words. Can you describe what you do in a tweet? I also find an analogy a really helpful way of understanding what a business does. For example, I recently invested in a business that is a platform for ordering and delivering cakes and they describe themselves as ‘Interflora for cakes’. It paints a picture of the opportunity, which is really important when you are looking to impress a potential investor.”

What is your advice for creating a credible investment plan?

“Keep it short and sweet. Potential investors don’t want to read War and Peace, they need to be able to see and understand your business model. I steer people towards Lean Canvas, which is a succinct and effective one-page business model. Most weighty investment plans are padded out with information that doesn’t provide anything extra for the investor. There are three main points that you should outline in your plan: What is the proposition? Who are your customers? What is your USP (Unique Selling Point)?”

Is the reality of pitching your idea anything like Dragon’s Den?

“No! Even during the most intense pitching sessions there is never anyone sat next to a pile of money ready to hand it over. Many meetings are had over a cup of coffee and even pitching sessions can be fairly informal. During the presentation the business owner should stipulate what they are looking for with sound financial reasoning. The investor won’t try to price the deal there and then.”

What is one of the biggest turn-offs for investors?

“People who think they know it all and disregard their competitors. It’s really important to listen to investors and take their advice because they’ve got a great deal of experience. If you are unsuccessful in securing investment then remember that no means no. Always be gracious as you may be approaching the same investor in a few years time with an improved business model.”

What advice would you give to a startup that has been unsuccessful in securing investment so far?

“The first thing you should do, is ask yourself why you haven’t succeeded. It could be that you haven’t articulated your proposition well or weren’t able to prove customer engagement. The second thing is to ask for feedback. A good investor should be willing to give feedback and provide reasons why you haven’t been successful.

There are many reasons that you may not secure investment and, unfortunately, it can be personal. There can be a personality clash or the investor might simply be having a bad day or even not have the cash. It’s essential to accept that you may get turned down many times but always take away something positive from the meeting, take advice on-board and part on good terms.”

As an investor, what are the top three things you would personally look for in a startup?

“Firstly, I need to believe in the person that is pitching to me. I don’t need to see that they will deliver a mega corporation in 10 years time, but I need to know that they will be able to deliver the immediate results. If you can’t be sold on the founder, then you won’t be sold on the business.

Secondly, I need to see that the business idea has customer engagement. To turn an idea into a viable investment I need to know that there is proof of buy-in from the consumer market.

Lastly, the aspect that sparks my interest in a business is when it disrupts the existing market. A good example is insurance aggregators and how they have revolutionised the way that we buy insurance online. This was a service that didn’t exist until a few years ago and we now expect to compare everything to get the cheapest deal before we buy. At the moment I’m really excited about the revolution in the estate agent space. Zoopla has paved the way for cutting out the middleman but I think there is a great deal of potential there for new businesses.”

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