How to Ask for Investment: Everything You Need to Know
Knowing how to ask for investment is an integral part of having success when starting a business.3 min read
Knowing how to ask for investment is an integral part of having success when starting a business. Someone asking for investment should have an exciting investment pitch, know how to ask the right questions, and figure out good ways to attract investors.
Key Elements of a Successful Investment Pitch
There are a number of things to keep in mind to help ensure your investment pitch is successful:
- Make sure the pitch is presented to the right audience. For a small startup, meeting with large venture capital companies might not be the best way to go as they invest a lot of money and expect the businesses in which they invest in to be at a higher stage in their development. In this particular case, angel investors are a better bet for attracting the right investors.
- Present your pitch as a story. If you think your business idea has the potential to turn into the next best thing, confidently present that to potential investors. Investors are usually less interested in a company's current value than its potential. Therefore, the better you are at outlining the company's bright future, the higher your idea will be valued.
- Use the passion and confidence you have in your business to persuade investors. Be dynamic in your pitch and make the investor understand what exactly makes your business special, while also helping them see how an infusion of capital can take it to the next level.
- Keep things uncomplicated. Although the people you're presenting your pitch to usually have extensive business experience, certain terms and words that are specific to your industry might be unfamiliar to them. The simpler and more straightforward the pitch, the higher the chances that it will be properly received and understood and therefore achieve its goal.
- Always mention the sales you had up to that point. If you have generated sales, then you must let the potential investors know that your idea is already making money. While that will be a promising sign to them, the most important thing for an investor is not current earnings but potential profits and scalability of the company. While boasting about your current success, always make sure you outline your ideas for expanding on that success.
- Keep a clear timeline for investment. Although it may seem that setting a tight timeframe for the investment process is limiting, you'll likely find that it makes the whole process more direct and less expensive. An investment deadline might convince an undecided investor to bet on your business, knowing that the opportunity will soon close.
- Properly outline the potential profit for investors. You might have a personal passion for your ideas and your company, but most investors just want to put their money in a profitable business. When pitching, put yourself in their shoes and show them how they can get back significantly more money than what they invest.
The Three Main Principles of Asking for Investment
There are three main principles to consider when asking for investment. They are:
Timing is crucial, and you should only ask for investments when you're almost sure the potential investor will say yes. An investor may take weeks or even months to decide whether a business is suitable or not for investment and will be reluctant to accept if they are asked during that time. Waiting until you're almost certain the investor knows everything there is to know about your idea's potential is the key to getting the investment. Also, remember that a negative answer is not always permanent.
Another important factor is knowing if the circumstances surrounding the potential investor are in your favor. Normally you couldn't know if the person you're pitching to has had any bad professional or personal events in their life that might negatively affect the decision to invest in a new business. However, a mutual acquaintance can do wonders in informing you if the timing is right or not to ask for investments.
Last but not least, your attitude when interacting with the potential investor can make or break a deal. Acting like someone who needs a favor will likely put off the investor, while treating them as a peer will increase their confidence in you.
If you need help with knowing how to ask for an investment, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.