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Sep 11

What you should know before approaching investors

Let’s say you’re a budding entrepreneur, you have a brilliant idea for a business and that you believe in your heart-of-hearts that it’s a winner, but you also know that you don’t have enough funds to bring your idea to market. So you think “Ah ha, I’ll raise the funds. There’s billions of investor dollars out there waiting for an idea like mine and I read of projects being funded all the time.” Great, that’s music to our ears and what this country is built on, but before you go rushing off to meet investors, make sure you’re prepared! Raising funds for a project is practically a full-time job, so you need to be careful with your timemmm.

In the white paper Startups Need To Think Like An Investor To Get Funded, KENOVA has created a list of over 50 investor perspective guidelines to successfuly prepare to meet with investors and convince them to fund their project.

For example, you need to know that if you have debt, such as a business loan, a maxed out credit card or you’ve sunk your life savings into your startup, this is a risk reducer for the investor, as they want to see you have skin in the game. BUT, make it clear that the investos’s money is not going to be used to pay off the debts and replenish your savings. You need to show that their money is going to be used to accelerate the growth of the project!

 

This article may not be reproduced in whole or part without including the name of the author (James Naylor) and an acknowledgement of the fact the article was originally published in Shoestring Advice for Technology Startups (http://www.KENOVATech.com/blog). Any other use of this material is unauthorized and is a violation of law.”

3 Comments

  1. Jeff Fabian says:

    What are your thoughts on seeking confidentiality in the angel investor context? I've heard arguments for and against. I know my general preference as a transactional attorney, but would be interested in your thoughts in this specific arena.

    1. James Naylor says:

      There’s nothing wrong in asking a potential investor to sign an NDA (non-disclosure agreement), but whether you should depends where you are in the fund raising process.

      Firstly, investors are not in the business of stealing ideas, they’re in the business of investing in a businesses with good ideas. Also, they have too much to lose if they are accused of stealing an idea.

      Secondly, if you’re very early in the startup process, i.e., you haven’t built anything yet, it IS good practice to ask an early investor to keep quiet by asking them to sign an NDA.

      Thirdly, if you’re well along the startup cycle, you should be in the mode of creating a buzz and should be shouting about your product from the roof tops.

    2. James Naylor says:

      Hi Jeff…this is probably WAY!!! too late to respond to your comment, for some reason we missed it. I’m so very sorry. If by ‘confidentiality’ you mean a Non Disclosure Agreement, you probably won’t get it, for 2 reasons. First, the angel sees many projects with a great deal of overlap, e.g., same solution different market, so they see an NDA as a huge risk. Also, angels, by legal SEC definition are sophisticated investors, and as such they was as few signed document “out there” as possible…it’s really hard for them to keep track.

      There’s no harm in asking, for example, sometimes we sign them…the worst is they say No.

      My personal opinion on this is; angels are people of high integrity, such as John Ason and John Frankel, who value their reputation and have no interest in stealing ideas. They’re more interested in investing in great ideas and people and having them do the heavy lifting.

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