You may know you need money but have been turned down several times by traditional lending institutions. Maybe you were connected with an investor, and it went poorly despite feeling that your case was strong. For some, you have a strong business performing well and might even know how an investment could scale your growth in areas you imagined were well out of your reach.
Individuals who have turned their spare time into a money-making side business eventually hit a point where they begin to wonder how they'll turn it into something full-time. Startup businesses will inevitably hit a point where a capital investment or a loan is needed to purchase that next piece of critical equipment. And those firmly in the growth stage have customers demanding more of them but can't figure out how to serve their needs without an investment that will allow for scaled distribution.
The key complaint of most investors is that there aren’t enough investment-ready deals ready for investment. As a result, many are scouring the market to find new opportunities. But unfortunately, they find that entrepreneurs come to them unprepared and without the fundamentals to be investment-ready.
How many of you have approached an investor before you were ready? Usually, your first impression with an investor is your last impression!
This is a checklist of business essentials created by Harvard Business School (and modified by Sinapis) that some of the best investors in the world use to evaluate whether to invest in new business opportunities. It’s a comprehensive look at the potential of your business!
These are the key drivers of business success and are worth reviewing to see how strong you are in each of these and identify areas of improvement. Even if you are not looking for investment.
The team is more important than the idea, especially to investors and even more so in the early stages. Many sophisticated investors would rather back a rock star entrepreneur with a mediocre idea than a mediocre entrepreneur with a fantastic idea.
“When management with a reputation for brilliance tackles an industry with a reputation for poor fundamentals, it is usually the reputation of the industry that remains intact.” - Warren Buffett
Warren Buffett is saying that even amazing management teams usually can’t overcome the consequences associated with being in a bad industry that just presents fundamental problems for businesses operating in the industry. Usually, a great management team that tries to compete in a terrible industry will fail and lose its reputation for brilliant management. On the other hand, there are positive benefits from just being in certain industries where the fundamentals of that industry are more conducive to success.
What does the investor get out of investing in you? Would an investment in your company represent a significant potential for financial return for an investor? Is there a clearly defined exit strategy for the investor? Is there any collateral provided for this investment? An entrepreneur must think through several questions that an investor would want to know to meet their consumer needs. Remember, they're evaluating this investment in terms of ROI to them and their company, not just because they like you and want you to succeed.
As you do your due diligence on your investor, remember that some investors may also be motivated by social returns. If your company has spiritual or community impact goals and metrics to prove impact, they may be motivated to consider that into their deal structure.
Systems are those areas in your business where an investor can know how vital operating well is to you. Strong systems give investors confidence that they can trust that they will have a greater opportunity for a return on their investment. Of course, investors don't expect everything to be perfect. However, they expect you to know what's not working well, why, and what you're doing to address the challenges.
Questions to ask yourself: Have you set clear milestones for your business with a timeline attached to them? Do you have a clear organizational structure that lays out reporting structure and responsibilities? Are there clear and written boundaries for activities that are off limits for strategic or ethical reasons? Have you outlined the company's beliefs, values, and vision?
Now that you have looked through the full requirements, how ready are you for investment? Ask yourself: How sure are you that you're pursuing a good business opportunity? Where are you strong? Where are you weak? Did you realize that there were so many things you needed to understand to have a healthy business and be investment ready? If you went to an investor today, do you think you would get a yes?
If you want to become investor ready in 2022, join the Sinapis Entrepreneur Academy. Spend 16 weeks solving each one of these questions for your business with a community of peers and expert trainers ready to work through this process with you.
Consider joining us for this upcoming workshop or join us for our next Entrepreneur Academy course.