Impressing Your Audience
Finding investors for a fledgling business sometimes can be as easy as asking a family member for funds during dinner or making a call to a close friend. But when your options run out among your personal relationships, it's time to explore the possibility of finding professional investors who will invest in your new business.
When a potential investor is a friend, or a family member, or in some instances an acquaintance or a referral from a friend or family member, you often are able to obtain an audience with the potential investor on the strength of an existing personal relationship with the potential investor or the person that refers the potential investor to you.
However, once you have exhausted friends, family members, and referrals, and you are attempting to bring in investors with whom you have no preexisting relationship, you begin to encounter significant roadblocks. The securities laws place severe constraints on soliciting investments from individuals in the absence of a preexisting relationship.
As a general proposition, unless you have registered with the Securities Exchange Commission (SEC) or qualify for certain specific exemptions, you are not allowed to make "general solicitations" for passive investments (investments that do not involve active roles in business management). In addition, you may be limited, as a practical matter, to approaching high net-worth individuals (accredited investors) to avoid running afoul of the securities law.
The best way to avoid these issues is to plan ahead and, in effect, bring a bevy of high net-worth potential investors into your circle of friends and acquaintances. You "associate" with the right people (co-venturers, board members, advisers -- e.g. attorneys and accountants, and employees) and "network" through your individual efforts, the efforts of those with whom your business "associates." For example, you can become involved with the same charitable, philanthropic, professional and civic organizations as the high net-worth potential investors. These types of organizations are always looking for volunteers. Volunteer for high visibility positions, committees and projects that (a) place you in front of the potential investors, and give you the opportunity to showcase your skills and abilities and/or (b) give you experience that is relevant to managing your venture.
Assuming that you do a good job as a volunteer, you can become acquainted, and ultimately build sufficient credibility, with potential investors.
Establishing Your Credibility
Just getting in front of a potential investor is not enough, however. An "audience" does you little good if you are unable to capture their interest. Professional investors, in particular, have a limited amount of time and resources to devote to selecting investments. All too often potential investors will pass on a good venture simply because they were unable to distinguish one business plan from the next. They simply do not take the time to analyze the plan because, based on a quick once over, there was nothing that made the plan different than the hundreds, if not thousands, of other business plans sent to them.
One way to catch their attention quickly is to "sell" your idea in the executive summary of your business plan. Show excitement for your venture. Explain how your business will make a splash in the marketplace and highlight the strengths your business has over others. A compelling executive summary will impress investors -- and encourage them to read more.
Of course, a business plan typically involves projections and predictions regarding events in the future -- things such as meeting research and development milestones, entering key contracts and/or sales in the marketplace, and market penetration. Just because a potential investor reads your materials, or listens to a presentation, does not mean that they believe your representations and projections of what will happen in the future.
To show potential investors you have the fire power to deliver, showcase your management team in your business plan. Show that you and/or the others involved with your business have what it takes to meet your projections and goals. Show investors that you've rounded out your own experience with impressive, skilled individuals who have proven track records in building and running successful businesses.
Over and above getting in front of prospective investors, you need to get their attention and show your idea and goals are credible. Showing them that you have a compelling business idea and plan, and that your ideas are supported by a team who can make it happen, can make all the difference in the eyes of a prospective investor.
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