One of the biggest things to consider when becoming an entrepreneur and launching a start-up business is the financial costs that occur in the early days and how you will fund growth.
Unless you have savings yourself, you will most likely need to seek out investors to help with the finances and start-up costs. One of those options is an angel investor.
An angel investor is a well off individual who puts capital into business start-ups. They become a financial backer, which supports the business financially right when they need it the most.
In the early days, start-ups have limited options during the early rounds of funding and you will find that most standard investors are reluctant to back businesses in the early start-up stage.
This means you need to try to get your money from wherever you can. Angel investors usually then offer help and advice to the start up business. In exchange for their financial aid, angel investors may get ownership equity or interest back on what they lent.
You could also ask family to help with the start up costs of setting up your business. If you have family that have some savings that they would be willing to invest in a business, this may be a good place to start asking for help.
This is when you build a business from the ground up without any external help with financial costs. It's the "doing it on a shoe-string" approach.
Entrepreneurs usually use their own personal savings in this circumstance and hope to progress financially when the first sale is made. This is difficult if you haven’t got enough savings to cover the initial costs and sustain those costs until your business breaks even.
Many online businesses do start this way - from home, working with friends to get it off the ground. Online business provides countless opportunities to start a business from home or fit it in around work and many of you reading this are probably considering, if not already on the Bootstrapping path.
Crowd funding is another way to raise money for your business and can usually be done online via platforms like Crowdfunder and Kickstarter. It can also happen on a more local scale when you host an event where a large number of people can donate money into the start up of your business, such as a fashion show or bake sale.
In most circumstances, and where most online entrepreneurs get started, you can simply create a crowd funding page online where people can donate small amounts to help with the financial costs of your start-up.
It may be worth trying this as your first method, to test if your pitch is any good. You can then see what the reaction to your pitch is and what you need to work on before you go on to trying to seek other investors.
Angel investors receive countless pitches claiming to be the next big social network, software solutions, or consumer products. The list goes on.
They are always being targeted and persuaded to invest in many different start-ups. Therefore, you need to have a good story to get their interest.
Some key points to cover include;
Make sure that you have thought about all the likely questions an Investor will want answered about your business. For example, Where will your first customers come from? Who are your competitors?
Before you switch off or run away... stop. Business maths isn't as scary as it sounds. Honestly! Numbers are one of the most brilliant ways to tell a story of what is happening in your business.
No Investor expects you to be a qualified Accountant or have vasts amounts of experience during the early stages, but they will expect you to show you've made an effort to learn.
At the very least you know the key financials of your business. This is a must before they share their hard earned cash with you!
The quickest way to turn off any Angel Investor is if you don't know your numbers or worse you lie about them or make them sounds totally unrealistic.
"No one ever launched their business and delivered $1 billion of sales or a billion website visitors in their first week - not even Amazon.... so pretending that your online business will do that will just get you laughed out of the room."
Far better to be credible and true from the start - be realistic and write down all your assumptions you make when calculating your financial forecasts.
Also don't leave costs out of your presentation because you don't like the profit / loss making answer it is giving you! (we've seen that from so many start up businesses and Entrepreneurs too!) ... it's as if they think, "if I don't write it down that cost won't actually happen!"... write it all down and then together with your potential investor you have a truthful starting point for your numbers.
Finally practice being challenged on the numbers until you are confident you have got your business maths nailed.
Many Angel Investors in the Tech sector are specifically looking for business plans and investment opportunities that fit certain criteria that is often best found in online businesses. Two of these criteria are:
With Rapid growth online businesses, the opportunity to scale fast and exit the business (sell the business) is key here.
Your plans must show how your rapid growth will be achieved - usually its about reaching a set number of website Users or Sign ups to your service. Hard targets which are clearly measurable and equate to sales volumes. For example if I reach 1 million site visitors and the average visitor spends $10 then that = $10 million sales.
Disruptive businesses are those who completely transform (or disrupt) the way traditional businesses work in an industry. A good example of this is Uber who used technology to transform the traditional Taxi business with their Car sharing / Uber driver pick up App.
Online businesses and Tech led businesses are often at the forefront of disrupting the marketplace because new technology allows start ups to leapfrog over the competition and for customers to be served in new and exciting ways.
Both rapid growth and disruptive business models will always be of interest to Angel Investors who are savvy about investing in something new that will deliver high returns. If your business fits either of these 2 criteria - make sure you call this out clearly in your Pitch.
You need to make sure that your business plan is robust and strong enough for someone to invest in you. Is the business viable? Will the investor actually make a return? Will the competition eat you up and spit you out with the week?
You need to not only stand out and have a unique selling point and a ‘Wow’ factor, but you need to make sure that there are no holes in your business plan or pitch- particularly when it comes to a financial forecast.
One of the biggest things that Angel Investors will be looking for in an Online Start up is your own capabilities as the Founder.
All these things matter. No Angel Investor is going to invest funds into someone who is flakey and will simply give up and go home after a few months of trying.
They will also want to see skills - not just the technical or relevant skills of your chosen profession but also your Interpersonal skills...your ability to make a sale, to build rapport with your customers and share your personality to make your brand shine.
Despite wanting to attract investors, know and understand the importance of not sacrificing your integrity or vision when approaching potential investors. Your start-up business should still be your dream and passion, so don’t compromise from that too much and remember the importance of remaining in control.