Before you even think about approaching an external investor for your startup, you need to answer some tough questions. Do you have a solid business plan? Is your team passionate and experienced? Do you have a viable product?
If you can’t answer these questions with a resounding “yes”, then you’re not ready to bring on an external investor.
Before you start pitching your business to investors, you need to make sure that you have your ducks in a row. This means having a well-thought-out business plan, a great team, and a product that is ready for the market among other things that we will discuss in a second.
An external investor can bring a lot of valuable resources to your startup, but only if you’re ready for them. So take a hard look at your business and make sure you’re prepared before you start seeking out investment.
Credits: Image by austindistel from unsplash
Who is an external investor?
An external investor is someone who provides capital to a startup in exchange for equity or revenue sharing.
External investors can be private individuals, venture capital firms, angel investors, or any other type of investor who is not involved in the day-to-day operations of the business.
External investors are often looking to achieve a return on their investment within a certain period of time.
What are the benefits of working with an external investor?
Working with an external investor can bring a number of benefits to your startup.
Having capital to fund the development of new ideas, product launches, marketing campaigns, and other activities can help your business grow quickly and effectively.
Additionally, having an external investor in your corner can provide your team with invaluable advice. Experienced investors have likely seen a wide range of businesses succeed and fail, and can provide your team with valuable insights that can help you adjust your plans and refine your strategies.
What are the risks of working with an external investor?
On the other hand, working with an external investor can bring with it a number of risks. Yes. It is not all beds and roses after getting that big cheque of funding.
Working with an outside partner could mean surrendering some control of the company and its decisions. This means you are not free to decide as you, please. In some instances, you might have to pivot away from your main agenda, why you started the business in the first place.
Your investor may impose restrictions or conditions on the way you manage the business which may limit your flexibility in responding to changing market conditions.
Getting that funding for your business is a huge milestone. However, you need to ask yourself at what cost? Make sure you do due diligence to understand your investors and their vision and mission in the long run. Thank me later.
How to know if your startup is ready for an external investor
The key to knowing whether your startup is ready for an external investor is to have a thorough understanding of your business and its competitive landscape.
Assuming you have a well-thought-out business plan and competitive advantage, the next step is to analyze your customer base, market opportunity, and competitive landscape. Knowing these essential details and being able to articulate them in your pitches will help you demonstrate to any potential investors that your startup is serious about success.
Some startups will raise funds at the ideation stage and some will raise funds post-revenue. As a rule of thumb, having revenue generation in your arsenal will always give you bargaining power while raising funds. Let no one tell you otherwise. Why would you need money if you are already making money? Discussion for another day.
How do you find the right external Investors for your startup?
So you already know that your startup is ready for an investor and you are looking for one already. Knowing how to find the right external investor for your startup takes some research.
Try to identify the investors whose interests align best with yours and the areas you’re looking to grow in. Remember when I mentioned you need to do due diligence on your potential investors? Yes, I meant it. Research and understand who they really are. I believe you can not marry a partner just because they crossed your path on a Wednesday morning, can you? The same goes for partnering with investors. understand them first.
Additionally, you can attend conferences, join online networks and events, and word of mouth to meet industry insiders, network, and find potential investors for your startup.
At the end of the day, having an external investor can be a great asset for any startup. But you need to make sure that you’re prepared and ready for them. By having a sound business plan, an experienced team, and a viable product, you’ll be in a much better position to make an attractive pitch to potential investors. Take the time to do your research and find the right investor for your business, and you’ll have the right partner to support your startup’s growth.
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