Top Tips for Extracting ‘True Value’ from Investors
That ‘Eureka!’ moment when you first come up with that next big business idea that’s going to change the world is truly magical. However, it is easy to get caught up in the excitement of the moment without fully considering how the idea will develop into a successful business, or if you can get true value from investors.
By that, mean that it’s easy to focus your creative thinking on your product, to the detriment of key areas like sales, marketing and finance.
Only by focussing on these other areas can take your ingenious idea from simply a concept to the next level.
The same is true when it comes to searching for investors. It’s often difficult not to be swept away by the notion that your business idea is about to receive a serious cash injection, but there’s so much beyond the financial support that investors can provide – and so much more value to be gained.
Here are my top tips for developing investor relationships and the areas that they can deliver true value to your business.
Bridge the gap between development and sales
The first few years are always the most difficult for small businesses. The statistics are well documented regarding percentage of startups that cease to exist within five years of incorporation. Often, this is down to the gulf n that needs to be crossed in order to get from product development to sales – and lacking the resources required to do so.
Any setbacks to product development, staff turnover or ineffective marketing can cause huge problems to early-stage startups, stretching resources further and requiring even more investment to keep the business on track.
Bringing additional business acumen into the company through investor knowledge of product development, sales, marketing and connections with relevant customers provides founders with the power to make this initial push much easier and fast-track through the first stage of a business, which is often the most dangerous and risky period they will face.
Avoid the endless spiral of chasing investment
In seeking purely financial support from investors, you run the risk of entering a hamster wheel of investment rounds to fund the next project or worse, running out of funds altogether.
With the founder constantly seeking investment to keep their business afloat, attention is deflected away from product development and sales – the two pivotal areas to success in the early stages of a start-up.
Despite money coming in, it’s not from a sustainable source. Only once a product starts selling can your business enter a healthy cycle of income through sales, word of mouth, and more sales, with money being invested back into product development and marketing leading to more sales…and repeat.
‘True value’ is in the knowledge
In almost all cases, investors are in the position that they are because they have been there and done it all before. They’ve seen businesses fail and they’ve seen businesses succeed. That puts them in a great position to provide a wealth of knowledge on the reasons why.
More specifically, angel investors have likely been successful in building a business themselves and are now looking to grow other businesses, especially within their own industry. Passionate about business, and well-versed in the trials and tribulations of being a founder, angels will have a wealth of knowledge and experience around how to grow your business.
Institutional investors usually come from a background of growing a number of companies from startups to multi-million organisations. Generally sophisticated investors, they will have broad experience across a number of sectors and types of business investment.
For investors, there is a clear motive to provide insights, guidance and support. By supplying businesses with cash investment alone, they’re missing the opportunity to enhance the growth and increase the profitability of the businesses in question, applying unnecessary constraints on their potential return on investment.
There are three main assets that investors can bring to your business, outside of cash alone:
- Corporate connections
Utilising their networks to put you in touch with potential customers, marketing teams and industry leaders that they, or their portfolio of companies, may have used.
- Industry knowledge
In many cases, investors will have experience in your particular industry, bringing with them valuable lessons to share with you including mistakes they may have made and the very best routes to market. Having this kind of industry-specific guidance can prove invaluable.
- Business acumen
It’s unlikely you launched a startup to do the ‘back-end’ jobs of sales, marketing, HR, logistics etc yourself. Knowing what needs doing and how to streamline the processes allows you to zero in on your main responsibilities as a founder: concentrating on business growth.
It’s not just investors that can provide the above too. Founders should seek as much support and advice as possible from other founders, advisors and non-executive directors to accelerate the growth of their business.
Conclusion
We all make mistakes but through harnessing the knowledge of those who have made mistakes before, the learning process is significantly reduced, enabling accelerated growth through the early stages.
When you consider the wealth of expertise, advice and guidance investors can provide, it’s clear that early-stage businesses that seek such partnerships have a much easier journey in front of them.
Even better, there is an enormous community of investors and advisors actively looking to impart their cash and knowledge to support startups to grow. At the end of the day, they want your business to succeed almost as much as you do, o seek knowledge and cash to achieve the level-up you’re looking for.
By Latika Vij, Head of Investor Relations at Connectd
