investment, funding, investors, fundraisingI have a group of angel investors and friends & family who have put in various amounts over the past 18 months. The amounts range from $15k - $150k. I send semi-monthly updates to the group with various milestones or challenges of the business. “Raising more money” has been a recurring theme and challenge but none of the investors have offered to write an additional check but I feel it is time to ask them directly.
The business is growing, albeit slowly. It is not a runaway success yet, but everything is moving to the right and up.
What is the best approach/ language to go about asking the current investors for more money?
(Note, these are not institutional investors.)
With any investor, it is good practice to keep them informed and let them know how hard their money is working for you, which it seems you are already doing.
However since this also includes family & friends, it's doubly important you take the time to let them know that they are important, their money is important (to you, you're not just going to throw it away), and what you're doing with it is important, since they are investing in you just as much as they are in your company. Even an investor who is a stranger is investing in you first (and your team), as he expects you to be the one with the capability and the know-how to pull it off.
Since you've already received some checks, it would be ideal to create some stat sheets showing them what you've done with the money so far. How many user/customers do you have now, from when you started? What is your growth rate? Have you turned a profit yet?
If you're going for the Amazon growth model vs. Ben & Jerry's, you may still have significant figures to show them: were you mentioned in any news articles? High-ranking blogs? Were you mentioned on twitter, fb, linkedin by anybody besides yourself? If popularity is what you need to grow, are you becoming more popular and more talked-about, and have stats to show?
That shows them you've taken every dollar they've given you and put it to work. You're making something significant out of their money. It was a good investment for them. Next they will want to know: "Why? Why do you need more money? For what?"
So, what does Phase Two for your business entail? Are you planning on adding some significant new features, requiring you to hire on a high-dollar programmer or engineer? If so, what are the details of these new features, and how will they win you more customers/users/paid gigs? This part you will want to sell like you're selling to new customers who might buy into your product because of these features. Make your investors feel the thrill and excitement of a first-time customer to your business, so they can aptly imagine how you will sell it to others.
If you're not yet turning a profit, then money is time. It's time your business gets to stay alive to figure itself out enough to turn a profit. Now, if your main reason for needing more money is, "we need more time," then that's a tough sell.
One way to do this is with projected figures. Hopefully you have some numbers from Phase I, where you told all your existing investors what a great job their money did for you already. Now take all those hard numbers and project them into the future! "Here's all the great stats we will have if we keep going!" Again, this part is a really tough sell, so try to sprinkle and emphasize what you will be doing differently and improving upon. (What is new?) "Our inventory is a mess, so We added a new inventory system that tracks our orders so we can get product out the door faster (to keep up with all our orders!)." "We hired a new sales rep [overseas] since we noticed a lot of orders coming from that area!" etc.
Finally, I don't know if this was done the first time around but I would say it makes you look more professional if you already have a figure in mind for how much you need. Yes, coming up with a figure of how much to ask for is HARD and you may be inclined to ask for "all you can get", but it makes you look more professional and like you took the time run the numbers and think this through if you do (because, incidentally, that's what it requires). "Here's what we did with all the money you gave us initially (ty!), now here's our plans for Phase II, and here's how much funding we'll need to execute Phase II. Oh, and here's what will happen if when Phase II goes off as planned!"
As with any investors, make it appear as if you've thought this thing through from top to bottom (as if you already had the money) and the only thing holding you back is them giving you the cash to do it.
I hope this was helpful! Good luck, and I hope in your future it comes down like rain!
Here are some key points you should consider to raise money from investors.
Send the Right Signals
Why should an Angel invest in your idea or product? ‘Big returns’ in the future you would say, but the fact is this isn’t quite going to convince people on the other side of the table who have ‘been there and done that’ before you. Have you invested your life’s savings into this idea? Are you willing to give it everything that you own? If not, you aren’t sending the right signals to the investor and in all likelihood, you aren’t going to find an ideal investor or raise the amount of money you are looking for. The logic behind this is quite simple – if you aren’t willing to risk your own money on this idea why should an Angel do so? So before you reach out to an angel make sure you reach out to your own deep pockets and have the business run on first gear.
Raise Initial Seed Money
Keep in mind the thumb rule, ‘never go to an angel empty handed’. When you have a brilliant idea your friends and family should ideally be your first investors. You need to show them the value in your idea and how their investments can fetch healthy returns in the future. In entrepreneurial language, this is called ‘Seed Investment’ or ‘Seed Money’. Angel Investors would invariably ask you about ‘Seed Money’ in your business as it can easily portray your patience, resolve and marketing skills in managing the show. If you aren’t able to sell your idea amongst people you know perhaps you are in a wrong business!
Business Plan First Money Second Always
Never jump out of the bed and seek an appointment with an Angel! There are some who make the mistake of looking for investment even when they don’t know how to execute their idea. The last think the Angel investors want is to pay you to ‘think’ and prepare a business plan. You need to acknowledge that every idea sounds brilliant on the paper but for it to turn into a profitable venture it needs to be backed up by a strong business plan. If you have a strong business plan that has all the ends worked up you won’t see too much trouble in finding the right investor. It is okay for your business plan to change or be replaced by a completely new and better one as the Angels are likely to give their input but you should focus on a business plan first and then start looking for money.
Research on The Angel
When you are looking for means to raise money for your idea you are likely to knock many doors and this is where most entrepreneurs get it wrong while reaching out to an angel. They create a business plan or an email template and send it over to as many angel investors as they have heard of and wait for their luck to shine. Remember Angels do receive dozens of such emails and business plans every week and hence you need to really be lucky for your mail not to get deleted or your business plan not to land up in a trash can. You need to research on the investor’s background, his/her interests in terms of investment and also what he/she has done in the past as an entrepreneur. This will help you in the next stage of the process.
Art of Writing an Email
Yes, writing email or even a hard copy of your business plan to an investor is an art and it can make or break the deal. Start by acknowledging the investor’s past ventures or saying how it inspired you. You can also compliment them on their latest interview or award that they have just received. This will separate your communication from dozen others that they receive every week and show them that you have researched on their background. Give a brief of your background as this is something they always look for. Next write about the gist of your business idea, make it brief as no angel would like to read through thousands of words to understand your business plan. And most importantly if you can’t explain your idea in brief, you can’t explain it at all.
Once you have written on typed these initial lines add a link to your website or its screenshots if it is under development. This is important as it would show that you have already worked on the idea and have something to discuss about when you physically meet the person. Without a link or a screen shot you aren’t likely to find too many takers for your idea as it hasn’t matured to the stage of what is known as Series ‘A’ Funding.
Investors love to see things rather than hear about them. In short, if you dream of becoming an Amazon you need to show your eCommerce store to the investor and how it solves problems and exploit opportunities that Amazon hasn’t yet addressed. Lastly end by seeking an appointment to discuss the idea and scope of investment at the Angel’s chosen date, time and location. Note that we have highlighted on the date, time and location as this would show the investor that you are willing to walk miles to realise your dreams. Remember an email that arouses interest and generates a response would do your confidence the world of good.
Network and Use the Network
Though writing an email is the easiest way to get in touch with an investor it doesn’t quite guarantee you a response. The tougher yet more effective way of garnering interest of Angels is to reach them through someone they know or someone who holds recognition in the industry. For instance, if you are planning to start a mobile wallet someone who is a big name in the financial industry introducing you to an investor would up your stakes. Angels always look to mitigate risk while investing in an idea and such introduction means that your idea has been vetted and is worthy of investments. So at the very nascent stage in your business, you need to start meeting people and build a network. The bigger the network you can put it through better use to your advantage.
Know Your Target Well
Finally, you need to know your targets well in advance. There are entrepreneurs who land up in a meeting with a startup investor without knowing what they are looking to get out of the Angels. You need to put a price to your idea and show the Angel the value in his/her investments. Here you need to show some realistic projections in terms of gaining a foothold in the market and turning your customers and sales into profits. Don’t try and take the Angel for a ride as they have a better sense of the market than you may have presumed. What you need to target is the top figure based on the prospects of your idea. If your idea is worth the money a seasoned investor won’t shy away from putting his/her money onto it.
Keep these things in mind and you would be able to successfully raise the required capital for your business from investors.
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