Have you ever wondered why some entrepreneurs seem to attract investors, regardless of what their idea is? It’s not that they’re lucky – it’s that they possess all of the qualities that make them more attractive to small business investors.
Do you have these same attributes?
Put Yourself in the Shoes of the Investor
Parents are probably the most biased people on the face of the planet. As soon as you become a mother or father, you lose all ability to judge your child fairly and objectively. You either feel like everything your child does is perfect and should be recognized by everyone around you, or you’re far too critical and nothing ever matches up to your expectations.
See, as a parent, you’re blind to reality. You’re so focused on your child that you can’t possibly think realistically. You may be totally objective in other areas of your life, but this isn’t one of them.
As an entrepreneur, it’s just as easy to lose sight of reality. You begin focusing so much of your time and energy on your business that it ultimately feels like it’s your baby. And while there’s nothing wrong with this, it skews your ability to think clearly.
Why does this matter? Well, a lot of business owners go into meetings with investors and assume everything will fall into place. They don’t prepare a whole lot because they essentially think, “Who wouldn’t like what I’m doing?” Unfortunately, the answer tends to be, “A lot of people.”
In order for you to make yourself (and your business venture) attractive to investors, you must begin by putting yourself in their shoes. If you were them, what would you want to see? What would put your mind at ease? What would make you want to invest?
Once you flip your mindset, you’ll find it easier to be realistic about who you are and what you have to offer. As a result, you’ll be much more likely to improve and showcase yourself in the appropriate light.
5 Ways to Make Yourself More Attractive to Small Business Investors
So, what are investors looking for? What is it that captures their attention and makes them genuinely consider putting up their hard earned money to take a chance on you? While every investor is unique and has their own checklist, most tend to value the following:
When an investor forks over a sum of money, they’re essentially asking you to watch over it. The expectation is that you’ll not only protect that investment, but that you’ll also grow it. While they’re going to study how you run your business’ finances, an investor is ultimately going to review your personal financial history.
How you handle your personal finances is usually a pretty good indicator of how you’ll manage the money in your business. If you don’t have a good record, then an investor is going to be a little leery of letting you handle his money.
Among other things, an investor may request your credit score. If you have a good credit score, then you don’t have much to worry about. However, if your score falls below a 650-700, then there may be some concerns. It’s best to go ahead and get your credit score fixed before getting too far along in the process.
According to Rent to Own Labs, which often encourages people to improve their credit scores in an effort to secure a home purchase contract, there are six basic ways you can improve your credit score:
- Lower your credit utilization
- Improve your payment history
- Erase derogatory marks
- Lengthen your average age of credit history
- Increase your total accounts
- Reduce credit inquiries
Other personal finance factors small business investors will look at include your debt-to-income ratio, personal assets, and the amount of your own money that you have invested into the business. The latter is especially important, as it shows just how much confidence you have in your own business idea.
There’s a saying that goes like this: “Bet on the jockey, not the horse.” What this saying implies is that the person holding the reins matters more than what’s attached to the reins.
When it comes to investors, they take a similar approach. It’s usually much wiser to bet on an experienced entrepreneur and business owner than an inexperienced one who appears to have a good idea. And, as angel investor Tim Berry explains, experience comes in all shapes and forms.
“What may surprise you is that most investors respect experience with failure as much as with success,” Berry writes. “Most of them know what failure feels like and respect the founder who can acknowledge the failure and recognize what went wrong.”
You obviously can’t manufacture experience on the spot if you lack it, but this is just something to be aware of. If you do have a lot of experience, be sure to highlight this in your interactions with investors. If you don’t have experience, you’ll have to find a way to confront and overcome this issue.
“Building your network and communicating with others is one of the most important aspects of a business, and it’s something too many creatives forget to do,” entrepreneur Paul Jarvis says. “Whether you’re wrapped up in work or pounding the pavement with sales and marketing, sometimes the best way to grow a business, sell a product, or have people hire you for a service is to simply build a network of people you regularly communicate with.”
Few things speak more highly of an entrepreneur than a large, well-connected network. When an investor is doing his research on you, he’s going to carefully study your connections and see just how well associated you are. If it looks like you’re trying to skate through on your own, some red flags are going to be raised. It’s almost impossible for you to be successful without other people, and investors will probably shy away from working with you.
Business Plan and Vision
An investor wants to hear you pitch your business idea to them, but they also want to see it written down. Not only does a written business plan provide a concrete look at what your business is doing, but it also shows them that you have the ability to succinctly describe a big idea.
If you’ve never written out a business plan, then you’re probably unsure of what exactly investors are looking for. Well, here’s a hint: it’s changed a bit over the years.
“In the past, the average business plan was anywhere from 40 to 100 pages, and guess what they found out? No one was reading all of that,” startup consultant Alex Chudik explains. “So don’t let important information about your company get lost in a jumble of words. Investors look for founders who can provide the most value in the least amount of time, and your business plan is a great indication of that ability.”
According to Chudik’s research, the average business plan is around 15 pages – and should never be more than 20 pages. Abide by these rules for best results.
Finally, an investor is looking at your personality. They want to know that you have the right makeup to be a successful small business owner. When times get tough, are you going to cave in or step up to meet the challenge head-on?
Personality-wise, investors want to see that you’re passionate about your vision, bold enough to break preexisting molds, creative in your problem solving, authentic, willing to listen to feedback, and happy to reward those around you. If you can show investors that you live up to these qualities, you shouldn’t have much trouble finding someone who is willing to partner with you.
How Do You Stack Up?
Now that you understand what investors are looking for in small business owners, you can begin to adjust your approach and evaluate how you’re doing in these areas. Look at the different items discussed in this article and try to view yourself as objectively as possible.
If you find it impossible to judge how you’re doing, ask for the opinion of a trusted friend or colleague. This should be someone who isn’t afraid to tell you the truth – good or bad. What you’ll find is that you probably aren’t doing as well or poorly as you think. And once you’re armed with this information, you can create a game plan for improving.
It’s also important to be patient. For example, let’s say you have a terrible credit score that’s turning investors off. This isn’t something you can fix overnight. It’s going to take weeks, months, and maybe years to get where you want to be. But once you get there, you’ll be better for it.
Keeping all of this in mind, now’s as good a time as any to lean in and seek out self-improvement. Not only will you feel better about yourself, but you’ll look a lot more attractive to investors.