Investors are being more cautious about their investments due to the COVID-19 pandemic. Due to market volatility and uncertain economic outlooks for many industries, it has been more difficult for startups and businesses raising funds for growth or sustenance.
Investment professionals say that the gap in strategy between investors and startups has never been wider. With the right approach and mindset, startups and businesses can put themselves in the shoes and invest in this post-COVID-19 world.
These are just a fewThis article provides insight into the inner workings and decisions of investment decisions to help entrepreneurs raise more funding.Ahmad Izmir Mujab is the CEO of Crewstone International Sdn Bhd.
1. Investors are your friend
To be able structure a win-win agreement that benefits both the investor and their business, entrepreneurs need to think like potential investors. Entrepreneurs and business owners need to see investors as strategic partners, not just as a source for funds.
Investors will not take over your company or remove you from it.
If it does, it can be a poor investment. This will reflect poorly on their leadership abilities and let down their peers as well as their partners. They want to partner with entrepreneurs in order to maximize their return on investment. It is not a good idea to be too defensive in times of capital shortage.
2. Learn the language of your investor
Professionals are hired by investors to find the best deals. These professionals often get presented with potential deals daily and are familiar with a set system for evaluating potential investments.
These are not your average business manager, product specialist or marketing guru. Don’t pitch them like you would to an entrepreneur or business owner.
They are skilled at numbers and can view your business to determine if it is based on the Internal Rate of Return (Price/Earning Ratio), Hurdle Rate, or Weighted Average Capital Cost (WACC) – much like an Excel spreadsheet.
3. Instead of asking “What would be your dream investment?”, ask “Would it be in my business?”
It is important to identify the types of investments that have given them the highest returns in the past. Which industries are they comfortable investing in? What is their tolerance for risk? What is their investment strategy? What is their most important asset?
Consider your preferred exit strategy for most of your investments. This understanding will allow you to adjust your business strategies, returns, and business plans as necessary to meet their investment preferences and mandates.
4. Understanding your competition
The biggest competitor may not always be a similar idea or startup. Businesses need to be aware of the alternatives available, particularly those that are gaining momentum.
These are the questions you should ask yourself:
- Your business will provide higher returns over the same time period than another hedge fund.
- It will be safer than the bond market and provide the same guarantee that asset-backed securities.
- Are there comparable risks to similar investments in different regions?
- They would rather invest directly in you than in venture capital funds that spread their risk profile.
5. Timing is everything
Investors will be cautious if you try to pitch an idea, or technology, that isn’t available in the market. Investors should be interested in ideas and proposals that are ‘hot’ right now.
You would be seen as not having a market if you are too early. The market will become too competitive if you wait too long.
It is important to keep up-to-date on all things investment by reading investment forums and analysing investment trends.
You can currently only have a balance up to RM9500. There’s also an aggregate limit of RM5 billion – this means that if the total GO+ balances of all customers reach RM5 billion, you won’t be able to deposit any more funds into GO+.
6. Prove that you are a good investment
Investors are often interested in how businesses perform before investing additional money. This is done through progressive management of funds that have been secured. If you are able to successfully manage the first tranche of investor disbursements as planned, the next tranche will follow and so on.
It’s like being hired by a company to receive an annual salary package. With strict guidelines on performance and key indicators, the total annual salary is paid monthly. The employer will place them on probation for a period of time until they agree to raise the salary or trust that they are upholding their end of the bargain.
Investors commit to business investment based on the same concept, especially in a time of pandemics where everything could be considered a risk.
7. 7.Investors in people
Investors invest in people who are able to drive innovation and growth for the company. Entrepreneurs need to be more focused on their leadership skills, market knowledge, sales pitching, and other intrinsic factors than constantly seeking capital.
In an investment pitch for startups, most of the emphasis is on founders’ potential, business acumen, and capabilities. The plan, idea, and product become secondary.
The pitch is like a job interview. You won’t be able sell your business if you don’t know how to sell yourself.