Those who cannot rely on equity or the financial support of friends and family to set up their new company, or who want to finance growth from cash flow, must tap external sources of financing. Such sources not only have to endorse the business idea, but also be convinced that the risk is worth it. The five most important points will show you what is required for this type of “investor readiness”.
Anyone who starts a company and needs outside capital must understand what makes investors – business angels, venture capital companies and other financiers – tick. It is often said and written that passion and the conviction that one’s business idea will revolutionise the world are important elements in convincing investors. Forget that. Investors do not think in terms of passion. They think big. They want to bet on the winning horse that will multiply their investment in the end. Those who can empathise with their potential investors and pitch to them accordingly have already taken an important step towards scoring points with investors.
It rarely happens at first contact, but the moment and the chance to pitch the business idea to potential investors will come one day. At that point, there is only one principle to follow: be well prepared. Really well prepared. Pitching to investors with a so-called pitch deck (PDF, 8.0 MB) cannot be practised often enough. The most common mistake is talking too much about the product, the technology, the details, wanting to explain everything and doing a full sales pitch. Remember that you want the potential investor to be excited about your company and your business idea. You are not actually selling them your product.
Business Angels Switzerland, an organisation that invests time and money in start-ups with innovative projects, mandates that a presentation should last no longer than seven minutes. Any longer, and the pitch is stopped. The young and new companies presenting must be absolutely solid when it comes to figures. Experienced financiers expect that companies can assess the market potential correctly, that they back it up with robust data and that they can confidently answer even awkward or difficult questions. People who want money may appear self-confident but not arrogant and must make a recognisable effort at any rate.
Presenting yourself and your business idea to potential investors must not be about ego. “We pay particular attention to the team, that is the most important factor,” says Guillermo Forteza, Senior Investment Manager, Baloise Mobility Unit . He and his team put start-ups through their paces to assess their potential. After all, the Baloise “Mobility” ecosystem wants to change the way people move from A to B in the future. With this mission, it supports and invests in promising start-ups in the field of mobility. Forteza expects a strong entrepreneurial spirit and a solid, in-depth grasp of all relevant aspects. The start-up team must have complementary experience, skills and backgrounds. Four ingenious IT specialists do not automatically guarantee market success.
“If you have a brilliant idea but can’t sell it, you won’t be able to sell your product or service,” explains Forteza. Investors are not only interested in the qualifications and references of the team. They also attach particular importance to ensuring a balanced start-up team.
Every successful financing concept must be able to convincingly demonstrate the problem the company wants to solve as well as by what means and for which market. Investors require answers to questions such as: Is the market large enough? Is there a solid plan for execution? Is the business plan plausible and watertight, the financial plan realistic? You must meet further requirements to be “investor ready”:
- Growth: Those who want money must also be able to show clearly what the fresh capital is to be used for. Growth is generally the main focus. After all, it is about growing the capital invested. Start-ups must be able to explain in a comprehensible way how they intend to scale their business model successfully. No investor will take the risk of investing in your project if there is no prospect of growth.
- Valuation: The company valuation is often only based on assumptions and planning figures at the start. Still, it is imperative that you can convincingly establish and explain cost structures, price calculations, break-even points and other hard facts. Keep it realistic, though, even if the numbers are modest at first. Unrealistic, exaggerated market valuations tend to scare off investors.
- Exit strategy: Something that is often forgotten, but is of interest to investors, is the exit scenario. The reason is that they usually only earn money when they can sell their investment or equity interest at a profit. Those who address possible exit strategies at an early stage signal two things to investors: the start-up understands their point of view and at the same time shows how it plans to work with business partners.
Investment manager Forteza insists on engaging with the investor in a real way. “We expect the start-up team to delve into our portfolio, do appropriate research and ask us questions.” One such question, for example, is that about the decision-making process of the investor. At Baloise, an investment committee deals with proposers. It provides initial feedback within two weeks and usually makes a decision within three months.
Banking and insurance are the core business of Baloise, which is being strategically expanded to include the Mobility ecosystem, among other things. To tap into new markets, Baloise is developing a portfolio of young companies – with the aim of becoming a multinational provider of mobility services in Europe. The focus is on start-ups in the field of mobility who are convinced that their idea will change our future. Baloise provides financial support to start-ups with promising solutions, regardless of whether the idea is still at an early stage of development or already has the first paying customers. The focus is on the seed and series-A phases.
Are you a mobility company in the seed, series-A or B phase looking for investment? We are looking for mobility solutions that have an impact, complement our current portfolio and continue to grow our “Mobility” ecosystem.