It’s practically impossible to raise money for a business with only an idea. Unless your name is Zuckerberg, Gates or something along those lines, then you will need to have something more than just an idea to get startup funding. Investors want to see some tangible proof that your startup idea will actually result in a fast growing business with the potential to become very large over time.
So what if you have a fantastic idea, but not enough money to get the business started? You will need to approach potential investors, like family, friends and venture capitalists, and see if they would be willing to invest in your business. While potential investors are most interested in seeing a finished product and some sales data, there are many other things they look for before deciding to invest.
Here are some of the things you will need to attract potential investors in your startup idea.
1. Leadership team
One of the most important things that investors will look at before deciding to invest in your business is the leadership team. That includes you and anyone else that is going to help you get the business up and running. If you’ve never run a business before, or held any type of leadership position in a company, then you will need to prove that you are up to the task.
Also show how others will make up for the experience you lack in any particular area. For example if you have a background in sales then you will need to show who is going to do your finances and manufacturing. You might use your personal accountant to keep track of your books and pay the bills and outsource the manufacturing to another company.
In another example, maybe your specialty is software programming and your partner is an expert in computer networking. That would show that you have the technical side of the business pretty well covered, but would need someone to perform administrative tasks like bookkeeping and personnel management.
Depending on the nature of your business idea, you will need a prototype so you can demonstrate how the product or service will operate. Ideally you will have a fully functional prototype that your potential investors can touch and play with. However, depending on the complexity of your project that may not always be possible.
For instance, if you are building a rocket ship that will transport people into outer space or a new apartment building, then it’s very unlikely that you will have the funds to build a working prototype. In those instances, you will have to rely on Power Point presentations, schematics and some sort of small scale model to show potential investors.
On the other hand, if your idea is more simplistic there are plenty of things you can do to build a prototype. For example if you are building a smartphone App, then at least you should have some wireframes that explain the user experience. There are also software programs that allow you to build software prototypes that simulate how the program is supposed work.
For mechanical types of products, you can always go to the hardware store or local arts and crafts outlet and buy some inexpensive materials to build the prototype. There is nothing wrong with using a little wood or Styrofoam to build something for your potential investors that will give them a rough idea of how it will work.
3. Proof of concept
As mentioned at the beginning of this article, investors want to see how you are going to make money. However if you don’t have enough funds to get the business off the ground, then you will at least need to prove to investors that your concept has a chance of making money. In order to get over this hurdle, here are a few things you can do.
- Get a purchase order from a large distributor in the industry
- Collect feedback on your website from potential customers
- Ask people to join your email list if they are interested in future developments
- Conduct some primary market research with potential customers
- Hire a consultant with expertise in your industry that can speak to the validity of your idea
These three things are the bare minimum that you will need to get funding from outside investors, live Angel investors or venture capitalists. Your family and friends may be more forgiving, but don’t count on it. No one likes to throw money away on a dream.