When is the ‘Right Time’ For Startups to Approach an Investor?
The first thing that is often in the minds of most startup entrepreneurs or even those with just a ‘bright idea’ is to find an investor who can fund their idea or startup. But if you look at it practically, when the idea is still raw and untested, it may be too soon to even think on those lines. Unless you yourself have some validation for your idea or product, how can you convince others to buy into your dream and fuel your vision?
Just like there’s a right time for everything, you have to wait for the right time to approach potential investors to fund your startup. Going to them too soon will only lead to rejection and disappointment and even if you manage to get someone interested, since you yourself may not have an idea of the potential of your startup, you may end up with a bad bargain.
Here are some things that should have a tick mark in your checklist before the thought of approaching an investor even crosses your mind. After all, you have to be able to substantiate the tall claims you make to be able to draw their attention to your concept, product or service.
Pump in your own money first
If you are genuinely convinced about the potential to convert your idea into a successful venture, you should pump in your own money, i.e., bootstrap to kick off. It’s always easier to play around with other people’s money (OPM), but when it’s your own money at stake, the drive to make things work is far higher. Chances are you’ll be able to figure things out faster and adopt a more frugal approach since your core focus will be on your product/service, so you can start generating revenues to keep the momentum going. Also, it helps the investor understand your own commitment to your business.
If you have absolute passion and dedication to turn your idea into a viable venture, you wouldn’t treat it as a ‘second option’ and sail in two boats with a job in hand; sparing only the after-office hours or weekends to shape up or run the startup. That makes it a very comfortable scenario and it’s likely that at the very first sign of distress, you’ll ditch that brilliant idea of yours to continue with your corporate job.
And why would an investor want to fund such a venture in the first place where the entrepreneur himself/herself in unsure of the fate of the startup and wants to play safe?
Until you go the whole hog, commit yourself completely to your startup and put yourself in a ‘do or die’ situation, you will not be afraid of failing since you already have a backup plan ready. As an entrepreneur who is driven to succeed, it is important that you fear about the implications of failure and that can happen if you energies are focused solely on your startup.
Build a strong ‘core’ team
No matter how big the vision or how unique your idea; you can’t achieve it alone. And therefore, it is important to have a strong core team that shares your vision and is as excited about making it a success as you are. Select the first 10 people very carefully as these are the people who join you when you have nothing and will stand with you through all ups and downs.
While experience and competence is of paramount importance when forming a team for a startup, it is important that they are willing to multitask and look at the larger interests of your startup. A great team with proven execution capability is amongst the key factors for investors.
Show some traction
What do you think will make a greater impact on investors and your own confidence in your product/service?…Actual traction for your product or service or just some projections that you have made for your concept?
Well, nothing can beat the real thing. And that is why it makes sense to approach investors only once your MVP (Minimum Viable Product) is ready and you have enough traction to convince them about its potential. That’ll help you prove that you’ve already been successful in creating a demand for the product/service viz.a viz. some projections about an idea that is still in the concept stage and even you are uncertain whether or not the sales projections will come true.
There’s no greater validation you can get for your product/service than from your customers since your life literally depends on them. Knowing how your customers feel about your product/service will give investors a clear picture of where you stand and can help mitigate their risk.
Almost every investor will use the product/service and make sure people in their network also give a thumbs-up and sometimes they even contact your existing customers randomly before deciding whether to fund this startup or not.
Investment cannot be the foundation of a startup because every business comes with a risk. It is your passion, product/service, team, customers that should form the core of your startup. If you have these basics right, come good times or bad, you will be able to sail through them smoothly. And that is what’ll determine your fate in the market. Isn’t that what the investors are ultimately interested in too, since their fate depends on yours?
About the Author: Gaurav Agrawal is Co-Founder and CEO of on-demand washing & Dry cleaning service provider Pick My Laundry