You’ve developed a product and won a handful of customers. But now you face the biggest challenge of your venture’s short life – you don’t have enough cash to pay your employees and suppliers. Should you shut down or can you convince investors to keep your venture afloat? Typically only less than 10% of entrepreneurs that seeking money from investors will make it through the entire 4 stage process.
Stage 1 – Executive Summary
Typically the first stage of the investment process, also known as pre-screening, is simply an executive summary round. You will start by sending in your 2 page executive summary. This round determines whether or not you will have the opportunity to meet with your potential investors face-to-face. According to research, only 30% of applicants will make it through this round, so do not take round 1 lightly. Famous venture capitalist Guy Kawasaki said in his book, The Art of the Start, “Of the effort you put into write a business plan, 80 percent should go into the executive summary. These are the most important paragraphs of your organization’s existence.”
Stage 2 – Investor Presentation
If you are lucky enough to make it to the second round you will typically have the opportunity to meet with your potential investors. You will be asked to prepare a short presentation, after which, the investors/funders will have an opportunity to grill you with questions. Going back to Guy Kawasaki again, make sure to follow his 10/20/30 rule. “A PowerPoint presentation should have ten slides, last no more than twenty minutes, and contain no font smaller than thirty points.” About 1 out of 3 will make it to the next round.
Stage 3 – Due Diligence
This is the third and probably most intense round. At this point the investors are going to want to know everything there is to know about you and your business. Be prepared to answer lots of questions and provide the potential investors with a detailed business plan. You might feel like you are applying for a position in the CIA because the investors will want to dig deep into your personal and professional background. If you have nothing to hide then this round should be a breeze. Only about 1 in 3 entrepreneurs will make it out of this round alive to move on to the final round.
Stage 4 – Investment
Congratulations you made it to the final round. Now you have about a 50/50 shot at receiving funding. You will probably be asked to come back in for a final investment presentation in front of the entire angel investor group or credit committee. Sounds terrifying. If you are well prepared, this round should be a breeze. The potential investors clearly have an interest in your business because they have brought you this far. Now this is your chance to get them to buy in to your vision. Even more important than selling your vision, you need to show them how they will make piles of money.
This 4 round process is intimidating to most entrepreneurs, and for 90% of business owners it ends in failure. If you get turned down once, don’t let that get you down. There are literally hundreds of thousands of angel investors across the country and you just might be able to find the one that will help you take your vision and make it a reality.