A major reason startups fail is due to lack of funding. You may have a brilliant idea, but not the financial support to survive. This is why investment is paramount – but to secure this, you need a compelling investment proposal. We spoke to Korosh Farazad – Entrepreneur, Investor, Author and Speaker and Founder of the Farazad Group – to outline the top 5 steps to creating a successful proposal that will grab the attention of investors.
Firstly, do not overcomplicate your proposal into a presentation with images and graphs. Keep it clear, confident and concise. Investors prefer a soft proposal initially and do not have the time to plough through presentation decks and pitch books. You have 7 seconds to attract the viewers interest so your intro is key – keep it catchy and present a story line to bring to life your vision and your passion.
Evidence who you are and your independent track record within the proposal.Â
Lay out the fundamentals of your business and its USP – why does the world need your product or operations? What sets you apart from the rest?
Why should the viewer invest in you and not someone else? What’s your history of success? Even if you do not have a direct history of working in the current market of your startup, demonstrate your entrepreneurial character and/or strengths in other ways – from selling lemonade on the street corner to leading your team to success in another role.
Create and evidence the target audience. Prove that there is a market for your business by spotlighting your client base. Look at outlining demographics – age, gender, sex, income, location. Demonstrate that your business is going to work in the area in which you are launching it, to the people that you are launching it for.
Start-Ups MUST have a BETA and an existing following to evidence its potential growth and to show this is just NOT a dream on paper. Investors are not interested to see a “potential” vision, rather they want to see evidence of progress with the minimal capital the entrepreneur invested into the venture.
BETA is a tool for measuring risk-reward probabilities. It measures the systematic risk or volatility of a portfolio (your startup proposition) as it compares to the market as a whole.
Estimating BETA for a PLC is relatively straightforward, as it is calculated using stock prices. For a startup, however, there is no previous history or market data to work from. One approach, therefore, is to determine the industry average by assessing the average BETA of PLCs that offer a similar service or product as your startup. A further approach for those startups that have already launched, is to present the company’s historical earnings and current client base and demand against the market return.
Evidence of revenues does not have to be from a monetary perspective. Traction proves revenue, so prove your traction (consumer demand). This could be in the form of a large database of people that are interested in you and your service/product or a highly-engaged social media following.
Show how you will be using the money. Investors will question if you are smart with money or if you will use the funds irresponsibility – such as to establish mega-offices and unnecessary man-power, like what we have seen in the crypto and finance sector in recent years. Pull together a topline revenue plan categorising where the money will be used, covering areas such as fixed costs, variable costs, R&D, tax. Never include salaries into your proposal – this scares off investors, who will want to know you are sacrificing your personal profits to grow the business. With this, map out a rough timeline for when you expect the business to be making profits and the investor to make back his return.
