Outside Investment - Is Your Company a Candidate?

by Townes Haas
1/30/2018 10:27:13 AM

How to Know if Your Company is a Candidate for Outside Investment

Every entrepreneur needs to raise capital at some point in time, as a business requires a large cash injection to get off the ground and even survive long-term. Crowd-funding, social media and other new avenues to getting media attention and capital make it is easier than ever to launch a startup, but investment capital has become increasingly competitive as a large sea of companies vie for the attention of angel investors and venture capitalists. Crowdfunding platform Fundable reports that investors or venture capitalists fund less than 1 percent of startups, whereas 57 percent of startups receive loans or credit, and another 38 percent are financially supported by family or friends. The issue is not that investment firms don’t want to invest in startups, or that they lack the capital, overall the larger problem is that many companies just aren’t a suitable candidate for outside investment. Here’s how to determine if you startup is.

You’re expendable unless expandable

If your business can’t grow over time into a household name then there’s no interest for investors. You may have a great business idea but if it can’t expand, develop and remain sustainable over the long term then you’re not an investment, you’re just a great business idea. If investors can’t envisage a massive return on their investment in the long term and envision the acorn seed growing into a huge tree then they won’t have any interest.

You’re a control freak

To accept outside investment means to accept outside help and relinquish some of your control over the company. Oftentimes angel investors may believe that due to their long years in the industry they have superior knowledge and know-how as compared to the owner of a startup. They may expect you to acquiesce to their decisions or bring on board advisors to direct your business. If you’re not willing to have someone else tell you how to run your business and want to remain at the helm at all times then you aren’t a candidate for outside investment.

You’re already broke

Outside investors expect you to have a handle on your income and outgoings as well as other sources of capital. If, when you present your pitch to them you’re already struggling or don’t have a financial leg to stand on, it is likely they will be wary and they won’t want to invest in your company.

Your idea is a pipe-dream

If you want to get outside investment then you had better not only have a rock solid idea and a strong pitch, but numbers to back up your vision and evidence that your boat can float. Investors will only consider your company if there is a proof of concept that your business works - known in the trade as ‘initial traction’ -  that means proving that you are able to generate regular paying customers and maintaining a steady revenue of at least $10,000 per month. Additionally, it means demonstrating a healthy burn rate of capital each month. If you can’t demonstrate sustainability, stability and potential longevity, then your business will not be suitable for outside investment.

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