11. October 2018
Margareta Křížová: How to find an investor, prepare for a meeting, pitch and negotiate
The relationship between investor and entrepreneur is like any other: Trust, but verify. Speak and listen attentively. Look for chemistry and follow the intuition that tells you either to go for it or leave. Communicate your needs openly, but be willing to find a compromise. "An entrepreneur and an investor are equals. You bring the idea and work and the investor brings money. No one should feel tricked, "says Margareta Křížová, an experienced businesswoman, mentor and investor of time.
How to Find an Investor
What should be my first steps in finding an investor?
I would recommend you make a list of investors whom you would like to contact. I would find out who the investor is, what investments he has made before and how he acted during the course of those investments. Sometimes it happens that someone has a bad reputation, but they are a nice person, and vice versa. I would talk to the people they invested in and ask them how it went.
Where can I find such people and information?
There are a number of sites, e.g., Forbes, Forbes Espresso, Forbes Next, Ihned, Czech Crunch, Lupa and Tyinternety. Besides you can also go through funds’ websites’, see investment portfolios, and then contact investors and funds directly. Probably not everyone will talk to you, but I would definitely try to find references. Investors do due-diligence on every business they want to invest in. Why should not you, too, know who your partner is? It's not a partnership for only a week.
Let's say I've already found several investors. How should I address them?
You can reach out to some by email; some you’ll meet informally. It is necessary to go to various events and conferences where investors are present. You can come to them and say, "Hello, I'd like to introduce you my business," or "Can I send you an email?" While one will not reply to your email at all, another will write only once and then never again. Investors are strong personalities and it is not easy to communicate with them. But on the whole they are nice people who are interested in good business.
What if I contact the investor several times and they do not answer?
If someone says, "Send it to me, I’ll look at it," and nothing happens after you’ve followed through, I would send a reminder email. If they still do not answer, I would do one more try, and then I would leave it. It happens to me that people write me and I forget to answer them. But when they remind me, I apologize and write back. If someone does not respond to the third message, one can assume that they are not interested.
How to prepare for a presentation
I have a meeting invitation. How should I prepare?
You should have a polished presentation in which you should mention 1) what you sell, 2) to whom you want to sell it, 3) why someone should buy it, 4) how much you’re selling it for, 5) with whom you will do business, and 6) how you will get it on the market. You need to say everything in the simplest way. It is good to try pitching to someone who is not involved and will tell you if they understand it or not.
What should I be sure not to forget while preparing the pitch?
Do not forget to mention the amount, purpose, budget spending, shares and financial outlook. You should also have a clear idea about next steps when your business becomes successful. Many people are afraid that the business will not work out, but they don’t fear - because they don’t realize - that they will suddenly have to make more products, employ more people and acquire more money for the material. These are questions that investors want to know the answers to. It is necessary to prepare for them and to be bulletproof.
How to Pitch
Do you have any tips for a good pitch?
It’s good to look at how others pitch. I would definitely go to see business presentations in incubators, demo days, business competitions, and similar events. In addition to presentations, you will also hear feedback and investors’ questions. There is no better way to prepare for your own presentation.
Many entrepreneurs are afraid that when they start talking about their idea, someone will steal it. What do you advise?
It is very individual and it is an art to be able to recognize when to say nothing or at least not too much. But I would certainly not say everything. People also often ask when they should start talking about a confidentiality agreement. Some investors do not sign one at all, others sign it at later stage. But I would not talk about it at the first meeting.
I’ve finished my presentation. At first glance, everything went well, but there is something fishy about the investor. Is it important to feel a chemistry between the entrepreneur and the investor?
Absolutely! Having an investor who doesn’t click with you is difficult. There are people who will tell you, "I don’t mind an unsympathetic investor. We are just doing business." I don’t think it works. If someone is able to function like this, so be it. I personally could not, and I know there are startups that are not doing well because of bad relationships.
When I feel that the investor is a good fit, how should I proceed after the meeting?
Personally, I would take notes from our conversation, send an email thanking them for meeting me and mention the key points that were agreed on. You should always leave the meeting with a clear idea of what will happen next. Either you are going to meet or they are not interested, or they will be interested if you change some of the parameters. Sometimes it can feel like the two people have been to very different meetings. The phrase “written in stone” doesn’t exist for no good reason.
How to negotiate
How do you know that the investor is interested?
After the meeting, if they liked the idea, they will send a brief summary about how the investment could look. In the so-called term sheet, they will mention how much money they can provide, what share they want, in what areas money can be used, and whether they want to buy a stake in the existing business or establish a new business. At times it happens that the investor asks the entrepreneur to submit the proposal instead.
In that case, how should such a proposal look?
The proposal should indicate how much money you need, what share you are willing to give, what areas you want to invest in and how fast you will spend the money. It may look something like this: "I need two million, and I offer a 25% share. I'll spend the money within six months, with half going into development and the other into marketing."
What if the investor says they will offer you three million for a 40% stake, what would you do in that moment?
In negotiations, everyone has to think through how far they are willing to stretch. If you do not want to give more than 30%, say it. If you give too big a stake in the beginning and another investor comes in later, you might not have any money left at all. I understand that the investor is entering into a high risk investment and wants to keep a level of certainty by having a large share, but no one should take 90%. Unfortunately, you can even see this in the market.
So, you advise against backing down?
Yes. You should openly say what your expectations of an investment are and what benefits you will gain. Negotiations should go something like this: I say what I would like, I listen to what the other person would like, and then we negotiate a compromise. Negotiations are not about someone detailing the conditions and you just signing the contract. An entrepreneur and an investor are equals. You bring the idea and work and the investor brings money. No one should feel tricked.
Margareta Křížová is one of the founding partners of the CEAG consultancy and works in the field of M&A and business-strategic consultancy. She also acts as a mentor for start-up entrepreneurs and writes the blog From the Journal of an Investor of Time. She studied International and Public Relations at the College of International and Public Relations in Prague and MBA at ESCEM School of Business and Management and University of New York in Prague. She was one of the investors for the Czech TV show Day D and for two years she moderated her own program on ZET radio, Doing Business from A to Z. She participates on judging panels in business competitions, organizes workshops and seminars, and is the author of From the Journal of an Investor – How to Do Business and Not Go Crazy, which was published in June 2018.