How to Pitch and Sell a Startup Idea to Investors?
Getting investments for your startup isn't easy, let alone selling the complete startup.
But with a proper plan you can easily pitch your startup ideas to potential investors and buyers.
Read this blog post to learn how to pitch and sell your startup to investors
Table of Contents
Some startups care less about money than the success of their brainchild. After all, some want to create more than just an ordinary product. They want to create a large company that can grow the whole world and possibly make it better. At least that’s what they say to the public.
But there is another side of the coin: startups who are confident that their idea or product will be successfully absorbed by another, larger company. A kind of “startup for sale”. One of my acquaintances said, bluntly: “I am working to sell my startup for one hundred million dollars. Of these, about thirty million will be mine. This will be enough for a normal life, investments, and I will also help the children get back on their feet. ” And there are a lot of such people.
But selling your startup is not easy. You need to find an interested buyer, prepare documents, reports, and create a strong team that, even without the personal participation of the founder, can keep the startup afloat.
3 scenarios for selling your startup Idea
However, we decided to approach the coverage of the topic more globally and tell you about three scenarios of selling your startup at once.
- Sell a startup idea with no visible profits or results.
- Sell a startup that has risen and knows how to make money.
- Selling a startup as an investment: what to do to build relationships with a potential investor.
Immediately, we note that each of the possible scenarios implies a lot and painstaking work, which will take a lot of time from the head of the startup. You need to be prepared for this, as well as for the fact that from time to time, unpleasant questions will be asked and people will refuse to accept the pitch, and someone will not pick up the phone at all.
Selling an idea
Today, almost no one is ready to invest in an illusory project, the development of which stopped at the stage of “creating a new social network of the future.” Representatives of various venture funds and start-up accelerators have pointed out more than once: everyone has a lot of ideas, we want to see a real project in which money can be invested. In fact, this is a reality from which you cannot run.
Even the most ingenious idea cannot be simply presented as one sentence in six words. It should be a project, prototype, or business plan, even if in the simplest form. For example, the idea of ” doing a workout in 7 minutes” is nothing special. It is a kind of idea that has already acquired a shell, but it is still far from the final product. But after the corresponding site appeared on the Internet with a set of simple applications, and timers, the developers got rich on downloading paid applications to mobile devices.
Such an idea can already be sold to an interested large company or to people who are ready to take on its implementation. It will be difficult to get a million, but you can agree on a percentage of income if it is successfully implemented. Ideas and prototypes work great on platforms like Kickstarter. Most of these are at the prototype stage, which is why the delivery time often stretches for months, and sometimes even a year. This is excellent, and most importantly, a very real way to sell your idea to the public and evaluate its reaction.
And you need to come to terms with the fact that no one wants to buy just ideas today. People want to see what they are investing in.
Selling a full-fledged startup with a team and a monetization plan
Despite the active creation of startups in the United States, 8 out of 10 people do not want to take the place of the CEO of even a small chain of stores, let alone a startup. It’s all about the load and constant stress when the weekend disappears from the plans for many years. In this regard, many startups are working to grow the project to a large size, make money on the sale and work as a hired employee, or completely withdraw from the project.
There are some general rules to help you sell your startup.
Inform about the sale in advance
Most likely, no one will knock on the door the day after the information about the sale of the startup appears. The market needs to be prepared for this by informing in advance about the intention to sell your product. Experts advise informing about the intention to sell the company 6-12 months before the start of the actual sale. This will allow you to achieve several goals at once: 1) potential buyers take up the study of the prospects for the acquisition; 2) expand information on the market, increase the customer base; 3) build up the hype and drive up the price.
Also, time is needed to prepare all documentation for the company. It is necessary to prepare a team, prioritize sales and inspire everyone with the desire to work even more actively this year, promising bonuses in case of a successful sale. A properly charged team is one of the factors that potential buyers will pay attention to.
Work with clients yourself
There are times when companies themselves are fighting for your business. For example, as in the case of WhatsApp (Google offered $10 billion, Facebook – twice as much). But more often, it happens that the owner of a startup cannot boast of having a unique technology or incredible performance. In this case, experts advise personally engaging in the sale. To do this, you need to compile a list of potentially interested companies, funds, investors and ask for personal meetings. During personal contact, it is necessary to demonstrate the main indicators of the startup, and talk about the prospects. If the startup is not a failure, investors will be found quickly.
Prepare a realistic price
Buyers will obviously ask about the price, after which they will start bargaining and knocking out discounts. In this case, experts advise preparing your own formula for the withdrawal of the company’s value or take an existing one. Asking for a certain amount for no known reason is a bad sign and an incentive for the buyer to knock out discounts.
A startup founder is not a whole startup
You can’t think only about yourself and about the amount that will be used to replenish your bank account after the completion of the transaction. A startup is people who helped a common idea to come true. Lawyers who usually deal with start-up purchases advice writing everything possible in the sale contract: continuing the work of current employees in their places, keeping wages, responsibilities, the possibility of buying options, office space, privileges for employees. After signing the contract, there will be no opportunity to influence this.
Don’t forget your startup
In an effort to sell your startup, you can forget that you cannot freeze its activities. As before, you need to monitor it, develop it and do everything by the business plan that you show potential buyers. Even after you shake hands, you still need time to complete all the documents. This can take months. For example, Microsoft’s takeover deal for Nokia (yes, we know that these are not startups, but still) has been considered for almost seven months. All this time, the startup has to work, find new clients, pay salaries and think about growth.
“Selling a startup” as attracting investment
You can also “sell” a startup in the sense of attracting additional investments for your project. Money is needed for additional development, marketing, growth, and a host of other reasons. All this must be explained to the investor and the idea must be correctly conveyed to him: a million dollars is needed not for a new Audi, but for developing a startup. There are two scenarios here.
The first is the line of those wishing to invest money. Such a situation is possible when the startup is really good and has managed to sell itself to the market even before the moment when it really needed the money. A striking example is the American startup Uber, which has managed to attract more than $3 billion in investments, and the flow of people willing to give money does not dry out.
The second is when there are no investors. This scenario often applies to small startups that have not had time to show themselves. In this case, the same approach is applied when selling a company: you need to draw up a list of potential investors and seek a meeting with them. It is often difficult to get an audience directly, so you can ask someone to introduce you to each other, for example, those who have previously attracted investments from this fund. Various conferences and meetings are held from time to time.
Why you shouldn’t be afraid to contact funds or investment companies directly
A doctor’s job is to heal people. The driver’s job is to drive vehicles. The job of a lawyer is to resolve legal issues. The job of investment fund employees is searching for and investing in startups and companies.
In other words, the main task of the fund is precisely to find new, interesting projects to invest money in or buy them for subsequent sale from other companies. But no matter how many employees the foundation hires, it is difficult for them to keep track of everything. Therefore, they are ready to accept and listen to every potential client.
But you need to come not empty-handed, but with a finished project. Talk about the current state of affairs, potential team, ideas for monetization. And then there is every chance of getting into candidates for investment or business sale.
If you are looking to develop and build an MVP for attracting investments, contact InvoZone today. We have already helped startups that are sold for millions of dollars (Meridio sold to Consensys) and those which acquired a handsome amount of money in investment (Stakester raised $2 million).