Nicolas Ramos, COO of Endeavor Argentina‘s Córdoba office, spoke with local newspaper La Voz Noticias on how entrepreneurs can intelligently approach and secure investors.
Read the original version HERE (en Espanol). An English translation appears below.
1. What factors lead an investor to “buy into” a project?
There are different stages in a venture, and each stage has a certain type of investor that would be interested in investing. The seed capital needed to start operations is usually provided by what is called the 4 Fs: Family, Friends, Fools and Founders. They buy in because they believe in the person. They don’t study the business plan; they may look at the return on investment a few years away. Professional investors such as angel investors or investment funds usually invest in companies that are already in operation to some degree. At this stage, the company should have a defined business model and a growth strategy. Angel investors or funds will be interested in the entrepreneurial team and how they problem-solve, their leadership style and their ability to perform under pressure. Investors at this stage also look for an exit strategy. They usually buy a minority stake in the company so that in the next round of financing, equity is purchased by another investor for a higher price. An investor puts money in at this stage for operations — equipment, working capital and other items that grow the business — and not for the entrepreneur to take home. It is important to clarify that investors in the early stages of a venture are usually not interested in joining the management team of the company.
2. What are the most common mistakes entrepreneurs make when pitching their projects to an investor?
It’s important to keep the pitch professional; the entrepreneur is not asking for help, but asking for money. It’s especially important to define the terms of the investment. Also, entrepreneurs often concentrate on the specific product or service they are developing, rather than on the business. An investor needs to know what the company produces and what makes it competitive, as well as the business side of it — who’s the target customer, what’s the market demand, who are the competitors, etc. A great product can have a terrible business. I usually advise entrepreneurs looking for investors to ask them to contribute more than money. They must look for “smart money,” an investor who will also add a network of potential investor contacts, or knowledge and experience.
3. Is it true that it’s especially difficult to get financing in Argentina?
Both funding and investors are scarce in Argentina. For some enterprises, there are many government programs that can contribute financing for companies, such as non-repayable contributions or loans with subsidized rates, such as SEPYME (Nation) or the Ministry of Industry of Cordoba. I cannot comment on bank loans. A network of professional investors is just beginning to develop with some success, but of course, there is less of this than in countries like Chile and Brazil.
4. What’s your best advice for entrepreneurs?
One important thing is to focus on the strengths of the entrepreneurial team. Another key issue is developing a simple way to explain the potential for business growth: the more attractive the business opportunity, the more investors will be interested in participating.