How to Check Your Business Idea is Worth Pitching to an Investor

Do you have a business idea but need investment to get it off the ground? If so, one option you have is to pitch the idea to an investor. Preparing a business pitch to investors is a lengthy and time-consuming process, however. This is okay if you have a chance of getting an investment, but there are some business ideas that won’t get investment and there are others which have the potential to get investment, but not in their current state.

Here are some things you can do to ensure your business idea is ready to start pitching to investors.

Do You Have a Track Record?

Ideas that investors like the most are those that already have a track record. This includes having a sales history and/or confirmed orders. With this, you will also have generated revenues and, potentially, profits.

A track record does one simple but important thing in the mind of an investor – it shows the investor there is a market for what you sell.

Of course, it’s not always possible to build a track record before you pitch to an investor. So, let’s now consider what you should look at if your business is not yet trading.

Make Sure Your Idea is Good

Before you even start thinking about putting together a pitch for your business, you should make sure your idea really is as good as you think it is. This is often a tough process, but it will highlight flaws in your idea now rather than going through all the work preparing a business plan and a pitch only for the investor to point out the problems.

To check your idea is good, explain it to people you trust will give you honest feedback. Don’t be defensive when doing this as the objective is to get opinions from people who are not as close to the business idea as you are.

Another helpful tip is to keep looking for someone who doesn’t like your idea until you find them. After all, you won’t learn much if everyone tells you the idea is great or has potential. Again, you should remember this process is about learning and refining your business idea, not trying to convert others to your way of thinking.

Going through this process will give you a reality check on how good your business idea is, plus it will help you refine the idea. For example, someone you discuss the business with might give you something you haven’t thought of yet.

In addition, explaining your business idea to people you know and are comfortable with will help you refine your pitch, i.e. you will get better at explaining succinctly and clearly what the business does.

Types of Business Investors Don’t Like

There are some types of business that are often viewed by investors as being bad investment opportunities. This doesn’t mean they are necessarily bad ideas, although in many cases they are. From the investor’s point of view, however, there can be good business ideas that are simply not good investments.

These include:

  • Businesses that plan to take on dominant market leaders. An example would be an online auction website that intends to take on eBay. You might be able to do it, but investors are unlikely to take the risk unless you have discovered something truly unique and ground-breaking.
  • Businesses that are not unique or don’t add true value. These are businesses that can be easily replicated so are often not good investments.
  • Businesses that are trying to do too much too soon. For example, investors will be hesitant if your business idea involves going from a standing start to launching 10 products, with none of them being tested in the market.
  • Businesses with limited potential for growth or expansion. These are often referred to as lifestyle businesses. They are businesses that can be profitable and can give you a comfortable living, but they are not profitable enough to also give a worthwhile return to an investor.

In our next blog, we’ll give you tips on how to pitch your business idea to investors.

If you need more help or business advice, please contact a member of the Gilroy Gannon team today.

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