How Early-Stage Businesses Differ from Established Ones
When you consider opening a business, you'll find that not all investors are interested in start-ups. Instead, you'll need to explicitly seek startup investors to get extra funding. This is because there are some key differences between established companies and new ones.
One of the biggest things that affects investor readiness is the ability to look at a company's track record. Early-stage business have little or no track record, and this is what scares many investors off. They want to be able to look at the last five or 10 years of a company's returns, see that the company is still on the same track, and make a relatively easy prediction of future performance based on those facts. This is fine if your company has been around for a long time, because by then, things like ongoing expenses and month-to-month financial changes will be known. However, if your company is new, you won't yet have these numbers.
Startup investors, on the other hand, are used to working with a lot of unknowns. They can predict some numbers based on other companies' results, such as how much it costs to lease a building of a certain size and how long it typically takes for a business to expand. However, many important details will not yet have materialized. Therefore, they must use other metrics to gauge whether or not they should invest.
Because of this, one of the main things a new entrepreneur must do is sell the idea of their business rather than hard figures. However, any figures that can be obtained should be, such as the cost of making products or providing services, the amount of competition present, and other factors that can be determined at the time of seeking funding. The better the picture looks, the more investor readiness you will find.
Another factor that affects investor readiness in early-stage businesses is the fact that their owners are often new to business in general. This newness makes investors wary. Learning about business is much like learning anything else; results improve with practice. Therefore, investors are much more willing to invest in someone's 10th startup than his or her first, assuming that the other 9 businesses did well and were later sold instead of closed down.
That said, it isn't impossible to get funding for your very first business. After all, the 10-business entrepreneur started his first at some point, too! However, you will likely have to be more perseverant in order to find investors who are more willing to take a chance on you.