Mitigating Risks to Become Investor Ready
Written by Princess Wilson
Starting a new business comes with a fair share of risks that may deter founders from kicking their ideas off the ground. If you’re looking to raise money, these risks — if handled incorrectly — can also become a stumbling block in convincing an investor that an idea is worth putting funds into.
Hence, before speaking to a potential investor, founders must develop appropriate strategies to mitigate foreseeable risks and lower the investor’s risk as much as possible. Business owners can do this by identifying risk-mitigating milestones. In doing this, business owners can reduce financing costs and equity needed to find investors, thereby increasing the probability of the startups’ success.
In this article, you will learn about some key areas business owners can focus on to mitigate risks and make it easier to raise funding.
1. Establish a Risk Management Team
Before kickstarting a risk mitigation plan, you need a team to specifically manage these risks. In establishing a risk management team, you can hire a specialized firm outside your business or create a team in-house by delegating an employee with experience in this area to head the team. With a team, you can quickly identify business risks and develop strategies to prevent or mitigate these risks or threats.
2. Prioritize Risks and Threats
At the top of any risk management plan is prioritization. Business owners can begin by prioritizing risks using the likelihood of each risk happening. That is, make a list of the risks and threats that may affect your business and grade them based on which is very likely to occur down to those with very little chance of occurrence.
Using this prioritization list, the threats that a very likely to occur should be handled above others. Develop a plan that can mitigate or prevent it from happening if possible. However, if there’s a risk that has a low chance of occurring but may cause more significant financial loss, that risk should take precedence over others.
3. Set Up an Advisory Board
An advisory board is generally made up of a group of experienced individuals who will provide support to your business. Setting up this board puts your business on the right path and exposes you to many connections that will lead to growth. In exchange for invaluable advice, your company offers stock options as incentives.
Creating this board will not just give you access to great advice on how to run the business, but it also shows investors that you’ve got industry veterans who believe in your company’s goals.
4. Get Insurance
Buying insurance gives you fewer things to worry about. Getting insurance means transferring foreseeable risks to an insurance company at a relatively small fee. There are many different kinds of insurance needed for various businesses, and this can be discussed with your legal team. For example, if you run an IT firm with many gadgets, such as laptops and monitors, having these items insured will give investors some comfort.
5. Get Beta Customers & Limit High-Risk Customers
Securing beta customers and limiting high-risk customers are critical ways to set your business up for success. First, beta customers are customers who test your products and service at no cost and provide appropriate feedback. The good thing about beta customers is that they prove to you and investors that there is a market need for what you offer and allow you to make improvements before hitting the market. This also reassures investors that your company’s offerings will satisfy customers’ needs.
Second, limiting high-risk customers is critical, particularly for new businesses. Implement a strict rule that customers with a poor payback history must pay ahead of time. This will avoid any issues in the future, help your business grow easily, and improve investors’ trust.
6. Build Partnerships
Building partnerships as you grow your business can significantly transform the company. Partnerships open your business to new opportunities and a wider customer reach. They are also a strong indicator of the company’s viability and show investors that other businesses in your industry trust your company’s goals.
However, securing partnerships can be difficult, particularly for new businesses. Nevertheless, with the right network, it can be significantly easier. Founders can leverage their network and speak to entrepreneurs in the same industry on prospective partnerships. Even in situations where they may not be interested, they can connect you to those who might. If you’re struggling to grow your network, try attending more local events and webinars within your industry and engaging with peers.
7. Outsource when Necessary
Knowing when to outsource — especially for startups is essential if you want your business to succeed. While certain tasks can be completed in-house by employees, it would be best if others are outsourced. This is particularly true for specialized tasks involving fields like accounting or law. Outsourcing these tasks to specialized professionals is significantly cheaper than assigning them to someone in-house who may do a poor job and incur significant losses.
Asides from tasks, outsourcing things like trucks, for example, if you don’t need them for day-to-day business operations, is also a great way to save costs and show investors that the company spends meticulously.
Bottom Line
Now that you know the areas to focus on to reduce the chances of failure, what does it mean to be investment ready? To know if a business is ready for investment, founders should be able to clearly explain its impact, business model, and investment proposition. To learn more about setting up your startup for success, register for Accelerate by The Bulb. Accelerate is an 8-week program designed to help African tech founders build sustainable businesses by providing resources to boost growth.