The ABCs of the investment process

There is no project that can function without capital, so if we don’t have it ourselves, we need to find someone who does. First and foremost, it’s important to understand that investors already know not every deal they make will go well—therefore, the first decision any entrepreneur must make is to lose the fear of talking to this type of player.

The first thing we must do in front of an investor is to capture their interest. The presentation is essential, along with participation and proactivity. Simply emailing the project won’t help at all. You must create an opportunity to meet—and, of course, be well-prepared for it.

In the context of seeking investment, networking is key, because we all work through networks. While this world has its formalities, it’s also important to be spontaneous. Never be shy—investors are investing in the entrepreneur, not just the project. I’ve been part of projects that were failures as products, but the team adjusted the product or market focus, and we moved forward successfully.

So, the first attractive element for an investor is the team, which must be selected based on competencies and capacity to develop the business model and the processes to implement it. A good team can succeed with a mediocre idea, while a mediocre team will fail with a brilliant one.

Why do we want to bring an investor into our company?

We’re interested because they’ll bring capital—but also decision-making capacity. An investor is not a lender—they’re a partner, and therefore also an owner.

There are many types of investors, and we should always consider what else we expect from them beyond money. For example: networking, sector expertise, advisory contacts, international relations, synergy with other companies, and more.

Each investor has a profile, defined by capital availability, time, and experience. No investor funds everything—so the next most important step is to find the right match. Each project we manage requires a different investor profile, and we must remember that investors are also looking to recover their investment with returns.

However, we should never look for an investor who only provides money—we must look for synergies.

How do we find the right investor?

We can define the range or profile of the investor to whom we can present our proposal:

• If I only have an idea and need up to US$ 50,000 to create the company’s foundation, the ideal investor will likely be among the well-known “Founders, Family and Friends”.

• If I already have a startup with a defined product, ready to produce and sell, and need between US$ 50,000 and US$ 200,000, the project is suitable for presentation to a first-round business angel.

• If I have a startup with a product already in the market, with growing sales and expansion potential, and need between US$ 250,000 and US$ 500,000, it’s appealing to a serial business angel, an investment company, or a small fund.

• If my startup has become an SME with consolidated sales volume and potential to scale globally, and I need between US$ 500,000 and US$ 2,000,000, I should present it to a venture capital fund, ideally one specialized in my industry.

It’s important to know that the main capital investors in early-stage projects or companies are business angels and seed or growth capital funds.

Business angels are hard to find individually. The best approach is to connect through angel networks and present the investment proposal there. Still, this doesn’t exclude the possibility of identifying private investors who are willing to invest directly.

The geographic scope of the potential investor also matters. Investors who fund up to US$ 250,000 usually won’t invest in projects that are more than an hour’s travel away.

How to prepare the project presentation?

The presentation to an investor is crucial to gaining interest in our project, and we must have multiple formats ready:

• Executive summary: a very brief document, free from poetic language, outlining the basic elements of the investment project.

• PowerPoint: used to present the project to a group of investors. Should include plenty of images and little text. It’s a tool for explaining the details in person.

• Extended summary: a three-page document with a more in-depth description of the product. Given to investors who have already expressed interest, to further attract their commitment.

• Business plan – executive summary: delivered to interested investors after signing a confidentiality agreement (NDA).

• Full business plan: delivered after signing a letter of intent and the NDA, and before beginning the due diligence process.

It’s important to understand the investor profile to whom you’re presenting your investment proposal so you can tailor your pitch to their interests. The documents can—and should—vary in focus depending on the type of investor.

How to handle the negotiation?

Once you’ve captured the investor’s interest, it’s important to move quickly and proactively in the negotiation. Closing deals takes time, and once that window closes, it’s very difficult to bring the investment back to life.

In the meetings that follow your initial presentation, the goal is to reinforce the idea that this is a strong project and to keep the investor engaged. For that, everything must be well-prepared and documented.

You should have a solid business plan and financial projections. Never disclose sensitive information without a signed confidentiality agreement—but don’t let that become a barrier to continuing the conversation.

The negotiation process ends with due diligence—a verification of all the information provided by the entrepreneur, which requires assistance from professional experts.

Once there’s an agreement, a comprehensive contract must be drafted, including all the conditions of the deal—especially:

• the dates for capital disbursement

• the ownership percentages each party will hold

• security and protection clauses for all partners

• and a clear exit strategy for the investor.

Xavier Casares
Founder of Tibidabo Ventures