How to attract good investors

By John Paul
Sometimes, an entrepreneur may have a lucrative business opportunity but attracting good investors becomes the big problem.

Naturally, investors want to make money. So, how come some investors just won’t give you their money even when the opportunity in your business is so blindingly obvious?

Today’s lesson is inspired by an email I received from Remi, a worried entrepreneur in Nigeria who is going through this problem.

Here’s the full extract from his email:

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Hi John Paul,

I am a builder by profession. Our construction firm has been given a job to source for finance and construct 50 rooms (400 bed spaces) in a private university in Nigeria that has over 55% hostel accommodation deficits under a build, operate and transfer agreement.



The project costs approximately 50 million naira (approx. $140,000) and the operating year prior to transfer is between 10 to 15 years.
The leverage of your mind Despite the huge profit potential for investors, despite documented questionnaire responses from students and parents which prove the feasibility of the project in terms of student's capability to pay, we are still finding it difficult to raise funding.

Please suggest to us how we can go about attracting interested investor(s).

Thank you.

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I’m glad you reached out to share your situation with me. Thanks to you, thousands of other readers will learn a thing or two from the advice I’m about to share.

Like I mentioned earlier, investors always want to make money. That’s a fact.

But when you have a lucrative opportunity to make money and investors aren’t funding your project, there are 3 likely reasons for this.

And here they are:

1 = the investors you’re talking to can’t see the opportunity

2 = the investors you’re talking to have doubts

3 = you are not be talking to the right investors

I will now explain each of these reasons in turn so you understand exactly how each one can make a funding deal impossible.

They can’t see the opportunity

Successfully raising funding from investors is a selling exercise.

And to sell anything, especially an investment opportunity, you have to be able to generate interest and excitement in the other side.

Most entrepreneurs have a good understanding of their business opportunity. They can see it clearly in their head.

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However, many entrepreneurs are not able to communicate the opportunity they have in their head so the person on the other side can see it as clearly as the entrepreneur herself sees it.

Investors are looking for opportunities to make money. But if they can’t see the opportunity, they won’t invest.

Also, most investors are analytical people. They want to see hard numbers like a detailed market analysis that conclusively proves the accommodation gap at that university.

The questionnaires you have are great, but I doubt they’ll be enough to satisfy the analytical approach that many investors take.

An analysis of the existing accommodation offerings in the area, a projection of student population growth, and the competitive advantages of your project will help to significantly make clear the size and potential of the opportunity.

They have doubts

While investors like to make money, they know there is always a chance they could lose their investment.

That’s why risk analysis plays a big role in every investment decision.

Unfortunately, entrepreneurs are usually too optimistic to think seriously about risks. We are usually very confident that the project will be lucrative and make as much money as we expect.

As a result, many times, the opportunity we present to investors in our pitches and business plans can seem ‘too good to be true.’

And if it’s too good to be true, most investors won’t touch it. That’s because any opportunity that’s too good to be true is very likely unrealistic. And unrealistic investments usually lose money.

Knowing this, you should always balance the opportunity you present to investors with the risks of the project.

For example, 10 to 15 years is a long lifecycle for many investors. And the longer the payback period of an investment, the higher the risk on that investment.

So, you need to show investors how the project will be viable in the long term, especially as more project developers enter the market with accommodation options that may be better or more modern than yours.

Also, if you have an MOU or contract with the school authority that commits to (and supports) the project, that would be an added layer of comfort for investors.

The bottom line is, as an entrepreneur who is looking to raise funding, it’s very important to balance the excitement you have about the project with the hard doubts and fears investors will have when you approach them.

You are not talking to the right investors

Most investors prefer to invest in industries and projects they know and understand.

As a result, investors without any experience or expertise in real estate investments would be hard for you to convince.

Because of the size of investment you’re looking for ($140,000), I would suggest you consider a joint venture deal or partnership with real estate developers in your region.

Developers usually have funds (or know where and how to get them), and they know the real estate industry well.

If your project were much larger (in $ millions), a developer and private equity partner like Actis would be a good option.

With a JV or partnership, you will have to split equity with the partners on the project depending on how much capital each partner contributes.

Another option would be to use patient loans with a payback schedule that is structured according to the cashflows of your project.

An SME development financier like GroFin would be a good match. They provide funding between $100k and $1.5 million.

A final word…

The areas discussed above will help to improve your edge as you try to raise funding.

Make sure you present your project opportunity in a light that helps investors see what you are seeing. And use hard data and analysis to back up your selling.

But it will not always be easy. Several investors you meet may not see the opportunity.

That’s why you can’t just try once, twice, or ten times, and then give up.

Raising funding is an endurance sport; it’s a marathon. You have to keep trying.

And for every attempt you make, you should always get feedback so you can identify the roadblocks that discourage investors from giving you money.

Do you have a question?

Remember, anyone can have their questions featured on FridaySpecial.

If you have any questions or challenges about raising capital, here’s what to do:

Send me your question at this email address, and remember, the subject of your email should be: Question for FridaySpecial.

The more relevant, thoughtful and straight-to-the-point your email is, the more likely I could choose it for FridaySpecial.

I receive a lot of questions and if you’re not lucky in one week, please keep trying.