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How to Convince Investors of Your Automotive Startup + Your Free Checklist

Richard Smith
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This article will introduce you to several types of investors in an automotive startup, the best ways to find startup funding, how to find the right investors for your project, and the best ways to convince them of your vision with a compelling story.

TABLE OF CONTENTS:
> How to find investors to support your vision
> Working with SPACs to accelerate your project
> 5 vital cornerstones you need to win over investors for your vision
> The importance of an airtight business case
> Convincing automotive investors of the story behind your vehicle 
> Present your vision with a compelling story
> Final Notes

Download Image 8 Things Investors Want to See; Whitepaper; Magna

Financing a giant project such as automotive startup funding is one of the largest challenges on the way from the vision to the first produced vehicle. As financing everything upfront is most likely not possible, the search for suitable – usually private – investors is one of the most important tasks for new players on the vehicle market.

Even more important, a secure financial basis is beneficial for winning them as development and manufacturing partners are interested in the long-term success of the project.

three people are talking about their automotive startup and the startup funding

HOW TO FIND ANGEL INVESTORS TO SUPPORT YOUR AUTOMOTIVE STARTUPS

What exactly constitutes a “suitable” investment partner may vary from project to project. However, every potential investor expects a new entrant to provide a factual basis for their vision’s chances for success – such as market studies, intended production volumes, pricing and a business plan. But what if the new entrant is literally starting his automotive startup from zero – without the funds required for those initial studies?

How Long Can You Manage Your Automotive Startup Without an Investor?

In such cases, equity crowdfunding can help to fill the gaps during the first stages of funding and thus overcome the initial hurdle for your automotive startup. However, it is mainly an interim solution and can only bridge the time until “proper” investors are found for the following reasons:

  1. Commitment – an individual investor will have a stronger connection to the project than a large number of anonymous backers

  2. Reputation – cooperating with well-known investors gives the project credibility

  3. Promotion – a complex product like a vehicle is easier to promote to individual investors than to a large number of anonymous people

Thus, equity crowdfunding is an option for the first financial startup funding push, but it cannot completely fund an automotive startup as extensive as developing a vehicle.
Bank loans are a further alternative, but as with equity crowdfunding, this option mostly serves only as an interim solution for an automotive startup during the search for the right investors or as a short-term way of raising money.

All in all, it is almost always smarter for startup funding to find investors willing to become partners.

The First Investors of Your Automotive Startup Will Look for Promising (Ad)ventures

On the most basic level of startup funding, anyone who has the resources for the project can function as an investor for the project: an investment firm, a venture capital firm or a private investor with no knowledge.

However, there are some private investors who are specialized in funding small businesses or automotive startups with a large growth potential. These venture capitalists (or venture capital firms) usually encompass the majority of a new entrant’s investor portfolio.

Look for an Angel Investor to Your Automotive Startup

However, as a new player within the automotive market, new entrants do not only need to raise funds but also acquire experienced partners for the entire project’s life cycle – a so-called “angel investor”.

Angel investors have already established themselves in the automotive market as recognized players. Usually accredited investors with a comprehensive knowledge of the vehicle market, they also have an established network of production partners, various suppliers and other private investors. Similar to venture capitalists, angel investors specifically fund new players in the vehicle market with a promising business idea.

However, as a huge advantage, they are also heavily involved in the development process and bring not only funds, but also their connections and experience into the project.

Where to Find Investors?

Approaching investment banks is great first stepping stone for new entrants. The banks present the new entrant’s pitch deck to a portfolio of potential investors and thus serve as mediators between investors and the new entrant. The lack of initial personal contact is made up by the reliability of this method.

Additionally, the easiest and most effective way is networking by visiting industry events such as motor shows, vehicle fairs or mobility conferences. This leads quickly to a large network of people from the industry and is vital for anyone who wants to enter the market. Thus, visiting events and conventions and of course connecting with people should be a top priority.

Towards the Goal, One Step at a Time

A common misconception about investors is that they are a largely passive factor during development. Reasonable investors always approach any project they invest in with a certain degree of caution and would never provide the entire funding upfront, no matter how convincing the idea is.

Instead, they will expect steady updates on the project’s progress in regular status quo meetings and new project pitches. This ensures a continued flow of money and builds the investors’ trust in the project.

WORKING WITH SPACS TO FINANCE YOUR AUTOMOTIVE STARTUP

Financing an automotive vision is a challenge for several reasons:

  1. the existence of alternative investment opportunities with competing projects,
  2. the uncertainty associated with the realization of the vision and
  3. general market and economic risks.

Fortunately, there are various ways to secure capital. Besides equity crowdfunding and bank loans – which are less than ideal for financing a vehicle development – merging or being acquired by a Special Purpose Acquisition Company (SPAC) is an option to access public market capital. However, the automotive vision needs to be sufficiently advanced before you can work with a SPAC.

SPACs have been offering an accelerated way to access public market capital for quite some time by bypassing the traditional initial public offering (IPO) route taken by established enterprises. SPACs have recently become a very popular among new entrants in the early stages of their business.

Let’s have a look at the most important questions about SPACs:
- What are Special Purpose Acquisition Companies?
- How do Special Purpose Acquisition Companies work?
- What are the benefits?
- What are potential risks to avoid and look out for?

What are Special Purpose Aquisition Companies?

A SPAC is essentially a shortcut for raising capital. They are publicly listed companies created solely for acquiring existing non-listed companies. This is done through raising money with an Initial Public Offering (IPO).

SPACs are also known as Blank Check Companies (BCC), a name that refers to the fact that SPAC IPO investors entrust their funds with a SPAC without knowing in advance the precise business that the SPAC will acquire.

In this regard, the SPAC management has lots of freedom to find an acquisition, but all acquisitions by a SPAC must be approved by the shareholders of the SPAC, and SPAC shareholders generally retain a right to redeem their shares if they do not want to continue to invest in the company following an acquisition or merger.

SPACs facilitate and accelerate access to public market capital by quickly converting a private company into a public one and making shares available for public purchase. Nevertheless, SPACs clearly facilitate and accelerate access to public market capital.

How Special Purpose Acquistion Companies Work

First, the SPAC is listed as a publicly traded company on a stock exchange with the intention of merging with or buying another business. Investors can then purchase shares in the SPAC through a traditional IPO or in the secondary market once the SPAC shares begin trading publicly. Through the IPO, the SPAC accumulates capital.

Following its IPO, the SPAC seeks suitable unlisted companies – in this example, a new entrant – for a merger or acquisition. Once the SPAC has identified a suitable acquisition or merger candidate, negotiated the terms of a transaction with the private business and filed the required information with the securities regulators, SPAC shareholders vote whether to approve the transaction. If approved, the SPAC acquisition or merger proceeds as planned.

Once the acquisition or merger is completed, the SPAC public shareholders and the new entrant shareholders would hold the shares of the same entity and only a single group of shares would be publicly traded. This “de-SPACing” process allows the new entrant to access the SPAC’s funds to the extent that this capital is not redeemed by SPAC shareholders at the time of the transaction, thus indirectly raising public capital.

On average, the whole process from a SPAC IPO to the closing of a merger or transaction takes around two years. Once the transaction with the new entrant is complete, the shareholders of the new entrant may be required to hold their shares for a predefined period.

The Benefits of SPACs

One of the biggest benefits is the quicker and easier access to public capital compared to a traditional IPO. Additionally, SPACs can provide a new entrant quicker access to funds as these funds have already been raised. Additionally, given that SPACs have a finite life and are actively looking for a suitable acquisition target, a new entrant with an adequately advanced vehicle or concept may have meaningful interest from multiple potential partners.

Well-defined vehicle plans, a plausible business plan and the credibility to deliver on the proposed vision are essential for a successful merger with or acquisition by a SPAC. A popular success case in this instance is Fisker Automotive. Fisker had two advantages in terms of the planned merger with a SPAC.

First, Henrik Fisker was the chairman, CEO and biggest investor in Fisker Automotive with a strong reputation as one of the world’s great automotive designers.

Second, Fisker’s cooperation with Magna was well-communicated and provided further validation to his vision. The merger with the SPAC was successful for Fisker Automotive and the shares traded at a higher price on the market.

Potential Risks to Avoid And Look Out For

A key issue to look out for is the continued commitment of the SPAC’s shareholders: They can vote to approve a merger or acquisition, but at the same time can withdraw their capital in a process called “redemption” – with the result being a complete transaction but an insufficient capital base.

Additionally, public companies must meet different expectations than private companies. Thus, a new entrant needs the right infrastructure to function as a public company and an experienced management team already in place. Lastly, the dilutive impact of SPAC warrants, founder shares and other elements need consideration before deciding for or against financing with a SPAC.

5 KEY ARGUMENTS TO CONVINCE INVESTORS OF YOUR AUTOMOTIVE PROJECT

Finding investors is key to success in the automotive industry, but how can you win them over? Most investors willing to fund new entrants expect to face a certain risk factor. Supporting a new player on the vehicle market comes with a higher risk of loss, but also a higher revenue potential than simply investing in an established company.

Thus, new entrants need to convince investors that their vision has high growth potential and meets all expectations for a safe, stable and on-time development.

These five vital cornerstones are indispensable to deliver the message:

1: A USP That Captivates

Every new product needs to offer the target audience an argument why they should by this product over other, similar products: the unique selling proposition (USP).

The USP is the best or even only answer to the most important problem of the target audience as products always exist to satisfy a certain customer or to solve a specific problem.
But why is a good USP so important to investors?

First, something that benefits the market also benefits the investor – as it promises success.

Second, a solid USP indicates that the team operates in a focused way and is able to determine current trends, demands and possibilities on the market.

2: Comprehensive Knowledge About the Market

A new entrant must be able to prove their credibility as a vehicle manufacturer. Thus, investors will expect their potential business partners to have both the knowledge and the data about all aspects of the product itself and the environment in which it is released.

This includes general knowledge about the vehicle market as well as the specific target market of the vehicle, including competitors, customers and developments. Also, a clear picture about the future development process and its risks and a well-conceptualized strategy to overcome these risks are essential.

As most new entrants don’t have the means to conduct a large technical feasibility study on their own, it makes sense to team up with capable technical partners. As an additional benefit, the cooperation with a well-known industry name adds credibility to the new entrant and their vision, thus making it more likely to acquire investors.

3: A Solid Business Case

The business case is vital for the investor pitch. It highlights the financial requirements and the overall schedule of the project and should thus be formulated as completely as possible.
A project as large as developing a vehicle will in most cases require the search for multiple investors, each contributing a certain part of the total money required. Additionally, investors will also scale their contributions according to the project’s progress. Thus, a new entrant also must maintain credibility as a reliable partner towards investors.

4: Well-Conceptualized Marketing and Sales Strategies

Even though the USP highlights the key problem and its solution, it still needs to be converted into marketing and sales strategies in order to convince the future customers of the product. In short, a marketing strategy establishes the direction of the brand communication, whereas a sales strategy sells the actual product.
Investors naturally also expect a new entrant to have both of those strategies formulated and planned out, as they are the primary measures for driving the brand’s earnings performance.

5: Confidence in Your Abilities and Passion for Your Idea

Besides the technical, financial or organizational matters, vehicles in particular are very often a passion project – not only for their creator, but for the people taking part in its realization. Also investors will in many cases share the passion or will at least have an interest in the project beyond the financial aspects.

Thus, a compelling presentation of the vision behind the vehicle, the emotional incentive of the vision as well as the passion and confidence behind the project can help considerably to captivate investors.

Pack Everything Into the Perfect Pitch Deck

Once the five cornerstones above are established, they need to be conveyed to investors. This is usually done in in-person meetings with investors and a concise and convincing pitch deck. As a snapshot of the project, the pitch deck should include:

1. The USP of the product (problem, solution)
2. Information about the target market, competitors and
    potential/established project partners
3. The business plan, including the timing and financial plans
4. The marketing and sales strategy as well as an assessment of the
    expected revenues and when they are estimated to be in the black
5. Information about the new entrant and their team’s qualifications and
    functions

The pitch deck often serves as the first impression of the new entrant as not all investors are brought to the project via a sales pitch but by investment banks. This makes it even more important that the deck stands on its own as a convincing argument for viewers to see.

HOW TO BUILD UP AN EFFECTIVE BUSINESS CASE FOR YOUR AUTOMOTIVE STARTUP

Out of all documents and references of a new entrant, the business case is arguably the one that investors will be most interested in. In essence, a business case is a very comprehensive and detailed answer to one key question of every project:

What value does it generate for the respective business partners?
By conducting a business case, a new entrant can determine under which conditions their automotive vision can be realized.

In automotive projects, the forecasted economic success is the central driving factor behind every investment. Thus, the investors’ involvement within an automotive project is also primarily guided by the notion on whether the new entrant’s vehicles are profitable.

Additional ways for new entrants to increase their credibility in an early stage are:

  • Making themselves known to investors beforehand
  • Working with established names in the automotive sector
  • Showcasing not only the profitability of their vision but also their capabilities as a vehicle manufacturer

What is Required to Develop a Business Case for an Automotive Startup?

As part of the larger business plan of the project, the business case should be outlined and specified as early as possible. As stated before, the business case describes a specific scenario depicting how the new entrant plans to enter the automotive market with a certain set of goals under specific preconditions.


Thus, the first step of defining a business case lies in obtaining information about the target market via a market analysis, including the market size, customer segments, competitors, market potential and current trends. Additionally, the new entrant should already have determined their own status quo, their goals and their brand’s/vehicle’s USP.

Lastly, a feasibility study showing whether the project’s targets are compatible with its technical framework is also necessary before developing a business case.

The Contents of a Business Case for Your Automotive Startup

Developing the business case itself can be divided into two segments, both of which are conducted in parallel:

  1. resource and financial requirements, and
  2. expected profit.
The basis for both segments within an automotive business case is production volume. The production volume not only defines the potential sales numbers but also directly impacts factors such as employment costs. The project’s resource and financial requirements as well as its expected profit can be determined using an estimated production volume.
 

Resource and Financial Requirements

The requirements are determined as followed:
 
  • Choose a location for manufacturing
  • Determine the degree of in-house production
  • Compile the vehicle’s bill of materials (BOM)
  • Estimate the costs for establishing an after-sales network

It is important to keep in mind that several of these metrics are open to unexpected developments. For example, the supply chain of lithium (a key resource for EV batteries) could be disrupted by political turmoil or a sudden breakdown of mining sites due to natural disasters, which would then negatively impact the lithium price while increasing costs for any required parts. These uncertainties should be accounted for using various contract scenarios.

Expected Profit

The key metric of calculating the expected profit is the price of the vehicle. However, it is important to consider that the price is part of the overall marketing strategy and cannot be adjusted randomly just to meet profit targets. Thus, before any significant change of the market price is made, it should be assessed on how this alters the vehicle’s target customer base and subsequently whether changes to the marketing strategy are necessary and realizable.

After finishing the business case, the new entrant will have a clear idea on whether their project, under the conditions chosen, will produce sufficiently satisfying revenues.

Challenges in Regards to a Business Case


  1. Estimation of the production scope
  2. Small production volumes
  3. Low revenues

It is important that new entrants insist on executing their business case exactly as envisioned. However, it is a good idea to stay open for suggestions of experienced partners and be willing to alter their business case if the situation demands so. Investors will always challenge the validity of a business case’s figures.

HOW TO TELL A CAR BRAND STORY TO CONVINCE AUTOMOTIVE INVESTORS

Convincing investors requires a personal story that makes the project unique, in addition to a comprehensive set of data, plans and schedules.

The Basics Needed for Success

New entrants need to answer a set of basic questions about their project before reaching out to investors:

  • To what extent is the idea feasible and serializable?
  • Is there an existing target market and are there potential customers?
  • What business model is planned?
  • What are the budgetary expectations
  • What benefits does the project provide over similar products?
  • How will supply, sales, after-sales networks, etc. be (roughly) established?

Answering these questions requires a strong foundation of verifiable data, including market research, a business plan, a realistic revenue model, a feasibility study, a comparison with a benchmarking vehicle and basic technical specifications.

A Driving Force: USP, Branding and Your own Conviction

Meetings with investors and industry experts at automotive events, road shows or similar events are an opportunity to generate excitement and curiosity about the vehicle project long before any pitch meetings with investors take place. Sharing the idea, the vehicle’s USP and inspiring listeners with one’s own passion and conviction can generate a favorable first impression.

Establishing a brand identity is another important basis for a potential partnership with an investor. The vehicle’s USP and general traits serve as the basis, and the finished brand ideally includes the brand name, a logo, a corporate design and a website. This way, all future business communication starts out with a solid foundation and allows for a polished and seamless execution.

The Importance of a Good Story

Communicating ideas to the public, potential investors and customers works great if you use a storytelling approach. As it becomes increasingly difficult to differentiate oneself from the competition, a clear brand identity is essential.

With a captivating story, a new entrant gains an easy and efficient way of communicating their goals and what makes the vehicle unique. Investors will of course also consider public interest in their decisions. You will find it easier to convince potential investors if the brand idea generates more interest or appreciation.

Persuade Potential Investors With the Right Arguments

Pitching the idea for a big project is a challenge and needs good preparation: New entrants need to sell potential investors on the idea of a successful partnership, a well thought-out and planned project and their return on investment in only a few minutes and with limited visual representations.

This includes a summary for the entire vehicle idea as well as technical and financial data to communicate both the current state and the future potential of the automotive vision. If the brand has been communicated beforehand in a smart way and with the right arguments, potential investors may be easier to convince, even before the formal pitch.

HOW TO PITCH TO AUTOMOTIVE INVESTORS WITH A GOOD STORY

According to surveys, venture capitalists spend just a bit under four minutes on average on reviewing a pitch deck. That makes it absolutely essential to embed vehicle data and well-founded business plans into a compelling narrative and to present it in an appealing way. Again, storytelling is a great technique to master this challenge.

The Benefits of Storytelling in an Investor Pitch

Storytelling has been utilized by people since the beginning of time. It is way of clear structuring information into a problem and its solution. Thus, it is a powerful method for promoting the worth and potential of the automotive vision in a fast and easily memorable way, even in very short time such as an elevator pitch.

What is an Equity Story?

An equity story tells the fundamental ideas of the new entrant’s business and automotive vision and covers all arguments for an investor to start funding the project. These include the successes and milestones, core competences of the team and the USP that sets them apart from competitors, existing shareholding structures, the financial track record, and a medium-to-long term outlook and strategy. However, its key goal is to highlight a certain problem of the target audience and the perfect solution: the new vehicle.

Five Steps Towards Your own Automotive Story

Every product promoted via storytelling focuses on the problem it solves for the customer. Thus, new entrants need to answer the following questions:

What problem does their vehicle solve and why is it the only option available on the market to solve it?
Why should customers buy their specific vehicle instead of a different vehicle?

Here’s a possibility of how a new entrant can create to their own automotive story to highlight the most important qualities to investors:

  1. Know your market:
    What problems are there to solve? What do customers need?

  2. Specify your vision:
    Which of these problems can your vehicle solve? What’s your USP?

  3. Show competence:
    Why are you the right person/company for the job?

  4. Outline a better future:
    What do the future customers and the market gain through your vehicle? How does the ideal outcome look like?

  5. Convince the investor:
    How does an investor profit from working with you and funding the project? What are the milestones that lead to this vision of the future?

Ideally, these five steps contain all the relevant financial, business and vehicle data necessary for creating a compelling pitch deck.

Final Notes

Finding the right investors for your vehicle project is one of the most important success factors. From the initial push to overcome the first financial hurdles and get started through to the entire development and industrialization – entering the vehicle market requires a solid financial basis.

Whatever the answer to your funding demands is – crowdfunding, private investors or SPACs – thorough preparation of the investor pitch helps to convince potential business partners to fund your vision. But it’s not in the “hard data” alone. Combining a well-researched data basis with a compelling and emotional story is the most promising way to success.

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Richard Smith

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