Some of us might be caught in this situation: you are ready to take bring your business to a new level and is sourcing external funds to execute your plans. However, even after endless numbers of pitches, the venture capitalists (VCs) are not getting back to you. Chances are, the VCs might be turn off by some (hopefully not all) of the mistakes you have committed.
Here are 8 serious mistakes that you should avoid at all cost to increase your chances of getting funded:
1. Starting with your best option
Meeting your best investor option may not be as logical as it sounds. Pitch gets better with time because you will notice the recurring concerns from various investors. From there, you can refine your materials and make the deck watertight. In addition, you will be more confident when you get to the best investor by then, thus gaining a higher chance of convincing your investors.
2. Overlooking an exit strategy
As much as they want to spur innovation and nurture the new generation of entrepreneurs, VCs are financing start-up with a sole objective: to profit when they cash out their stakes. Be it taking IPO or acquisition as your end goal, present a clear exit strategy to your investors. This will not only help them to visualise their long term position for fund sustainability but also to provide consensus on the strategic direction of the company.
It is also important to tell them your expenditure plan on the raised fund. This will give them an idea of your proposed burn-rate, allowing them to estimate the next round of financing. Based on their experience in managing other companies, they can also provide insights as to whether your estimated expenditure is reasonable.
3. Being unprepared
Impromptu will not work. Period.
The worst thing that can happen is that you make something up and you are wasting investors’ time to listen to something that is not true.
Going in unprepared, especially for Q&A, can be detrimental as it gives the investors the impression that you have not put much thoughts about the business. You will not be able to come up with a well-thought response when you think on your feet. Instead, create extra slides to substantiate these answers.
Q&A should be 2 ways. Use the time to ask meaningful questions, such as the nature of the cooperation and not how long it takes for the fund to be disbursed.
4. Being unrealistic
Painting a rosy picture is as good as sweeping your problems under the carpet. VCs are in the business long enough to understand that businesses aren’t smooth sailing. Saying things like “we have no competitors!” and setting unrealistic projections irritate them. Dave McClure, the founding partner of 500 Startups, suggested in an interview that entrepreneurs should share their failures and state what they have yet to achieve as a more effective way to build credibility and relationship with the audience.
Always convince the investors that the key assumptions are reasonable, run a deep competitor and market analysis to show them that you have given sufficient consideration to risk management and risk mitigation.
5. Not solving the market’s problems
Products or services are provided for 2 reasons: to meet the market demand or to close the gap of an existing market problem. Often, you will get too excited to blabber about the features of the product/ technology. However, do spend some time to address how the product is trying to solve the existing problem.
6. Requesting for an NDA
After sitting through numerous pitches, it is very likely that your business idea is similar to one of those the investors have encountered and they are going to see more in the future. Most investors have a policy of not signing a non-disclosure agreement (NDA), and if you have something which is highly confidential, then don’t share your ideas.
7. Not accepting suggestions
Leave your pride at the door. Investors are interested in the idea and therefore they are asking deeper. However, some of the entrepreneurs tend to get defensive when they are being questioned. VCs will think twice about investing in your company if you are not open to suggestion because they would not want to be caught in a situation where you are insistent about an issue while working together in the future.
8. Going into the room, divided
VCs are not only investing in your business idea, they are also investing in your human capital. Founders and the first few employees play a big role in shaping the company’s direction. If there is no rapport between the divided team, the VCs will not be confident in the investment.
Fundraising is not an easy task. Not only it is essential for you to know your products inside out, you still have to do anticipate and address the potential concerns from investors. Soft skills are also needed to build a relationship with the investors. So we wish you all the best for your next pitch!