If you’re an entrepreneur seeking investment for your startup then chances are high that you find it really hard to convince angel investors or venture capitalists to believe in your business and its vision, which is probably because you are committing some of the same classic mistakes I have seen hundreds of entrepreneurs repeat. Here in this link, I’ve compiled a list of mistakes you must avoid if you are seeking angel investment or financing from venture capitalists.
Mistake 1: Being selective in revealing information about your business
It is probably rightly said that you have a few seconds to make a good impression. Hence, investors will look at your presentation and within minutes will be able to judge whether they should proceed considering investing in your startup or not. It is therefore essential to pack a punch when presenting your startup so as to make potential investors gain a comprehensive and attractive bird’s eye view of it. While it is not necessary to give the entire details about your industry(investors might already know about it as you should pitch to those investors who are interested in your space or industry) but it is essential to reveal the fundamentals of your business in great details. You as an entrepreneur must answer the following five fundamental questions in your elevator pitch.
1. What exactly your business does(think business model) 2. How much money are you looking to raise? 3. How much money are you already making(think revenue run rate etc.)? 4. Why do you need to raise the money? 5. What will the investor get in return?
However, you must not reveal any confidential business details such as critical trade nuances etc. or you should at least get a non-disclosure agreement signed from potential investors before revealing such information.
Mistake 2: Presenting unrealistic future growth projections
Before even making any future financial or growth projections you should assume that they can go haywire in reality. Hence always make conservative projections or at least show the break-even points if things don’t go as planned. Stay away from pitching unrealistic goals or projections as they make you as an entrepreneur look inexperienced. For example: presenting extremely high revenue projections compared to previous years of operations sounds fishy and can put off the investors. Make well researched, planned and thorough future projections making room for some conservative numbers.
Mistake 3: Expecting astronomical valuations
You may be attracted by startups in news commanding high valuations for example young tech companies, but the ground reality for established and stable ventures is different. Investors look to break even their investment in 3-4 years hence a valuation at 3-6 times the EBITDA is generally the acceptable range. Too high the valuation? Investors will probably pass on the opportunity.
Mistake 4: Not being ready with necessary documentation and information
Need for funding? Be ready with your documents! Investors need key documents like information memorandum and teaser/pitch deck to conduct due diligence. In fact additional documents such as mandatory trade licenses, registration certificates, client or customer contracts, financial statements etc. might be called upon by them whenever necessary so please anticipate it beforehand and keep your arsenal of required documents ready before even pitching as delaying the presentation of these documents to investors might show your unplanned approach and may worry the investors.
Mistake 5: Not presenting your team’s experience and credentials in an honest manner
As the saying goes, it is the team that is valuable and not the idea or product behind your startup and many investors swear by it. The investors would obviously like to know that the team behind the startup has the right experience, knack, credentials, drive, and skills to run and grow the startup.
You should anticipate and address the following questions in this context:
1. Who are the founders and the key members of the team? 2. Does the team have relevant domain experience? 3. Is the team capable of executing the business plan? 4. How do you plan to hire more team members and why do you need them?