5 BIG MISTAKES TO AVOID WHEN PITCHING FOR CAPITAL
Raising money is not too different from putting together a chest of drawers that you have just bought from IKEA. Really? Well, after you have sweated away doing it once, you can do it again easily – but it is getting it right the first time that is tricky. Here’s the good news though; you don’t have to go through the learning curve that has proved to be so costly for so many budding entrepreneurs.
Bringing any great idea to market, needs a combination of a number of things. It takes a great team, the right market conditions, a unique idea or approach, and ultimately, capital.
For many people the hardest part of the journey is raising the funds. Getting investors to buy into your vision and belief isn’t easy. Many early-stage entrepreneurs have found success in building a product that has performed well with early users, but have had trouble grappling with this part of the journey and have failed to hit the right notes when communicating their story to investors.
If you want to really to propel your company forward, there are the 5 big mistakes that every entrepreneur should avoid when it comes to raising money. So here is a list of don’ts:
1) Don’t talk to the wrong investors
Time spent in reconnaissance is rarely wasted! So said the Duke of Wellington and how true. The easiest mistake you can make is to pitch to the wrong people. Every investor of whatever colour or hue has a “sweet spot.” They like a particular sector; they invest in certain types of businesses and only make a certain size of investment.
Don’t wait until the end of the pitch to be told “we think it is a great proposition but it is just not our bag.” Do your homework and find out beforehand. Find people and organisations that are actually interested in, and actively invest in, the space you are trying to enter or dominate.
In addition, focus only on those strategic investors and partners that can bring a host of other advantages to your door. Consider those who will add value through their network, their support capabilities, and any other ways that can give your company a competitive advantage.
2) Don’t overlook the problem your business solves
Simplicity is key! Show that you have a distinct grasp on the problem your business solves and an even clearer grasp on the solution. After all, if you can’t explain to someone what problem your business solves and how you plan to make money in a few sentences then you aren’t ready to pitch to an investor.
Practice makes perfect. So practice by rehearsing and explaining your business to people to get real feedback. If it’s too complicated, you need to go back to the drawing board.
3) Don’t fail to highlight the opportunity
Investors want a return! And whatever they may say they want it to be as safe as possible but also as quick as possible. In particular they want to be involved in companies that have a simple business model, high growth potential and scalability. In your pitch make sure you can convey a sense of magnitude to your idea and its potential. It’s important to show investors you truly understand a market by having a firm grasp on both the short-term need and the long-term potential.
4) Don’t undersell your team – and yourself
Most people are happy to talk about themselves! So, OK, this doesn’t happen that often, but it is how you do it that counts. Most investors say that they look at the team make-up as the single most important factor when deciding whether to invest or send back a simple PFO. (You’ll know what that means!).
Your selling points as an entrepreneur are less about the product and as much about you and your team. Investors want to see that you have a unique competitive advantage over everyone else. They also need to know what makes you and your team specifically qualified to look after their money and use it to win in the marketplace. Take the time out to really get a grip on the relevant propositions and be in a position to sell up your team and explain why they are world class.
5) Don’t ignore the “use of funds.”
Investors want to know exactly what you are going to do with the money! They want to know how, when where and why you intend to invest their money. What are your objectives? Are you upgrading your software? Expanding your operations? Building up internal infrastructure? Ramping up the marketing effort? Planning an acquisition? Whatever it is, be prepared to explain, in the right depth of detail, where you will be allocating spend and how long the money will last. (And the ROI!).Time is money – the quicker you can put the money to work the more likely people will be willing to back you.
Finally though, don’t be tempted to “go-to-market” until you are completely ready. As you know you only have one chance to make a first impression.