What Keeps a Startup From Getting Investor Money?
As entrepreneurs, we have big dreams, and sometimes these big dreams require more funds than we have on our own. Fortunately, if we have a great idea, we can easily find investors. However, no matter how great our idea is, if we do some things incorrectly, we can ruin our chances of getting the funding we need. Many of the problems that keep us from those needed funds we cause ourselves can be prevented simply by thinking from an investor’s perspective. When our idea is our whole life, it is hard to do this; it helps to get someone else to review what we will be presenting to our prospective investors and play the devil’s advocate role or the role of a very adversarial investor. This simple move can help us prevent the mistakes that are so often made and provide ideas that have not come to us previously that may win us the deal. When we try to do things by ourselves and don’t take the time to have a second set of eyes look at our work, we are doing ourselves a huge disservice that could inevitably destroy our project and the dream behind it.
So what do successful fundraising entrepreneurs do?
Successful entrepreneurs have a great presentation, and they improve it with every iteration.
When you go into a presentation, you are fully prepared. This is really key, think about when you are a viewer of a sloppy production; all you want is for it to end, so don’t give that kind of presentation. This is not a difficult thing to fix; it takes a little time. You have practiced this presentation in its final form, out loud, all the way through, at least six times before giving it to a potential investor. Before this, you have had input from your devil’s advocate on the content of the presentation, on what was understood and misunderstood, where the presentation drags, what are the things they see as the best parts. Ask if you are speaking too slow or too fast, you know the information, but your audience does not, so you need to have a speed where things are understood and you don’t appear nervous. Each time you present, you should cater the presentation to the audience. If you are presenting to a subject matter expert, you may be able to have different information provided than that given to a genera audience.
You should take a moment to confirm what is presented makes sense, asking “Does that make sense?” on a regular basis, and wait for them to say “Yes” or “Yes, it does.” Not just a nod.
This little confirmation step is also a subliminal way to get a “yes” at the end of the presentation. Make sure to get practice questions from your devil’s advocate and tell them to grill you as much as possible; this will help you to answer questions with the presentation before they are even asked. It will also help you get used to the stress that you may feel presenting and may inform you of holes that can be filled by adding to the presentation. If the answer to the question is later in the presentation, in most cases you can say, “I am so glad you asked that and I will be getting to it,” in a positive and appreciative way, and then continue with your presentation. Finally, make sure that you set a total time of the presentation to fit the allotted time. If they really like what you have said they can choose to extend the time, but you don’t want to take up theirs.
You must also consider what you are providing as a deck or presentation notes to the prospective investor. A similar review of this item is necessary. In most cases, this should be a single deck, not a bunch of packets or separate pages, and it should be well organized. Does the layout make sense? Is the font large enough to be easily read? Just these simple things can make a pitch deck better.
Some entrepreneurs think their presentation skills are not so good, so they want someone else to present for them or try to get a bank to find the money for them. This is a bad move, and you will likely lose potential investors that would have said yes. If you are not confident enough in your product/idea to sell it, why would I be confident putting my money and name behind it?
Successful entrepreneurs are as transparent as they can be.
We know your idea is great, but you need to be able to present enough info to get the funding you require. If you can not offer enough info to draw interest, then you are not giving the investor enough confidence to at least move forward. Sometimes we want to keep too much information too close to us in the fear that our idea will be stolen. However, you need to also build trust in a potential investor, just saying,
“I have invented cold fusion, and I want a billion dollars to get it off the ground. But I am not going to tell you how I did it; you have to trust me that I did; here is my bank account information.”
Will not get you the money even if it is accurate and is the invention of the century. Scamers will usually not provide enough information, and professional investors can identify these. Walking in and asking someone to sign a nondisclosure agreement can be off-putting as well, so at least providing enough info to gain interest is the first step.
Successful entrepreneurs explain what the money is for
Make sure that you say exactly how the money will be used. There are a few uses that will turn off an investor:
1. Paying yourself and key members high salaries- you are asking for money, and if you are going to pay yourself, you don’t deserve it.
2. Paying off a debt you already have- This is a warning sign that the company is in trouble and will get you nowhere, no one wants to throw good money after bad.
3. Legal issues- If you have a judgment against the company, investors don’t want to get involved. If you are trying to obtain a patent to protect intellectual property, this is a different story, the farther down the patent process you are the better.
If you can show past sales or purchase order in hand, and you need money to either ramp up production to lower overall costs, get tooling done to fill an order, or you need the money to fund a large order, you are much more likely to get an investment.
Successful entrepreneurs know their numbers and their customers
When asking for funding, you need to know all of your numbers backward and forwards. The more numbers you know by heart and have at hand, the better. Include all the critical info in the presentation that fits the time, and put as much useful information that makes your case in the addendum section of the deck; this way, data can be easily called upon if needed or reviewed by the potential funder afterward.
With all data and numbers, you need to be able to justify any predictions you have also supplied. If you have estimates of sales, how did you obtain these projections? Does it make economic sense? Are the projections ridiculous? How did you come to the valuation of your company, and the percentage of the company you are offering to sell is it reasonable for the money you are asking?
You must also know your customer base. The more you know about them and can provide this information, the better. If you have done any focus groups or other research to help augment your other numbers, you will look even better.
Successful entrepreneurs are not arrogant
When you are presenting, whenever you get pushback or a question, there is a reason for it, and look at it as an opportunity; if they are not interested, they will not be questioning you. They also might be testing you to see if you are coachable. Often, we think that funding is just the money, but building a relationship with an investor can be beneficial on many levels; they have contacts that you will be able to access. They have the experience to help you get past pain points. If an entrepreneur is coachable, they will listen to advice and act on it; if they are arrogant, they may leave the pitch meeting with nothing to show for it. Along the lines of the previous section, if you are valuing your company too high and can not listen to reasons why a funder disagrees, you may not get an offer.
Finding funds is critical make sure you are doing the right things to ensure you will get the funding you desire, and you will be able to follow your dreams wherever they may lead you.