Early stage startups are immediately thrown into the lion’s den when founders are made to pitch to investors for financing. A terrible number of these entrepreneurs are inexperienced or lack the basic qualities and confidence in making a presentation. Experts see this at almost every meeting and we have compiled a list of mistakes and areas to note in case you’re an entrepreneur seeking venture funding.
Do keep in mind the following before you head into your next VC meeting:
Mistake #1 – unclear explanation of the product or service
As the entrepreneur, it is your job to clearly articulate the offering or service and why your business is unique. Expect the following questions:
- What are the two or three key features to be added in the next 12 months?
- What are the key differentiating features of the product/service?
- What are your company’s key product milestones?
- What have you learned about your product/service since beta?
- How often will you be making updates/enhancements to your product/service?
Mistake #2 – zero sell on the intellectual property
For the majority of companies, their intellectual property is the road to success. Investors tend to pay attention to answers to questions like:
- How comfortable are you in your company’s intellectual property not violating a third party’s?
- How was the company’s intellectual property developed?
- Would prior employees have potential claims to the company’s intellectual property?
Mistake #3 – not looking at other successful pitch decks and executive summaries
Pay attention to other pitch decks in order to help you visualize and create your own. Request your entrepreneur or lawyer for a few samples. Plenty of free decks exist on the Web. Do your research before finalizing 1 deck.
Mistake #4 – Not understanding CoA and long-term customer value
Investors get interested when they hear you talk about user and customer acquisition issues. What costs do you incur to acquire customers? What could be the possible lifetime value of each customer? Which channels could be used to acquire users? What are the marketing costs that will be incurred? What does the typical sales cycle between initial customer contact and final sale closures? Lack of preparation in answering these questions hurt the VC’s perception of the thought process behind your business plan.
Mistake #5 – zero understanding of business risks
Investors will look to test your knowledge of business risks akin to your industry. They choose to understand your thought process and the precautions you would have taken. Every business plan comes with risks, so remain ready to answer such questions:
- What according to you are the principal risks to your business?
- Do you have regulatory risks?
- Are there product liability risks you are aware of?
- What technology risks are you aware of?
- What are the steps you are anticipating in mitigating these risks?
Mistake #6 – No articulation of your product or technology is superior to the competition
What is currently out there? How have you improved what is currently in the market? Investors will want to know just how your product or service is filling a void or is better than what is currently out there. You can assume the investors are aware of competitive products or technology so you must have good responses. For example ‘We are better than Pinterest in the following ways – we were monetizing before Pinterest, we are simpler to use and we have better editing functions.’
Mistake #7 – no concept of coherent marketing strategies
Despite your building, something great does not mean it will sell or get user adoption. Here’s why investors only care about your plans towards marketing your product or service. Which outlets do you use? What cost-effective method will you adapt to attract users and customers? How does social media factor into your marketing plans? Are you going to do content marketing alongside sponsored posts on news sites like Forbes.com? Are you going to invest in SEO and SEM with relative confidence in results? What are the steps you could take to get quick sales or adoption of the product?
Mistake #8 – not mentioning the press or coverage your brand may have received
Show the investors any and all press coverage you would have received, especially from the more prominent news sites and publications. Include all the headlines in a single slide on your deck. Mention the total number of articles mentioning your company.
Mistake #9 – making investors sign NDAs prior to sharing information
Prior to making the pitch to investors, entrepreneurs should practice by making the pitch to friends and advisors. You must be ready with crisp answers to questions. You must anticipate difficult questions you might get. Telling an investor you would get back to them with an answer is looking unprofessional and leaves a bad impression. When investors ask you questions, it shows they are interested. Ensure you do your best in answering them immediately. Don’t walk away from hard questions or tell them the answers can be found in the presentation. Investors are sizing the entrepreneur up in this situation and seeing if you could think on your feet. You should be prepared for plenty of interruptions.
Mistake #10 – providing unrealistic valuation company expectations
When you tell an investor you require a $100 million valuation for a business a mere three weeks old, without much traction, the conversation will most likely end soon. Usually, it works to not discuss valuation in a first meeting besides saying you expect to be reasonable with valuation.
Mistake #11 – presenting clichés
Avoid phrases like:
- ‘the product will market itself’
- ‘Google will acquire us’
- ‘We have kept conservative projection numbers’
- ‘What we need is just 1% of the market’
- ‘Our product will go viral’
Mistake #12 – keeping over 30 slides in your pitch deck
You will be given 1 hour to pitch your idea. When you overload your deck with too many slides, the crispness and takeaways from your presentation are compromised. You will most likely lose out on reaching the end of your deck. When investors show interest, you could always reach out to them with relevant information post.
While these mistakes are not fatal to your funding, practice makes perfect. Always carry out dry runs with friends and family prior to your meeting. You need to know what is and what isn’t working. Ensure your Executive Summary and Slides reflect the above learnings.