All entrepreneurial ventures, including startups, require financial capital to get off the ground. As noted by Harvard Business School Professor William Sahlman, in entrepreneurship, financial capital’s key role is to produce valuable information through hypothesis testing.
He once commented, “The best tests reveal lots of information at low cost in a short period. If a test suggests that the team is on the right path, the team gets some more money, people, and other resources to run a different or bigger experiment. It’s most productive to think of entrepreneurship as an iterative process—a way of managing that involves continually searching for a winning combination of opportunities and resources.”
While there are money-raising methods like crowdfunding (using a digital platform to collect donations in exchange for eventual access to the product) and small business loans (bank loans which entrepreneurs need to pay back with interest), venture capital and angel investments have, of late, emerged as popular ways to finance a business.
However, given the fact that venture capitalists and angel investors are often known as financial industry veterans (or at times successful industrialists), they can be difficult to navigate, especially when it comes to getting the money from them. These personalities will test the budding entrepreneurs thoroughly, in order to make sure that they are not putting their money into a lost cause.
Elevator pitches (short, persuasive summary of an idea, product, or the entrepreneur himself/herself), email introductions, and formal pitch decks (concise presentation that summarise a business plan to potential investors, partners, or clients) serve as the make-or-break opportunities for new businesses and startups. Yet on these occasions, many first-time entrepreneurs end up making avoidable mistakes, thereby missing the bus.
We Have No Competition
No industry is without competition, and startups are not exempt from this thumb rule either. Before making the investor pitch, do proper research about your industry peers/rivals, see what products and services they are offering already, and prepare the presentation with all this information, while explaining in detail how your business idea will disrupt the market. Remember, investors often show a tendency to align with business ideas that stand head and shoulders above their industry contemporaries, in terms of disruptive capacity.
We Want You To Sign An NDA
Investors are busy and inundated with business pitches. The vast majority of investors will not sign an NDA (non-disclosure agreement), and you are merely setting a roadblock by asking for one. If you have highly confidential information, leave it out of your pitch deck.
We Need Funding For Our Great Idea
Good or great ideas are not enough to get investors interested. You may have some of the cool-disruptive stuff going around in your mind, but it will all come down to the progress in the business or any traction you have already obtained. Present details like customer sales, app downloads, traffic to your website, or press coverage to show your potential investors that your great idea is actually doing really well in the market.
Will Have $500 Million In Sales And $200 Million In Profits Within Three Years
Don’t give these fancy stats to your investors. Remember, they are industry veterans with more than a fair idea of how things like sales and profits work. While investors seek a high potential return in the business, they also need to see reasonable numbers and sensible underlying key assumptions, so do not make assumptions in your projections that will be hard to justify (e.g., how you will achieve a 400% growth in revenue with only a 20% growth in operating and market costs).
We Are Going After A Niche Market
A lot of business ideas chase too small an addressable market. Venture and angel investors, on the other hand, seek companies that can become large and produce “home run” returns, instead of addressing a very tiny customer segment. You need to show these industry veterans that your business can scale to be meaningful.
Our Product Will Sell Itself
Investors want a roadmap where your customer onboarding and retention ratios will become as magnificent as your “great product.” Present them with a rational customer acquisition strategy, a rational marketing strategy (including online and social media), and evidence that you understand things like customer acquisition costs and lifetime value of customers.
Let Me Send You A Link To Our 50-page Business Plan
Investors want a 15-20 slide pitch deck, not a business plan. Do not send them to Google Docs, Dropbox, or some other file-sharing service to find the deck. Instead, attach the document to the email as a PDF. Most importantly, keep things crisp and on point.
We Are Too Early To Worry About Marketing Strategy
Investors want to know if you have plans to market your product or service: Will you use social media? Will you use search engine marketing, and can you show that it will be productive? How will you get some early sales, and what will those costs be?