Oct 06 - 5min readThe Most Common Mistakes to Avoid When Approaching InvestorsBy Borne
As app developers to successful and leading startups we are well connected with investors and have seen first hand some of the pitfalls people make when approaching investors.
“An investment in knowledge pays the best interest,” said Benjamin Franklin. It’s still sound advice today.
For the best return, you need to do plenty of fundraising research. You’ll also need to be sure that your pitch stands up to scrutiny before you even approach potential angel or venture capital investors.
If not, your great ideas will end up in the bin along with thousands of others. Read on to find out what not to do when seeking venture capital for your next big project.
One of the most common mistakes is to pitch for funds from angel or venture capital investors who do not work with your type of business. Investors often concentrate on different stages eg: pre-seed, seed, Series A or Series B as well as different sectors.
If, for example, a venture capital site says its focus is on seed or Series A stage, it’s unlikely to make an angel investment.
If you’re a Tech startup and you know a fund has already invested in the same space as you, still try to secure an initial meeting. You may not get the cash you need, but you may walk away with a lot of valuable pointers and contacts.
- Research well to ensure you’re the right match for potential investors.
You Have a Poor Pitch Deck
Startups and entrepreneurs will often prepare a pitch deck as a way to present their business to prospective angel or venture capital investors.
There are few things more annoying for investors than pitch decks that have not been quality checked from the word go. It leaves a bad taste and suggests a lack of attention to detail.
This begins with the executive summary in your introductory emails. It needs to be short, to the point and crystal clear.
Remember that you need investors to feel excited enough to respond and find out more. Emails that are too long will not get read.
Your deck is similar to a CV when job hunting. It has to be perfect. When you’re presenting your pitch in person, here are some things to avoid:
- Too many slides: stick to a maximum of 10-12
- Being too wordy: keep your sentences tight and punchy
- A pitch that is not pretty: invest in a designer if necessary
- Too much financial detail and not enough Tech info’
- An underestimation of the competition: this looks defensive
- Typos and grammatical errors: always check and check again
Investors are typically interested in the underlying tech you use and any that’s in development. Concentrate time and effort on this part of your presentation.
- Spend time refining and perfecting your pitch deck
You Wasted Precious Time Cold Calling Potential Investors
You may have made a list of potential angel or venture capital investors you believe are likely to be a good fit for your company. You’ll then have to think about the best ways to approach them for fundraising.
It’s likely that you’ll have to use a mixture of channels and come up with a strategy and systematic process. Meeting at events and personal introductions will be key. Always make sure to schedule in appropriate follow-ups without being overly persistent.
A general rule of thumb is to keep follow-ups to a maximum of three contact attempts before moving on.
Many people will tell you that they found at least one job in their career through word of mouth. In a similar way, networking has become essential to most aspects of business. This includes venture capital fundraising.
It’s not a good move to fire off your pitches unannounced to generic email addresses. It’ll more likely than not be a waste of time and effort. Mailing hard copies will also rarely generate interest.
Use LinkedIn, follow investors on Twitter and build up a comprehensive list of contacts.
Social media is a useful place to find out about relevant conferences where you can meet and approach potential investors. Make as many personal introductions as you can at these types of events. Listen and learn from other pitches.
- Keep building a strong and comprehensive network of contact
You Hired an Adviser
Hiring an adviser is a bad idea for startups below Series B.
If you and your current team, including any existing investors, haven’t been able to raise funds, then it’s unlikely an adviser will be able to help you.
Advisers can be very useful during an exit, but not at the early investment phase. The majority of investors don’t like getting pitches from advisers. For them, it can be a sign that entrepreneurs haven’t done their homework properly or that something’s amiss.
Advisers often make grand claims that they can prepare a better presentation and financial model. You are better off doing these things yourself. Remember that investors are busy people and won’t have the time to study something overly complex anyway.
- When possible, avoid hiring an adviser to do your presentations for you
You’ve Tried to Cover Up Some Basic Flaws
It’s vital that your business plan makes sense. Great ideas generally only work if they solve a real problem and if you have the right team to pull them off.
Don’t try and paper over any cracks in your plan. An investor is likely to see right through them. Be open and honest and provide evidence that you have already tested the market and acted upon useful feedback.
It’s vital that investors trust you and that you build a strong relationship with them. They need to believe that their investment will be well cared for. Always engage with investors early, even before you are fundraising if possible, so that you get to know them well.
- Be open and honest with investors and engage with them early on
Learn From Potential Investors
All entrepreneurs suffer knockbacks and most will have to hear the word ‘no’ many times during the fundraising process. Bear in mind that a ‘good no’ from angel and venture capital investors will give you invaluable feedback to learn from for next time.
There are plenty more useful articles for entrepreneurs and Tech startups in our Insights section. Find out more here about how a product team and owner can build ideas into a reality. Once you are ready to build, get in contact here