As a young founder, chances are that you do not have any experience when it comes to speaking with investors. Often first-time entrepreneurs lack the knowledge of what is needed for effective outreach.
The mistakes that those first-timers make are usually related to their investor documents like pitch decks and executive summaries. However, there are many other small mistakes made during the fundraising process. The reasons behind them are not only due to lack of experience but also because of some of the founding team’s traits like the ability to think rationally and leave any emotions out of the process.
We know that pointing at mistakes is easier when you are looking from the outside, but it is useful to at least understand what are the most common pitfalls that startups encounter during their long fundraising process.
Let’s review 10 examples of how you should talk to people with investment interests. We hope this will be a good guide for your and a useful checklist when preparing to meet with investors.
1. Knowing your competition – By showing that you have carefully gone through the market that you aim to conquer and you have analyzed all your competition, you have the potential to win the investors’ attention a little longer. It also shows that you are professional and determined to execute all your ideas. Once you outline the competitors’ landscape you should always try to explain how your product/service is superior to theirs. This will add additional assurance that you are the right team to invest in.
2. Showing the investors how they add value to the development of the company – Investors need to know why they are important to the new venture. That may mean that you will need to explain where you are regarding the development stage of your product or service. Laying down the plans for expansion and development is needed to show where the funds will go. This needs to be described in the business plan in great detail.
3. Explaining the market needs – Although the total addressable market (TAM) is important for the startup assessment, it is not the most valuable criterion. Market need is what experienced people will look at the most. This factor is based on the customer problem and how urgent that problem is to be solved. Sometimes it’s not clear whether the market will need the solution, but that could be validated by using Minimum Viable Product and testing it on the market.
4. Clear and concise presentation – When you are pitching to an investor who isn’t already investing in your company, you will have to present very clearly and often straight to the point. Investors’ time is extremely limited (as well as yours) and you should respect that if you want them to give you a chance. After you present and if they are interested enough, be prepared to email them your business plan. The mere pitch is just an attention grabber, while the business plan is the document that should contain all details about the new venture.
5. Market opportunity – Market opportunity size actually complements the market need because once the customer problem/need is identified, you have to find what is the total amount of revenue that could be generated from that specific customer segment. Obviously, the larger – the better.
6. Honesty – Do not try to hype up your numbers. Try to be as open and authentic as possible in front of the investors. Either way, those of them who are experienced enough will almost immediately find holes in your explanation. If you do not know an answer, be honest about it and don’t try to make things up. Just mention that you will research it and get back to them with credible info. This is a good way to build rapport because it shows that you are not trying to lie. Keep in mind that you should know the ins and outs of your startup. For example, if an investor asks how much revenue you did last year, and you say, “I don’t know, let me get back to you” the chances are that the presentation will end at that point almost immediately.
7. Avoid cold calling – Often founders just mass email their pitch decks and executive summaries hoping to capture the attention of investors. The biggest problem with this approach is that those people (or organizations) receive hundreds if not thousands of decks each month and they review only very few selected ones all due to the fact that they try to optimize their time by reviewing only the ones that catch their eye.
In short, cold calling success rates when it comes to investment pitching are extremely low, especially if you are a first-time entrepreneur. The way to overcome this is to try to find a way to be warmly introduced. This helps shorten the distance.
8. Learn all details – Be prepared as much as possible. This will show that you are dead serious about the whole endeavor. Learn as much as possible about your product, marketing, finance, and team in case further questions about those topics arise (and often they will).
9. Don’t overdo it – When we said that you should learn all the details, we did not mean that you should spit them all over during your presentation. You have to be ready to explain, but only if asked about certain details. For the presentation itself, you will have to add only the most vital information and only the most important KPIs. If you are wondering who those are, you can read our article regarding the six most basic ones. Those are the KPIs that will help investors understand whether they are going to get a good return.
10. Do not always round up numbers – Even though sometimes the data in the presentation is in large amounts, rounding up is not always necessary. Showing precise numbers may prove that you are keeping up with the company’s results and you are really involved in the business. You are truly into it. However, as the previous point explains, don’t overdo it. Although you should put precision in some of the measures – try to find a balance between sharpening the edges and rounding them up.
Use These Tips To Improve Your Approach To Investors
The way you should talk with investors depends on a multitude of factors like industry, size of the investment, company stage, and others. However, the above-mentioned points could be applied generally to almost all cases. Keep in mind that they could and should be modified depending on those factors. Investors’ time is valuable and putting in the effort to respect that limitation will help you get in their good graces and thus potentially secure funding.