Raising capital for a startup is never an easy process. It requires determination, confidence, and most of all – understanding how the game is played.
Investors receive multiple pitches every day and they are constantly offered great deals, meeting smart people that are on the mission to change the world, and they need to make critical decisions on an hourly basis. It is a lot of work being an investor and if your startup message is not packaged properly, it is destined to slip through the cracks.
During our conversations with investors and startup founders, who have been through the fundraising process, we seem to find three common rules that can help you succeed in this process.
A Good Story Wins Over Statistics
It is your story, not your stats and data that will catch the attention of your investors. It is all about being a good storyteller and a good presentation of your idea.
There are many aspects of creating a good story and presenting it properly. This is where incubators and accelerators can be of huge help, especially if this is the first startup of the first business you are building. We recommend asking for professional review and help from great companies like PitchGenios.
Here are few key components of building a compelling story:
Simplification – this is something that is really hard to accomplish. Any topic can be presented in a way that a 6th grader can understand, or it can be presented as a greatly complex problem. This is an art and only lots of experience presenting often to groups of people can develop this skill. Make sure you distinguish between simplification and oversimplifying the problem. If you don’t understand all aspects of the issue you are solving, you will inevitably oversimplify it and investors will not be interested in the deal. It is extremely important you understand well the problem you are offering a solution to, and you can explain it simply to the general public. The time to shine with all your knowledge about your topic will come later, during the due diligence process.
Smart name – believe it or not, a good name for your startup can help you get the deal. If it is smart, catchy, and has a sense of sophistication, you probably have succeeded in choosing a good name. But be prepared to change the name. Many times investors will ask you to do so, for one reason or another. For example – your name is too close to a competitor’s or sounds like an established market player. No investor would give you money if they foresee a lawsuit down the road. Also, the investor may come up with a name, it is possible. It might not be what you like, but do you really want to stick to a name and not to your vision and build a real business?
Clear message – this can be seen as part or reinforcement of the Simplification part. Your pitch deck, conversation with investors and potential partners need to convey a clear message. Avoid using ambiguous language, industry talk (to the extend possible), and make sure people ‘get it’ when you present. Your message needs to be short too. If it takes an hour to explain what you are building, something is wrong. This sounds obvious, but we have seen so many cases where founders make multiple attempts to explain their idea and at the end, the investor is frustrated and not sure why is wasting time listening to the founder, and the founders become even more confused by the situation.
Pitch deck – it needs to be the summary of your idea and implementation of Simplification, delivering a Clear message (we assume your startup name is good). The pitch deck is to help you walk inventors through the process of how you see the problem, and why your solution is good. Pitch decks follow a certain format and the reason for that is to help you convey your message in a way investors are expecting to hear it. Be creative, but don’t overdo it. It will only make your job harder if on top of the idea you are presenting, investors need to use brainpower to follow or fight the ‘creativity’ of your presentation. If you have 40 minutes to present, use 20 minutes for your deck and leave the rest of the time for questions and conversations.
Investors Want You, Not Your Idea
Founders overestimate their idea.
The idea is very important, but it is not what is going to make your business. The idea is probably 10% of your business, if not even less than that. It is the execution of your idea that will make or fail you.
It is much better to have an OK idea and outstanding executive team than to have a great idea and inexperienced or a team that is not committed. Executing your idea will bring it to life and bring it into the hands of the customers.
The value of an idea lies in the using of it.
Thomas A. Edison
Investors choose teams over ideas. It boils down to people. Great people are ingredients of great teams and a great team can bring any idea into life.
Teams that have worked together before and have delivered products are much more likely to receive funding for their new startup. Working with experienced teams helps investors mitigate the risk of investment and have more predictable results. Also, they can verify the team or even receive references from previous investors.
Time Kills Deals
This may sound strange, but if you receive a promise from an investor, you need to dedicate everything you have to close the deal. And closing it means one thing – money in the bank. Anything else doesn’t matter.
When meeting with investors you need to create FOMO – show them that you are going to make this startup with or without them. Make yourself attractive to invest in. If you project confidence and look determined that you will succeed, investors will be happy to invest in you. They see your startup and your team as the engine to multiply their hard-earned dollars.
Make sure you don’t come across as insecure, desperate, needy, and that you bet all on the money you will receive from investors. But make sure you don’t look like an untrainable, arrogant, and opinionated fonder, who will just take the money and do whatever think appropriate and will never listen to experienced investors.
Another aspect of this tip is that investors want to see that you have achieved a lot in a short period of time. If you come to them with “I have spent 10 years researching and polishing my idea and business model”, it is very likely they will skip. Acting on an idea is as important as coming up with it and once you have started on the execution, you need to be fast and focused.
The Importance Of The 3 Money Raising Secrets
In many cases, founders are approaching investors too early. They are not ready to raise capital. This has nothing to do with their idea or even building their MVP. It is all about delivering a great story. It needs to be simple and delivers a clear message. A good company name helps but is not (and should not be) a deal-breaker in most cases.
Once you have a clear and simple message, make sure you deliver it correctly. Look and sound confident in what you are doing and that you will be creating this company with the help or without the investors’ funds. Look coachable and willing to work with mentors.
Finally, you need to act quickly. You need to keep the momentum going and be able to deliver in a short time great results, to show the investors they are making the right decision investing in your startup.