Getting an investor for a startup is a process that requires diligence, strategy and effective communication. Below I list some of the most common mistakes that can hinder the process.
Remember that an idea alone is not enough. While you may think your concept is worth a billion dollars, it's not worth more than $100 to an investor. This is because the investor knows (usually better than the startup) that the real challenge is to put the concept written on a piece of paper or in your head into action.
This article will help you plan your investor acquisition efforts and, above all, reduce the risk of making the most common mistakes. It is better to learn from others' mistakes than your own.
The list you will find below is not complete. If you want to optimally prepare for an interview with investors or learn about other available options for financing the development of your company - get in touch.
I invite you to read more.
To begin with, ask yourself whether you need an investor. First, you may find that you don't need capital at all at your current stage of development. Second, it may be that in your case you are better off using a grant or loan.
Think about what exactly you need investor funds for. Have you already tested your business concept? Usually you can do this for free or with very limited funds. You don't have to build a factory right away, first see if customers will buy the products you produce.
How to do it? There are many ways to do it. Some are described in my ebook - "the truth about subsidies for companies". I will also be happy to advise you individually in terms of your situation and business idea. If you are interested in such a consultation, get back to me by email or phone. In the meantime, let's get back to the struggle to attract investors.
If you decide that an investor is necessary for you, think about who could and should be one. I would caution you not to go by the sole criterion of the availability of a wealthy person in the neighborhood. The selection of partners in a business is extremely important. It often determines the success or failure of the business. I will describe this topic in a separate article.
A good investor is one who brings additional value beyond just cash. This can be competencies that you don't have, but also, for example, contacts.
It is also important to thoroughly understand the investor's plans and needs. Does he want to be an active member of the team and work for the development of the project or is he interested in a passive position and only generate profit, which is to be the responsibility of the main founder alone.
Typically, when raising capital, it's a good idea to look for people who are familiar with the industry in which you operate or want to operate. Founders often have an aversion to this, because they fear that such a person with the right resources will steal their idea. In practice, investors know that developing your own business is a complicated process, requiring not only money, but also a huge time commitment. Therefore, the likelihood of stealing an idea in practice is minimal. Some investors will send you away with a flourish when you slip them an NDA to sign at the start of talks.
Venture capital funds are one option. Another is to work with one of the angel investors. You can also look for wealthy entrepreneurs in a particular industry and try to reach them.
How to reach such people? Below you will find some ideas:
In addition to venture capital investment funds or industry investors, check out business angel associations. In Poland, thriving
IMPORTANT: Don't send dozens of emails (cold mailing) to strangers. The chances that you will interest someone this way are slim. The number of investors is limited and it's better not to burn a contact by making a bad impression.
When you're planning to grow your startup, consider financing in rounds. Investment rounds are simply successive financial injections of your business as the company grows. In order to make such a model possible, and so that you don't lose control of the business at the beginning or after a year - two, you can't get too "diluted" at the start. Therefore, offer the investor as small a stake as possible.
Professional investors such as business angels or investment funds do not take majority stakes. Usually it is from a few to a maximum of a dozen percent. This is standard in the industry. In the early stages of development, make sure you have a proper cap table, that is, a split of shares between investors and founders. If an investor offers to buy shares giving him control of the company, he is unlikely to bind you to long-term plans as its head.
Below you will find a subjective compilation of the most common mistakes founders make in the process of raising funds from investment funds or other investors. This compilation is based on my practical experience from working with dozens of startups as well as investors.
The team is often a key element to be evaluated by the investor. It is important that the originators have the necessary skills, such as sales or technical skills, and ideally if they are supported by specific experience - past results. For this reason, it is advisable to have a team already at the start, instead of being a one-man-orchestra. Statistically, investors strongly prefer to invest in founder teams.
A professional investor, in addition to a pitch deck (investor presentation), also expects you to provide a financial model in excel. The financial model should include formulas so that you can see how it was drawn up.
If you have no experience in creating financial projections, entrust this task to specialists.
A business model is not just about financial data captured in excel. It is about the ways in which the company is to make money - monetization channels. The choice of a business model should be based on sound reasons. Also, confirm the interest of potential customers. Make it credible that they will pay the expected amount for the service offered.
The business you present should have the potential for strong growth. This should be based on trends in the relevant market (check out what a TAM/SAM/SOM analysis is).
A fledgling entrepreneur (including a startup) often underestimates the competition. This is the so-called red flag (warning) for an investor. Remember that you always have competitors. If not direct ones, then they are so-called indirect competitors, who respond in a different way to the same or similar need of your target customers.
You may be wondering what the point is. After all, if your company was already generating revenue and profits then you wouldn't need an investor at all.
Well, what you need to know is that in the vast majority of cases venture capital funds are looking for startups with so-called traction, in other words being in the post-reve phase, or in other words simply already generating at least first revenues. The idea is to reduce the risk of investment.
Therefore - if your business doesn't have revenue yet then don't you have a chance to invest? You do. But keep in mind that it will be more difficult for you, because fewer investors are willing to get involved, in addition, you will receive less money (usually a few hundred thousand zlotys at most) for a larger stake than if your business was at a more advanced stage of development.
Therefore, as far as you are able to finance the development of the business on your own - I recommend that you act that way. Venture capital funds should be used primarily for rapid scaling, development, sales. And not for just verifying that the product works and that there is demand for it.
Looking for early stage investors for your project? Look for seed and pre-seed stage investors. These are the entities that most often invest in early (seed) stage startups.
"Ladies, such a product will sell out in a stump!" - this is more or less what 90% entrepreneurs taking their first steps in business think of their idea (product). Meanwhile, the investor expects a concrete, convincing market entry strategy. In practice, it's all about marketing and sales. Who will be responsible for it? What previous experience in this field and results does he have? Why will you use such and not other channels? How will you measure effectiveness? You should think carefully about all of the above issues before talking to an investor. The project you want to implement must be properly secured from this angle. Then you will increase the chances of investment, but also the success of the business.
People who build startups should know basic startup metrics. While it's not the most important, it can increase the chances of investment in certain situations - building more authority in the eyes of investors. If, as of today, terms like KPIs, milestones, LTV, CAC, churn or ROI sound largely foreign to you - check out the meaning of them and other frequently used metrics before you go to a fund interview.
The above list contains the most common mistakes made by startups, but it is not a complete list. Unfortunately, there are more pitfalls. Sometimes you have to take into account a particular market, which may be specific. However, most startups face the topics listed above. Regardless of the industry
Conversations with investors are a key stage for many startups, determining their further development and success. However, numerous failures in this area point to a number of mistakes that entrepreneurs often make. Avoiding these pitfalls can benefit not only the capital raising process itself, but also the overall business strategy. It is worth noting that proper preparation for talks with investors is a key element that can significantly affect the final outcome.
One of the main factors for a successful interview with an investor is a thorough understanding of one's business. Many entrepreneurs make the mistake of underestimating the need for solid preparation in terms of the presentation of their company, product or service. Investors expect a clear and convincing message about the added value a startup brings to the market. The lack of this clarity can result in a loss of interest from potential financiers.
Another common mistake is insufficient knowledge of the market and competition. Investors are looking for entrepreneurs who not only know their product well, but also understand what challenges they face in the market. Lack of competitive analysis and unawareness of risks can discourage investors, who expect the full picture before investing their funds.
It is worth emphasizing the importance of consulting an expert before talking to investors. These consultations can include not only the technical aspects of the presentation, but also support in understanding the specifics of a particular market or financial analysis. Experts in this field have experience that can be invaluable to startups, especially those entering the external investment market for the first time.
Improper time management during presentations is also a common sin of entrepreneurs. Investors appreciate specific, concise information that clearly presents the potential of the business. Splurging on technical details or focusing attention on irrelevant aspects can distract from important issues and discourage further cooperation.
In addition, the ability to answer "questions from the floor" of investors requires a solid knowledge of all aspects of the company. Failure to answer questions, or providing inaccurate information, can raise questions about the professionalism and integrity of the management team.
In conclusion, mistakes made by startups when talking to investors are often due to a lack of proper preparation. The key issue is not only a thorough analysis of one's business, but also an understanding of the market and competition. It's also a good idea to consult an expert before making a presentation to avoid pitfalls and mistakes that can negatively affect the chances of raising capital. Ultimately, a professional approach to conversations with investors can contribute to a startup's success in a competitive investment market.
