Raising capital for a startup is an issue that every entrepreneur faces during their journey to the top. The average entrepreneur takes about 40 meetings with different investors until they hear a “yes.” The reason so many meetings are needed is because entrepreneurs make a number of possible mistakes in their initial meetings with investors and by the time they realize it, it may be too late or some bridges have already been “burned”.
- Problematic Business Model – There are dozens of types of business models, every investment at the startup phase is a very sensitive issue with tremendous business implications. Try to imagine where Facebook would be today if it had decided at the outset to charge its users. One must present a long-term business model since investors are not looking for a get cash fast plan, rather a business model that will realistically ensure a positive cash flow.
- Focusing On the Product Instead Of The Need – There is a witty expression that says you will sell the problem you are solving, not the product. Companies do not sell products, they sell to meet the need. Consumers do not buy products; they buy a solution to a problem. Before presenting what the product is, explain how the world is today without your product and what the problem is in this form of current consumer behavior.
- Competitive Advantage – Needless to say, one must not say “I have no competitors”. It is important to show that there are competitors in the market (otherwise there is probably no potential/demand), but it is even more important to show how your product/service stands out among them. Emphasizing an advantage by displaying features is a mistake, as it has been said, features are easy to copy. Emphasize a fundamental and serious advantage that competitors will find difficult to copy, whether through intellectual property or complex technology development.
- Asking for Too Little / Too Much Money – How much money do you need and what stage will it bring the company to? This is a critical question an investor may ask. An investor wants to know whether the requested amount is enough for the company to reach the market or if it will require additional funding at a later stage. It is essential to have a preconceived idea of who the investor sitting in front of you is – whether they usually invest tens, hundreds of millions of dollars. If you show an amount that doesn’t match the nature of their usual investment, you probably won’t see the money.
- Think Small – For every startup investment the investor is not looking to make a return percentage in the teens; they are looking to make a “killing”, a hundred or thousand percent return in the long run. It is important to showcase, in your business plan, the potential of the venture so that it will see high profitability and growth over the years, otherwise it will not interest the investor.
Learn From Other’s Mistakes
You will learn from the mistakes of others, so to get a startup investment you have only one opportunity with the investor. We must plan for far down the line and avoid the mistakes mentioned above