The average entrepreneur takes about 40 meetings with different investors until he hears “yes”. The reason for the need for so many meetings is that entrepreneurs make all the mistakes possible in their initial meetings with investors and until they understand it, it may be too late or some bridges have already been “burned”.
What are the main mistakes entrepreneurs make in their attempt to raise capital for a start-up?
- Focusing on irrelevant issues
entrepreneurs have a tendency to fall in love with their product and rightly so, but this love dazzles them and they get lost. You have to understand what to say about the product and how to say it.
- Features display
a fatal mistake of every entrepreneur. Investors do not like features because the features, unlike the core of the product, can be copied very quickly and easily. The essence of a startup is to change the status quo – not changing a situation through a feature but through a conceptual or technological change.
- Lack of understanding of the market
investors are smarter people than the average person. Before investing in a start-up they will want to know that you know the business environment like your palm.
- A problematic business model
there are dozens of different types of business models. This is a very sensitive issue with enormous implications for the business. Try to imagine where Facebook would be today if it had decided at its inception to charge a dollar from each user. We must present a business model that is built on the long term because investors are not looking for the quick bite, and on the other hand, a business model that ensures positive cash flow.
- Focusing on the product instead of the need
there is a smart sentence that says you will sell the problem you are solving, not the product. Companies do not sell products, they sell a response to the need. Consumers do not buy products, they buy a solution to the problem. Before describing what the product is, explain how the world is going without your product and what the problem with this behaviour is.
- Marginal competitive advantage
Needless to say that it is forbidden to say “I have no competitors.” It is important to show that there are competitors in the market (otherwise there is probably no potential), but it is even more important to show how you are different from them. Emphasizing an advantage by displaying features is a mistake, since, as we have already said, features are easy to copy. Emphasize a substantial and serious advantage that competitors would find difficult to copy, whether through intellectual property or complex technological development.
- Asking for a little / too much money
how much money do you need and where it will lead the company? This is a critical question for the investor. He wants to know whether the amount he puts for the company is enough to reach the market or after that he will need to be raised further. It is important to know who the investor sitting in front of you is – whether he invests tens, hundreds or millions of dollars. If you show an amount that does not match the nature of his investment, you will probably not see the money.
- Small thinking
for every investment in a start-up the investor is not looking to make a return of ten percent. He is looking to do the “blow” or see a return of hundred and thousand percent in the long run. It is important to present the potential of the enterprise to show profitability and high growth over the years, otherwise it will not provoke the investor.
Learn from other mistakes
You’ll learn from the mistakes of others. To get an investment in a start-up, you have only one opportunity with the investor. You need to get as prepared as possible and avoid the mistakes mentioned above.