It sometimes happens that there is a point during an investor pitch when something is said by the entrepreneur which instantly kills their chances of securing funding. It is the point at which there is no return and nothing can be said to repair the damage. You know it’s happened because the investor(s) stops listening, changes their tone of voice and hurries you on.
I took the opportunity the other night at a dinner with several angel investors to ask them what were the three things that would destroy the chances of an otherwise decent investor presentation. I asked the Angels to focus on substance rather than style i.e. the investment proposition fundamentals rather than pitch technique. The top three were as follows:
Lack of clarity on the numbers
This evil covers a range of sins including:
1. Not being clear as to precisely how much investment is required.
2. Not being clear as to what milestones will be achieved by different stages of funding.
3. Not being on top of revenue projections. Even though the Angels agreed that projections rarely bear any resemblance to reality, it is essential that the CEO / Founder is on top of the numbers and should not hide behind the CFO.
Not Having a Clear Go to Market Strategy
For reasons that I’m convinced are rooted in human nature, entrepreneurs will often spend enormous amounts of time, energy and creativity on the development of their product or service but not give sufficient attention to the development of a well thought out route to market.
Without sales, the best designed product in the world, is of no interest to an investor. An entrepreneur’s pitch deck will often identify potential customers but not deal with key issues such as:
1. What channels of distribution will be used and how will they be established.
2. Who within the company has the experience and expertise to execute the sales strategy.
3. How will potential customers awareness of the product / service be created.
Linked to the issue of a lack of go to market strategy, is a confusing of the market size with the addressable market. The addressable market is limited to the company’s industry focus in contrast to high-level market size numbers relating to that sector of the economy.
Maintaining There is No Competition
Competition is a good thing as it implies there is money to be made and provides an opportunity to learn from the competition’s mistakes and triumphs. It is very rare to find a situation where there is no competition, whether they be startups or established companies.
At a minimum, an entrepreneur pitching Angel Investors or Venture Capitalists for funding, needs to be able to:
1. Identify the competition
2. Compare the products / services.
3. Explain what their product/ service has that the competition doesn’t.
It seemed only fair that I buy dinner in return for this free market research…