The Top 10 Mistakes Entrepreneurs Make When Approaching Investors
Raising money for your company is one of the hardest things you will ever do. The chances of getting funded by a VC fund are significantly less than 1%. Yet despite knowing how tough it is, entrepreneurs often make the same mistakes and sell themselves short.
Avoiding these top 10 mistakes will increase your chances of getting that all important first pitch meeting and, ultimately, securing funding.
Targeting the wrong funds. Investors are all different. They focus on different stages (pre-seed, seed, Series A, Series B, etc.) and different sectors. Some have well publicized investment theses; others adopt a more generalist approach. Your goal as an entrepreneur is to locate the right investor for your company. It will be far easier to successfully engage an investor who has invested in your space, and likely has a natural interest or passion in what you do, than an investor who has not.
Lack of investor research. If you have ever applied for a job, you will (hopefully) remember the extensive research you did on the company and the people interviewing you. The same applies to investors. You need to set yourself up for success. Build a thoroughly researched list of investors who you think will be a good fit for your company before you plan out how to approach. Review the focus of both the fund and the individuals in the investment team.
Not planning out your approach. Once you have identified the investors who are likely to be the best fit for your company, you need to plan out how to approach them. Like all good sales approaches you need to utilize a mix of channels and have a systematic approach. Meeting at events, warm introductions and cold approaches are all appropriate. Ensure you schedule follow-ups.
Not focusing on relationships. No matter how good your business plan, you will not receive investment unless you have built a strong relationship with an investor. They need to trust you and have conviction that their investment will be looked after. Building strong relationships takes time. Engage with investors early, before you are actively raising, to really get to know them.
Not having a sharp elevator pitch. Investors hear thousands of pitches every year. You need to be the one that stands out. Have a sharp, sixty second summary of your business at your fingertips. It needs to convey who you are, what you do and why you offer such a compelling investment opportunity. It needs to excite. It needs to pose questions in the investor’s mind. It needs to result in a follow-up meeting. Practice until it is perfect.
Not having a sharp intro email. A cold email needs to stand out in an investor’s busy inbox. Be concise and to the point. You need the investor to be sufficiently excited to reply and find out more. Overly long emails will not get read. Thoughtful personalization can help you cut through the noise. Experiment with the time you send messages.
Being overly persistent. Sense check everything you do by putting yourself in the shoes of an investor and thinking about how they will feel. Operate using the three strikes rule. If your first approach is ignored, a second and third are appropriate if sensibly spaced. Follow-ups can be particularly effective if you have new information to impart, such as a team, product, sales, or financing update. If you get no traction after three attempts, move on.
Having a substandard deck. Your deck is the equivalent of your resume when job hunting. It needs to be perfect. You will go straight into the ‘pass’ list if it is: too long (10–12 slides max), too wordy (use visuals), does not explain what the business does (you need to convey this in a sentence or two), ugly (it needs to look beautiful), and has basic mistakes (typos — just say no). Invest in a designer if necessary.
Not asking for appropriate feedback. Even the most outstanding entrepreneurs get told ‘no’ many times during a fundraising process. A ‘good no’ is one where you get some feedback that allows you to improve your approach next time. Ensure you always follow up to get these insights. Asking for referrals from funds that have passed is not usually a good idea — they either will not feel comfortable referring to their network or they will refer with a note: ‘We already passed, but…’. Not the best first impression.
Trading too heavily off Covid-19. If your business stands to benefit from the current conditions, be sensitive about it. This is a global pandemic that is costing hundreds of thousands of lives. If you have entirely changed your model because of Covid-19, proceed with extreme caution. Most investors take a 5 to 10-year view of the world, not a short term, event driven one.