10 Mistakes to Avoid When Pitching Investors (Infographic)


QDOTS imagesCAKXSY1K 8Like it or not, money is the lifeblood of a business. If you are on the hunt  for capital and have landed a meeting with an investor, your first impression  can either be a deal breaker or money in the bank.

 

 

According to Founder Institute,  an early-stage startup accelerator in Mountain View, Calif., one of the biggest  flubs rookies make in an investor presentation pitch is failing to include  charts and graphs. If you aren’t sure how to go about making charts and graphs  that relate to your financial projections, you can consider hiring a business  student or a certified public accountant for a day to help. Also, the institute  says, steer clear of promising potential investors that your startup is going to  be worth $1 billion by its fifth year. Investors want conservative estimates  that they can trust, not pie-in-the-sky guesstimates.

Other tips from the Founder Institute include:

  • Avoid a “hard coded” financial spreadsheet in your presentation – that is,  don’t make your numbers unchangeable in a spreadsheet. Present your information  so that investors can play with your various financial inputs to see how your  business model will survive in changing conditions.
  • Skip what’s known as a “top down” financial forecast where you assume that  your company will automatically win a percentage of some existing market.  Instead, use what’s called “bottom up” forecasting, where you base your  financial projections on an actual budget: essentially, how many items you are  going to sell multiplied by how much each is worth.
  • Talk about the size of your total addressable market (TAM), but don’t focus  on it. For example, if you are creating an iPhone game for women ages 35 and up,  the size of the entire gaming industry would be your total addressable market  and would be largely irrelevant. Instead, research your serviceable addressable  market (SAM), which in this example would be the total market for women over the  age of 35.

In the infographic below, Founder Institute offers a list of the 10 rookie  pitching mistakes it sees on a regular basis.

Top Ten ‘Rookie Mistakes’

1. Not using Charts, Graphs or Tabs in pitch materials.

2. Hard Coding numbers into your spreadsheet.

3. Not using “Bottom Up” Analysis

4. Not Connecting the Financial model to the Narrative

5. Not knowing your “Total Adressable Market” (TAM) and your “Serviceable Adressable Market” (SAM)

6. Not using Generally Accepted Accounting Rules.

7. Not doing a Cash Flow Analysis

8. Underestimating your Variable Expenses

9. Not knowing your Comparable Market Metrics

10. Projecting $1 Billion in Revenues Year 5.

top-10-fundraising-fails

What is your best piece of advice for new entrepreneurs heading  to a first pitch session with an investor? Leave a note below and let  us know.

Related: Entrepreneurship: Risks You Need to Consider  (Infographic)

Finding Angel Money is Easier if You Know the Rules


Fundraising is brutal. Actually, according to Paul Graham, “Raising money is the second hardest part of starting a startup. The hardest part is making something people want.” More startups may fail for that reason, but a close second is the difficulty of raising money.

A while back, I outlined “The 10 Best Sources of Cash to Start Your Business” for startups, listing angel investors as alternative #6. I still get a lot of questions on these mysterious and often invisible investors, so here is another attempt to bring them out of the ether.

By definition, an angel investor is not an “institutional investor.” Venture capitalists (VCs) are paid to invest other people’s money, and measured on the rate of return they get. Angels are typically high net worth individuals who are investing their own money, for a wide range of motives.

So “good” angels are ones with motives that are consistent with what you bring to the table. This means they usually invest in people who have the right “chemistry”, and areas of business they already know. They tend to work locally, so they can “touch and feel” their investments.

Angel investors also tend to limit the size of individual investments to $250K or less. If you need more, you need VCs or a flock of angels. So how do you find those good angels?

  • Use personal networking. The best angels you will find are the ones who know you personally, or know a member of your team or advisory board. If a potential investor gets to know you BEFORE you are asking for money, your credibility and investment probability will be improved by an order of magnitude.
  • Entice angels to play along. Of course, angels are really mortals. They want to make a difference. Asking an angel to work with your company in an advisory role is a great way to establish a relationship that may lead to a cash investment. If you impress the angel, it will likely make her at least an archangel (advocate) when it comes to funding.
  • Court local angel groups. Since angel investors most often focus only in their own geographic area, it’s most effective to court the local group, or even make a guest appearance with an archangel. If you can earn an archangel’s confidence, he or she will invite you to pitch the group, and you’ll have an edge in the voting.
  • Mine national databases. If you are still alone, submit your application to the leading online website national databases of angel investors, Gust (USA) and National Angel Capital Association (Canada). These sites have arrangements with hundreds of local groups and individual investors that you might otherwise have missed.
  • Remember angels beget angels. That means that once you get the first one, he or she becomes your best advocate for finding more. Investment angels don’t like to travel alone, so they will bring in others if they can (it’s called share the risk).
  • Don’t forget passive angels. These are angel investors who are private, meaning they don’t go to meetings, but will invest if someone they trust brings them an attractive opportunity. Find the right investment advisor, or member of your advisory board, and the “match-making” will happen.

Remember that angels have a culture all their own, and it pays to understand how to deal positively with them after you find one. There are some books out there to help, like the one I just published with Joe Bockerstette “Attracting an Angel – How to get Money from Business Angels and Why Most Entrepreneurs Don’t”, and an old standby “The Art of The Start”, by Guy Kawasaki.

Even if you follow this recipe, you are likely to find that fundraising is a brutal challenge. But if it results in a good angel or two watching over your startup, you will definitely be one step closer to heaven.

Marty Zwilling