28 mistakes of a startup in the eyes of an investor. Business angel experience
At the early stage of a startup, most entrepreneurs are faced with the need to interest the investor in order to attract funding, but many in this difficult task lack either experience or knowledge, or both, resulting in a presentation that goes beyond criticism.
Richard Harrok, Managing Director of Vantage Point Capital Partners Venture Fund, has seen quite a few spitsch elevators in his life and, having decided to share his experience, has compiled a list of the main mistakes and actions for Forbes that a startup startup should avoid during the presentation of his product. or attract venture capital investment.
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Investors, as a rule, are immediately sent to the basket or simply do not read the unexpected mail. They receive hundreds, if not thousands of such letters, and usually don’t waste time searching for a diamond in a pile of rubbish. In order for a business plan to reach a business angel, it makes sense to send it through an intermediary working in the structure of your addressee — a lawyer, a top manager of one of the portfolio companies, or an employee of a venture fund who will forward it to your addressee.
Some investors want to invest exclusively in biotechnology. Or in mobile apps. Or in environmentally friendly projects. Or online projects or online media. First make inquiries about the investor's investment priorities.
It is very likely that the investor has neither the time nor the desire to study your comprehensive and detailed business plan with all the calculations. Limit yourself to 2-3 pages of business plan summary or Power Point short presentation.
Most investors are interested in scale and serious prospects. Therefore, before making a pitch or placing a project for venture financing, prepare convincing arguments for why your business has a high chance of success. Do not present narrowly focused or one-time ideas. If your first product or service does not differ in scale, then the company may need to be positioned as a business platform, providing for the release of a series of such products. It is important for an investor to see the volumes of the actual target market and to know what percentage your company plans to receive in the long term.
Yes, investors want to know if you have a good and professional team. However, if the team is represented, but it is silent, listening to its CEO together with the investor is a failure. How will an investor evaluate team members if he doesn’t hear anything from them? Worse, it can only be when they say everything, while contradicting each other.
The story that you have no competitors can characterize you, at least, as a naive person and far from reality. There is always competition, direct or indirect, or at least one who offers alternative solutions. And it is your analysis of the most likely competitors that will show me how well you know the market.
If in the forecast I see a company that will reach an income of $ 5 million in five years, this will not cause me much interest. I want to invest in a business that can grow significantly and is able to carry along. On the other hand, if, according to your forecasts, the company will achieve a turnover of $ 500 million over three years, it will seem unreal to me, especially if at this stage its revenues are zero. Avoid fantastic predictions that will be hard to justify.
Most investors have a policy of not signing non-disclosure agreements. This destroys trust at the very beginning, becoming an obstacle to achieving strong business ties with an investor. If you have something strictly confidential, just do not share it with me.
Entrepreneurs need to practice conducting presentations with friends and consultants before presenting their project to an investor. You must be ready to answer questions clearly. And anticipate the difficult. Avoiding questions like “I will answer you this later,” rarely make a good impression. And if I ask about something, this is a good sign, it means that I am interested. So try to answer me immediately. Do not shy away from difficult questions and do not tell me that the answers to them will be later in the course of the presentation. It is important for me to know what you think at the moment.
What problem should your business solve? Is it important in general?
If you say that you want to evaluate a company that was founded 3 weeks ago at $ 100 million, our conversation is likely to end very quickly. It is better not to discuss the value of the company at the first meeting, except to mention that you expect an adequate assessment.
Phrases to avoid:
“All we need is 1% of the market” (After that, you are unlikely to get anything)
"We will achieve mass virality" (If you do not show me an early tendency to this, it will be hard to believe)
"This product will sell itself" (No, it will not)
"Google will want to buy us" (everything can be, but unlikely)
“Our forecasts are very conservative” (I would like to hear the phrase “Our forecasts are wildly optimistic” at least once from a start-uper).
For the entire pitch you have no more than an hour. The congestion of the presentation with slides will break the clarity of the presentation and take so much time from you that it just won't get to the last. Do not worry, if the investor is interested, you can always familiarize him with the details later.
Many investors consider a startup team more important than the idea or product itself. Investors want to know whether team members have sufficient skills, experience and temperament for business development. Need to anticipate these issues:
Who are the founders and key members of the team?
What kind of experience in the startup business can a team be proud of?
What other key specialists do the team need in the short term?
Why is the team uniquely able to execute a business plan?
How many employees do you have?
What motivates founders?
How do you plan to change the team in the next 12 months?
Make sure your presentation contains no typos or inconsistencies. Provide a well-written, visually interesting presentation. Be sure to number each slide so that questions can easily link to a specific page. Do not forget about copyright protection and the corresponding notice in the presentation.
A demo is worth a thousand words. Show me a prototype or working demo of your product, application or website and I will immediately understand what you are trying to do. And make sure that everything works well and is not buggy.
Awareness of my affairs and investments will have a good influence on the course of the conversation and will show me that you prepared for it beforehand.
Studying colleagues' business plans and their presentations will help you improve your own. You can find them on the Internet or ask for familiarization with fellow startups.
I am very interested in how you are going to invite customers, and what channels to use for this.
I need to know what risks to your business you see at this stage, and what precautions you need to take to mitigate them? Be prepared for a variety of questions.
.
In order for me to believe in your financial projections, I need to hear how you formulate your basic assumptions and convince me of their reasonableness. And if you can’t do it, I just won’t see the core of your business.
I want to know why your product is better than what you already have. I know the competitive products, so handle the facts and examples. For example, “We differ from Instagram in three important ways: (1) we are easier to use; (2) we have the best editing features; and (3) we were able to monetize the project earlier than Instagram. ”
Just because you create something grand in your understanding does not mean that it will sell well or will be approved by users. Therefore, it is reasonable for me to ask how you plan to sell your product or service, what market exits you intend to use, how you intend to get potential buyers cheaply and effectively, and what social media you plan to use. Whether content marketing and integrated measures for SEO of your site are provided, and with the help of what you intend to achieve quick sales.
Don't forget to show me that the media is already talking about you at an early stage. List in your presentation of the article and publication mentioning you.
One of the most important questions for an investor is signs of consumer interest in your product at an early stage - statistics, figures and facts. How many users have already downloaded your application, and how many on average are added per week, whether your product is interested in corporate clients, if you are a software company and what was the impetus for user activity.
I absolutely predictably want to know for what purpose you plan to spend my capital and the speed with which to spend the funds (I need this, too, in order to understand how much money you will need in the next stage of financing). From this I will conclude whether the amount you need is reasonable and whether the estimation of current expenses (for hiring specialists, marketing expenses or renting an office) is reasonable based on my experience with other start-ups.
For many companies, intellectual property becomes the key to success. Investors are sure to be interested in your answers to these questions: What intellectual property does the company own (patents, copyrights, trademarks, domain names)?
How are you insured against possible violations of your rights to it?
Can your former employers or team members try to challenge the company's intellectual property rights in court?
An entrepreneur must clearly explain why his product is unique and be able to convincingly tell about its key features and fundamental differences from other products on the market, as well as tell the investor what improvements are expected in the near future and how often updates are planned.
About the author: Richard Harrock, business angel, managing director of Vantage Point Capital Partners investment fund, Forbes columnist and The Wall Street Journal, author of The Wall Street Journal bestsellers about the world of small business and attracting venture capital investments.
The author describes on his own experience mistakes startups in attracting large investors. However, entrepreneurs who place their projects to attract financing on our collective investment platform VCStart will have the bitter experience of their colleagues in order to correctly present their project to potential investors. The rules are all alone.
Richard Harrok, Managing Director of Vantage Point Capital Partners Venture Fund, has seen quite a few spitsch elevators in his life and, having decided to share his experience, has compiled a list of the main mistakes and actions for Forbes that a startup startup should avoid during the presentation of his product. or attract venture capital investment.
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Mistake number 1: Send me a project summary or your business plan all of a sudden, without prior consistency.
Investors, as a rule, are immediately sent to the basket or simply do not read the unexpected mail. They receive hundreds, if not thousands of such letters, and usually don’t waste time searching for a diamond in a pile of rubbish. In order for a business plan to reach a business angel, it makes sense to send it through an intermediary working in the structure of your addressee — a lawyer, a top manager of one of the portfolio companies, or an employee of a venture fund who will forward it to your addressee.
Mistake number 2: Offer me a startup, not knowing which area of ​​investment is interesting to me.
Some investors want to invest exclusively in biotechnology. Or in mobile apps. Or in environmentally friendly projects. Or online projects or online media. First make inquiries about the investor's investment priorities.
Mistake number 3: Give me a 50-page business plan for consideration.
It is very likely that the investor has neither the time nor the desire to study your comprehensive and detailed business plan with all the calculations. Limit yourself to 2-3 pages of business plan summary or Power Point short presentation.
Mistake number 4: Do not show me in all its glory the market potential of your project.
Most investors are interested in scale and serious prospects. Therefore, before making a pitch or placing a project for venture financing, prepare convincing arguments for why your business has a high chance of success. Do not present narrowly focused or one-time ideas. If your first product or service does not differ in scale, then the company may need to be positioned as a business platform, providing for the release of a series of such products. It is important for an investor to see the volumes of the actual target market and to know what percentage your company plans to receive in the long term.
Mistake number 5: Appear for a meeting with me as a team, but to give a presentation to one manager.
Yes, investors want to know if you have a good and professional team. However, if the team is represented, but it is silent, listening to its CEO together with the investor is a failure. How will an investor evaluate team members if he doesn’t hear anything from them? Worse, it can only be when they say everything, while contradicting each other.
Mistake number 6: Tell me that you have no competition.
The story that you have no competitors can characterize you, at least, as a naive person and far from reality. There is always competition, direct or indirect, or at least one who offers alternative solutions. And it is your analysis of the most likely competitors that will show me how well you know the market.
Mistake number 7: Show me not impressive or unrealistic forecasts.
If in the forecast I see a company that will reach an income of $ 5 million in five years, this will not cause me much interest. I want to invest in a business that can grow significantly and is able to carry along. On the other hand, if, according to your forecasts, the company will achieve a turnover of $ 500 million over three years, it will seem unreal to me, especially if at this stage its revenues are zero. Avoid fantastic predictions that will be hard to justify.
Mistake number 8: Ask me to sign an NDA (Non-disclosure agreement - non-disclosure agreement - note) before it comes to sharing information
Most investors have a policy of not signing non-disclosure agreements. This destroys trust at the very beginning, becoming an obstacle to achieving strong business ties with an investor. If you have something strictly confidential, just do not share it with me.
Mistake number 9: It is not clear or unconvincing to answer investor questions.
Entrepreneurs need to practice conducting presentations with friends and consultants before presenting their project to an investor. You must be ready to answer questions clearly. And anticipate the difficult. Avoiding questions like “I will answer you this later,” rarely make a good impression. And if I ask about something, this is a good sign, it means that I am interested. So try to answer me immediately. Do not shy away from difficult questions and do not tell me that the answers to them will be later in the course of the presentation. It is important for me to know what you think at the moment.
Mistake number 10: You do not indicate the problem your business solves.
What problem should your business solve? Is it important in general?
Mistake number 11: unrealistic expectation of your company
If you say that you want to evaluate a company that was founded 3 weeks ago at $ 100 million, our conversation is likely to end very quickly. It is better not to discuss the value of the company at the first meeting, except to mention that you expect an adequate assessment.
Mistake number 12: rely on cliché
Phrases to avoid:
“All we need is 1% of the market” (After that, you are unlikely to get anything)
"We will achieve mass virality" (If you do not show me an early tendency to this, it will be hard to believe)
"This product will sell itself" (No, it will not)
"Google will want to buy us" (everything can be, but unlikely)
“Our forecasts are very conservative” (I would like to hear the phrase “Our forecasts are wildly optimistic” at least once from a start-uper).
Mistake number 13: Have more than 20 slides in your PowerPoint presentation.
For the entire pitch you have no more than an hour. The congestion of the presentation with slides will break the clarity of the presentation and take so much time from you that it just won't get to the last. Do not worry, if the investor is interested, you can always familiarize him with the details later.
Mistake number 14: Forget to tell about the team, the experience of its members and their abilities.
Many investors consider a startup team more important than the idea or product itself. Investors want to know whether team members have sufficient skills, experience and temperament for business development. Need to anticipate these issues:
Who are the founders and key members of the team?
What kind of experience in the startup business can a team be proud of?
What other key specialists do the team need in the short term?
Why is the team uniquely able to execute a business plan?
How many employees do you have?
What motivates founders?
How do you plan to change the team in the next 12 months?
Mistake number 15: Ignore the details.
Make sure your presentation contains no typos or inconsistencies. Provide a well-written, visually interesting presentation. Be sure to number each slide so that questions can easily link to a specific page. Do not forget about copyright protection and the corresponding notice in the presentation.
Mistake number 16: Do not provide a demo
A demo is worth a thousand words. Show me a prototype or working demo of your product, application or website and I will immediately understand what you are trying to do. And make sure that everything works well and is not buggy.
Mistake number 17: Do not examine the investor and his investment portfolio
Awareness of my affairs and investments will have a good influence on the course of the conversation and will show me that you prepared for it beforehand.
Mistake number 18: Prepare your presentation without familiarizing yourself with a number of others.
Studying colleagues' business plans and their presentations will help you improve your own. You can find them on the Internet or ask for familiarization with fellow startups.
Mistake number 19: Do not understand the need for costs to attract customers and long-term user value.
I am very interested in how you are going to invite customers, and what channels to use for this.
Mistake number 20: Not understanding the potential risks to business.
I need to know what risks to your business you see at this stage, and what precautions you need to take to mitigate them? Be prepared for a variety of questions.
.
Mistake # 21: Failure to reasonably explain what your predictions are based on.
In order for me to believe in your financial projections, I need to hear how you formulate your basic assumptions and convince me of their reasonableness. And if you can’t do it, I just won’t see the core of your business.
Mistake number 22: A vague explanation of how your product or technology differs from a competitor.
I want to know why your product is better than what you already have. I know the competitive products, so handle the facts and examples. For example, “We differ from Instagram in three important ways: (1) we are easier to use; (2) we have the best editing features; and (3) we were able to monetize the project earlier than Instagram. ”
Mistake # 23: Lack of a coherent marketing strategy.
Just because you create something grand in your understanding does not mean that it will sell well or will be approved by users. Therefore, it is reasonable for me to ask how you plan to sell your product or service, what market exits you intend to use, how you intend to get potential buyers cheaply and effectively, and what social media you plan to use. Whether content marketing and integrated measures for SEO of your site are provided, and with the help of what you intend to achieve quick sales.
Mistake number 24: Do not tell me about publications in the media about your project or about any other resonance in the media.
Don't forget to show me that the media is already talking about you at an early stage. List in your presentation of the article and publication mentioning you.
Mistake number 25: Silence that your project has already received certain user support.
One of the most important questions for an investor is signs of consumer interest in your product at an early stage - statistics, figures and facts. How many users have already downloaded your application, and how many on average are added per week, whether your product is interested in corporate clients, if you are a software company and what was the impetus for user activity.
Mistake number 26: Failure to show me how you intend to use your investment capital and how long it will last.
I absolutely predictably want to know for what purpose you plan to spend my capital and the speed with which to spend the funds (I need this, too, in order to understand how much money you will need in the next stage of financing). From this I will conclude whether the amount you need is reasonable and whether the estimation of current expenses (for hiring specialists, marketing expenses or renting an office) is reasonable based on my experience with other start-ups.
Error 27: Do not draw my attention to your intellectual property
For many companies, intellectual property becomes the key to success. Investors are sure to be interested in your answers to these questions: What intellectual property does the company own (patents, copyrights, trademarks, domain names)?
How are you insured against possible violations of your rights to it?
Can your former employers or team members try to challenge the company's intellectual property rights in court?
Mistake number 28: It is not enough to articulate the essence of the product or service.
An entrepreneur must clearly explain why his product is unique and be able to convincingly tell about its key features and fundamental differences from other products on the market, as well as tell the investor what improvements are expected in the near future and how often updates are planned.
About the author: Richard Harrock, business angel, managing director of Vantage Point Capital Partners investment fund, Forbes columnist and The Wall Street Journal, author of The Wall Street Journal bestsellers about the world of small business and attracting venture capital investments.
Conclusion
The author describes on his own experience mistakes startups in attracting large investors. However, entrepreneurs who place their projects to attract financing on our collective investment platform VCStart will have the bitter experience of their colleagues in order to correctly present their project to potential investors. The rules are all alone.
Source: https://habr.com/ru/post/234597/
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