In this increasingly crowded world of entrepreneurs, and with the economy still choppy, it’s more important (and perhaps more difficult) than ever to set your new company apart and raise start-up funding from investors.
No need to make the task even harder by making common mistakes.
During a recent panel discussion as part of 1776’s Challenge Festival, several local investors shared some of the most frequent missteps they see entrepreneurs make when trying to raise capital for new company.
1. Don’t forget to do your homework.
At the end of every pitch, Penny Lee says a member of her angel investor group will ask entrepreneurs a rather straightforward question: “How can we be helpful to you?”
“You would be surprised how many stand there with a blank stare,” said Lee, senior advisor at public affairs firm Venn Strategies and a member of the K Street Capital angel group.
“It shows a lack of preparation,” she continued. “You have to know your audience, even if that means just doing a quick social media or LinkedIn search to learn about their background and connections.”
Added Dayna, a Washington-based partner at New Enterprise Associates, the world’s largest venture capital firm, added that entrepreneurs would be wise to research the type and size of investments individuals or organizations have made in the past.
“It’s frustrating on both sides when you find yourself in a meeting or a pitch, you get to the very end and find out how much money the company is trying to raise, and you realize it would never have been the right fit,” Grayson said.
2. Don’t wait to engage.
“One of the mistakes I see entrepreneurs make is not talking to me soon enough,” said Grant Allen, senior vice president of ABB Technology Ventures, a large Swiss investment company with offices in Washington.
“They think corporate investors like us only do later, larger rounds of funding, so they don’t engage us,” he said. “The fact is, we can be pretty creative about working with start-ups, but we need to start having those conversations early. Often, we’re talking with businesses long before we write a check.”
Even if you’re not looking for a multimillion round yet, he said, entrepreneurs looking to scale in the future should “go ahead and reach out and start developing a relationship” with investors or investment groups they think could help them down the road.
3. Don’t boast outlandish or outdated projections.
When it does come time to pitch to an investor, make sure you have done the research to support your financial forecasts, Allen added.
“The most common thing I see is the hockey stick projections, always forecasting something like $50 million in revenue by year three,” he said. “It’s usually based on nothing, and often, it relies on the assumption that you have no competitors.”
In addition, he said, don’t forget to update your numbers as the start-up changes and grows over time.
“I’ll look at the timestamp on a presentation file to see how stale your deck is, to see how recently you have updated your revenue and projections,” Allen said. “Make sure you’re updating your story.”
4. Don’t just check in — make changes.
If a company isn’t quite the right fit for New Enterprise Associates but could be with a few changes or improvements, Grayson will make some suggestions at the end of a pitch, urging “entrepreneurs to go back and work on some aspect of their business and come back.”
That’s not code, she says, for simply try again later.
“The mistake we see is that they wait some time period they feel is appropriate before coming back, versus waiting until they have actually made changes based on our feedback,” Grayson said. “Don’t just check in. Wait until you can show real signs that you listened and made improvements.”
5. Don’t stop practicing.
Whether it’s in front on investors, colleagues, friends or simply your reflection in a mirror, “you can’t practice enough,” Lee said.
“Know your story and know it well,” she said, noting that it’s clear to investors when an entrepreneur hasn’t rehearsed. “Get your speech down, your one-minute, your three-minute, your five-minute all down for different audiences and situations.”
Lee, a former advisor to Senate Majority Leader Harry Reid (D-Nev.), noted that politicians all have a panel of advisors drill them before media interviews and “poke holes” in their speeches.
“You should do the same with your pitch,” she said. “You have to be able to anticipate the questions you’ll face so you’ll be better prepared to respond to investors.”