This article is taken from the online blog of BankToTheFuture.com, just one of the leading organisations presenting at next week’s Kent 2020 Start-Up LIVE on 23rd October at the Kent Event Centre near Maidstone.
When pitching to investors, many entrepreneurs make the same mistakes. Here are seven of the dumbest, which should always be avoided before approaching an investor.
1. Don’t pitch the wrong money
Many people waste time sending business plans to any investor that they can find (Banks, Angels, VCs, Crowdfunding, etc).
If you are scattered in your finance-raising strategy, you’ll experience rejection, frustration and waste a lot of your valuable time.
Research the best source of finance for your stage of business and who’s likely to invest, and focus on them. Each source of finance will require you to prepare your pitch in a different way.
2. Don’t make yourself more expensive than your competition
It is painful to watch entrepreneurs pitch investors and lose them because the investment is not tax efficient compared to other investments. If only they knew that they could take advantage of the tax benefits that the UK government has granted to make raising finance a lot easier for businesses.
If you are a UK qualifying business and you don’t get the certificate that gives investors tax relief when investing, you have made yourself up to 85% more expensive to investors. Apply for SEIS / EIS in advance.
3. Don’t break the law
No one wants to listen to a lawyer talking about shareholder agreements, articles of association, pre-emption rights and the rest. But when you take on investors, you need to update the setup of your company.
You need to comply with financial promotions law and to protect both yourself and the investor in case the company is the huge success you expect. If you don’t, this will cause problems as your business grows.
4. Don’t send a 127 page business plan
Your business plan is the document between you and the investors money. If it is not presented in a way such that they will actually read it, then they’ll normally give you a polite ‘adios’.
Avoid templates that you find for ‘free’ with Google search. Those templates have been written with a bank in mind and they are not exciting to investors.
Creating a visual, exciting business plan gets investors’ attentions, and screams that you are investment ready.
5. Don’t forecast more revenue than Apple and Google combined
Don’t create a hockey stick shaped graph showing how your company will turn over more money than Google, Apple and Microsoft in five years. If you’ve done your financial forecast correctly you’ll be prepared for questions on forecasted return on investment.
Start with where you are today and work the model up by going through some assumptions. Don’t start with broad size-of-market assumptions – start with your team and work through the next few years.
6. Don’t leave valuation up to the investor
When seeking investment you need to value your company and create a proposition that makes investors want to open their wallets.
Most entrepreneurs think their company is worth more than it is, while investors want to invest at a lower valuation. Value it properly.
If you already have revenue, this is easily done. If you don’t, you need to use a valuation model based upon your off-balance sheet assets, and this should be presented and figured out up front.
If you leave it to the investor, the valuation will almost always be lower than what you want, and makes you look amateur.
7. Don’t pitch for more than “20 in 10 in 2”
You could have the best idea, the perfect legal structures and a great business plan – but nobody will see it if it’s not pitched correctly.
You need to be armed with a 20 minute pitch that covers the 10 important points that investors look for, in ten slides with 2 videos.
The 10 points are elevator pitch, problem, solution, team, market size, marketing, competition, financials, milestones and exit. The two videos are a mission video showing why your customers love what you do, and a quick investment pitch that fires off the 10 points very fast.
So there you have it: if you want to raise finance, it’s all in the preparation.
You can find out more about alternative finance models – and crowdfunding in particular – at the free workshop on ‘New Ways To Raise Finance for your Business’ at Kent 2020 Vision Start-Up LIVE next week, presented by Simon Dixon, Founder of BankToTheFuture.com.
You can also view a short video about this innovative crowdfunding platform by clicking here.