In the past 10 years, the idea of a “startup” has taken off, as everybody tries to “make it” with their own unique business idea. Some of these startups have taken off and prospered, while others have been less than lucky. On television, the startup trend has been quite brilliantly parodied in the HBO series “Silicon Valley”. But let’s talk practicality: there are a whole lot of pitfalls in the startup world, one of the most notable being courting investors. I recently read an article in Forbes, written by Silicon Valley investor Rick Frasch, that shared some of the top mistakes that startups make when pitching to investors. Some of his insights were really interesting, and I’d like to share them with you:
Their elevator pitch is too long: Your elevator pitch needs to showcase your knowledge in one minute or less, yet also be short and to the point. Any longer, and finding an investor will be tough because they’ll lose interest. You want something that’s short, yet still compelling.
Their pitch deck is too long: Because they’re looking at so many different startups and businesses on a daily basis, professional investors have pretty short attention spans. You need to be able to present a slide presentation in about 15 minutes, and then leave time to answer questions for another 15 minutes. In the time that you have, you need to get your main business points across.
Their business plan isn’t great: Turning an interested investor into an actual investor involves a carefully thought-out summary of the investment proposal. You want to spend a lot of time and effort perfecting an airtight business plan that discusses what your startup does, the size of the market, expected revenues and costs, and why investors should give you money.
They overlooked a realistic exit strategy: Investors get involved in a startup because they want to make a lot of money in a short to moderate time frame. Because of that, make sure that you address how the investor will make money. Be prepared to answer an investor’s questions about how the investment will be monetized.
They asked for an NDA: So that their idea doesn’t get stolen, many entrepreneurs make potential investors sign an NDA. However, most investors won’t sign this because at least 9 times out of 10, they’ve seen this idea before and will see it again. In that case, signing an NDA will lead to a lawsuit.
They use mass mailing: Raising money means building credibility with investors. Because they don’t want to waste money on a bad investment, many investors have a “herd mentality”. This means you should never mass mail proposals in hopes that somebody will set up a meeting. If you do so, this proposal will almost definitely get thrown into the slush pile.
They discuss valuation too early on: When you start dating somebody, you typically don’t (or shouldn’t) talk about your future net worth on the first date. The same principle goes with investment presentations. Wait for the investor to begin discussing the valuation and pricing; approaching it too early could end negotiations.
They don’t listen: The startup world has a lot of egos, and plenty of entrepreneurs get very attached to their idea. Because of this, many of them don’t want to listen to suggestions to change their business model or platform. Such inflexibility can, and will, cost them investors.