Top 5 Mistakes Startups Should Avoid When Pitching To Investors
In order to raise funds, startups must acquire a deep understanding of the factors of assessment and expectations each investor has before attempting to pitch their business plans. A business pitch is a way startups ask investors or venture capitalists for the funding to sustain or expand their business. Most budding entrepreneurs are completely new to this process, and therefore, make preventable mistakes when pitching and presenting their ideas. Investors have a limited time to give startups, so first impressions are everything. We have compiled a list of mistakes to avoid if you are an entrepreneur seeking funds from investors.
Mistake 1 – Asking investors to sign an NDA
Most investors won’t sign a non-disclosure agreement or an NDA. They aren’t interested in stealing your ideas or developing it themselves. They come across hundreds of thousands of deals and only desire a return on their money. If you want to keep your idea highly confidential, it is better not to seek investors as asking to sign an NDA will show that you are inexperienced and lessen your chances for funding opportunities.
Execution is everything. You should be confident about your idea as well as your business plan. There are chances that your idea might be similar to another startup the investor is considering. Your team, your business plan, and your execution capabilities are often more important than the idea itself. It is the way you sell your product to the investor that is most influential.
“I and no other VC will sign an NDA as we look at many deals, sometimes in the same sector and can’t be conflicted. I also recommend for your benefit that you don’t ask other VCs to sign one.” – Alexander Jarvis, Venture capitalist
Mistake 2 – Showing high valuations
When pitching your startup, you should know your worth. Giving too high of a value to your business can negatively affect your negotiations. You shouldn’t go overboard; proper research on how to value your business and make financial projections is vital. If your valuation is too high, venture capitalists will think you lack business-savviness. Investors are looking for sustainable businesses with realistic growth projections that are knowledgeable about the market.
It is also advisable not to begin the presentation with valuations. Wait for the investors to begin the discussion and then dive in. If you start it early, you will risk the termination of negotiations.
“You want to be defending a high valuation provided it is still fair and reasonable and representative of the true value of the company, but you don’t want to be arguing such a high valuation that it becomes unattractive as an investment opportunity.” – Jack Delosa, Founder of The Entourage
Mistake 3 – Having a long presentation
Don’t waste your time creating a long business plan or presentation. Most busy investors don’t have time to listen to a lengthy presentation. Too much information can compromise quality, so it is better to cut unnecessary portions. A good pitch should be short, crisp, and effective. No more than 20 minutes is needed.
You can put together the presentation with a few slides which comprise of your business idea, product overview, your go-to-market strategy, financial projections, how you will contribute to solving customers’ problems. You need to lay emphasis on how you will create value for your business.
“You have a very short amount of time to make a first impression. If you’ve got a long rambling slide deck…you’re done” – Naval Ravikant, Co-founder of AngelList
Mistake 4 – Not researching the investor
It is crucial to gain information about the investor’s background, interests, and affiliations. By showing investors that you know about their background and the companies they have invested in, you can establish a good impression on them.
You should be specific about the investors you are interacting with. Gather information about the industries or sectors they invest in. Some investors are tech-focused, while some lay stress on social impact. Find out what interests them. By conducting proper research, you will be able to get a pitch ready that fulfills their expectations.
“Do your research and know about your investor who you are pitching to. Your actual business idea is what you will be judged on, but before you’ve even got into the nuts and bolts of it, you need to demonstrate how well you know the investor in front of you.” – James Caan CBE, CEO of Hamilton Bradshaw Private Equity
Mistake 5 – Not emphasizing on the team
A startup’s team is in a growing phase but is one of the most important factors for investors to assess its long-term feasibility. The angel investors and venture capitalists are interested in knowing whether the goals of everyone in the team are aligned and how team’s track record can help drive the success of your venture.
An entrepreneur should build a team that comprises of people who are experienced and have the requisite skill set to take the company ahead. If the team is not dynamic and lacks the passion in your offerings, the chances of failure increases irrespective of how your idea is. Investors look for startups that can create a team bringing life to the idea and executing it successfully.
“No matter how brilliant your mind or strategy, if you’re playing a solo game, you’ll always lose out to a team” – Reid Hoffman, Co-founder of LinkedIn
Entrepreneurs have to put a lot of work into making pitches and getting funding. They need to stay patient and continue working towards getting the perfect investor.
A winning pitch takes time to prepare, and master and sometimes even the most successful entrepreneurs commit mistakes in their business communication. By having a well-prepared presentation considering the above points, a well-outlined executive summary and an engaging speech, you can get the perfect pitch ready and impress investors.