When starting a startup, everything can be exciting, every entrepreneur can tell you that. The feeling of creating something from scratch and seeing it come to life, potentially even changing the world, is incredibly rewarding. But at the same time, when it comes down to seeking funding, this can be daunting and especially overwhelming.
In the beginning, rarely do we ever think about this. Or if we do, we don’t quite realize how difficult it is. We’ve poured our heart and soul into this business plan, pitch deck, and financial projections. We’ve spent sleepless nights developing a prototype or creating the first blogs for our marketing strategy. But despite our best efforts, we’re still struggling to secure funding. And unfortunately, we cannot grow or even move forward in your entrepreneurship ventures without the necessary money – at least not at the speed that we would like to.
But don’t worry! We’ve all made mistakes when it comes to seeking funding that hinders our chances of success. So what can we do to avoid these pitfalls?
Our goal is to attract investors. But in order to do this, we must make the investors believe in us. However, we need to believe in ourselves first, and we can only do this if we know for sure how we plan to succeed. Investors are not just looking for a good idea – they want to know that their money is being well invested. And nobody will put money into a business that doesn’t have a concrete plan.
Here is what you need to include in your business plan before meeting investors:
- Executive summary: What your company is about and what it offers.
- Company description: The history, management, team, and ownership structure of the company.
- Problem and solution: A description of what the market is lacking and what is needed to overcome this gap.
- Market analysis: Your thorough examination of the industry, with emphasis on your target customers & competitors.
- Products and services: A detailed description of your products and services. Remember to include both features and pricing.
- Marketing and sales: You have to know how to reach your target market and how you will sell your products.
- Financial projections: Investors need value for their money. It would help if you showed them your financial plan, which incorporates income statements, balance sheets, and cash flow statements.
Investors appreciate entrepreneurs who give their all. Be prepared for every investor meeting. You have to understand your firm in order to explain it to people who might be interested in putting money into your business.
Think about it: Maria, the founder of a vitamin provider startup, went into a meeting with investors. She was confident in her idea, her passion could’ve been noticed miles away, and she knew every aspect of her business. There was just one problem though: because she couldn’t quite comprehend financial concepts, she stumbled upon them when asked, so she struggled to give a clear answer. This lack of knowledge made her appear unprepared and led the investors to question her ability to compete in the market.
We know that when starting a business, we might not know everything about the market. Truth be told, many of us don’t know how to create a financial plan since some of us didn’t attend a business school. However, investors want to see that you’re willing to learn. Build an advisory board, hire a consultant, take courses, even talk to your friends. Learning from each other is the best way to succeed. This leads us to…
Investors want to know that they are investing in a company with a strong foundation. In a business, especially a new one, we need to surround ourselves with people who believe in our vision. So, having a solid team can influence investors immensely. If we expect people to put money into our dream, a solid management board with the necessary experience and skills can be all you need to secure funding.
An advisory board is also needed if we want to make a stellar first impression at an investor's meeting. We need experienced and knowledgeable people around us that can give valuable advice and insights. With an advisory board, we can also access their network and meet like-minded people interested in putting money into your business.
Neglecting to build an A team might be detrimental to our business efforts. Stability, security, and consistency will prove that our team is worth investing in. Remember! Investors don’t only invest in our idea or our plan, but they also invest in us. They need to believe in us first and then in our business.
Another common mistake investors make when seeking funding for their company is pitching to the wrong investors and especially not understanding their goals. Many of us, when seeking funding, are focusing on the money they provide. And it’s true – this is our main reason. But investors could provide so much more. They have extensive experience, industry knowledge, and connections that can be extremely valuable in our growth process more than just financially.
Sometimes, the investors that we’re pitching to, their resources might be invaluable to us. Not because they as a person are not skilled enough. But rather because they specialize in a specific niche – a niche that is completely different from our industry. For example, if we’re a tech startup, it wouldn’t make sense to pitch to an investor who only invests in agriculture.
But more often than not, we tend to overlook these aspects. Or not even research their portfolio. So, despite the investor recognizing the potential of the product, we ended up wasting our time (and investors’ time) and getting rejected because it was not in their area of expertise.
Our financial projections are crucial when meeting investors – we all know that. After all, they want to see that our business has the potential to succeed and that we’re able to return the investment. But sometimes, many of us might overvalue our company and exaggerate our projections to make it seem like we’re the next big thing. In reality, however, this can backfire in many ways and can be a major turn-off for investors.
And while it’s great to be optimistic and believe in our business, we must remain realistic. We must provide a practical valuation of our company and justify it with data and market analysis. Investors are not stupid, and they can sense miles away when a business plan is thoroughly done. And unfortunately, not only that it will be impossible to secure funding, but it can also damage our reputation with investors. Remember – this is a community, and people talk to each other.
So, be honest about your financial situation – even if you might have had financial problems in the past. Be honest about your challenges and limitations, and show that you have a solid plan for overcoming them.
We know – seeking funding is not an easy feat. But with the right preparation and mindset, and especially by avoiding these common mistakes, we can increase our chances of success. Keep in mind that an investor might make or break your business. So, play it smart!
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