Almost inevitably, over time, a business will require capital. This could be to finance growth such as opening a new store, taking on a new product line or buying equipment. Or, it could be required to buy out a partner or shareholder, advance some research or development, or a host of other reasons.
Whatever the reason is that you need the capital, and whenever entrepreneurs are asking for money, I see a number of the same mistakes made over and over again.
In my twenty-odd years of helping companies raise money, I’ve provided pitch coaching for CEOs, Owners, and High-Tech Entrepreneurs for a wide variety of products and services.
I’ve found that there are 6 common themes and problems that transcend the type of business. Here are the 6 themes you should avoid when looking for funding.
6 mistakes to avoid when you are seeking funding.
1. If You Think It, They will Come.
So many times all the entrepreneur can talk about is the awesome truth and beauty of their technology. They are a) highly defensive when anyone calls their baby ugly, and b) dismissive of the difficulty in getting their technology launched.
The truth that most investors have learned to their sorrow is that there are a million great, even awesome, ideas out there. What defines a potentially successful venture is this – the ability to execute. Without the capabilities, the team, the experience and the market, just adding capital will most likely not result in success.
2. It’s Not All About You.
When you are pitching for capital you are ultimately asking investors or lenders to trust you with their hard-earned money. Of course, you have to tell them why your technology is amazing, the total addressable market is huge, and you out-compete both Google and Apple.
In addition, you have got to make your pitch about how you are going to use the investors’ money (wisely please!) and how they are going to get paid back, with hopefully a 10x return!
Discuss the risks head-on, let investors know that you’ve evaluated the landscape and you understand how you can win by using their money.
3. I Need To Retain Control
So, what would you rather have? 100% of nothing, or 12.5% of a growing, profitable enterprise?
Here’s the truth – if you need investment, you are going to give up some percentage of ownership. If you need more investment, you’ll give up more.
Too often, a founder’s need for control leads to what we call “Founderitis” – a capital structure that is uninvestable because of the founder’s need for control. This sentiment is understandable in the early stages but can cripple the company as it matures.
4. I’m The Founder, So I Know Everything I Need To About Business
You might be an amazing inventor, technology expert, published author, etc., but unless you’ve built a couple of businesses before and had successful exits, and probably even then, you are going to have blind spots.
If you want to get investors you need to show them that you have adult supervision. Build a team, attract a high-quality Board of Directors, hire a business coach, etc.
5. We Don’t Have Any Competitors.
What this means to potential investors is that you don’t have (or understand) your market. Everyone has competitors (in particular the “do nothing” option).
If you don’t understand and appreciate the competition you won’t be able to figure out where you play in the market. Do your research and be honest wry yourself.
6. All We Need Is A 5% Market Share
Some fun with spreadsheets, and dreaming and you can easily calculate just how darn successful you’ll be by “only” taking a 1%, 5% or 10% piece of your huge market.
Investors are and should be leery of such dreaming because it’s very, very hard to break into an established market and the only thing harder is creating a new market!
You need to think about how you’ll market your technology, and then how you will sell it. If you think these are the same thing, please ask for help.
Think about your pitch from the investors’ perspective
Help your prospective investors identify the risks, and show how you will mitigate those risks. Show them you will be prudent and careful about how you spend their money. Be humble and thankful for investments that help you realize your dream. Enjoy the journey!