Getting funding today isn’t too hard. As one of my good friends once sarcastically said when I lived in Silicon Valley, “Everyone and their mothers is an investor out [in Silicon Valley],” going on to tell me that you don’t need a groundbreaking product to secure investment. When investors put money into startups, they’re betting on the entrepreneur. Since pivots are a necessity with most startups, investors look for entrepreneurs who can handle change and aren’t banking on a single idea.
While this article is about preparing to meet with investors, it’s worth mentioning that angel and venture capital should be a last resort for your funding. As soon as you take on an investor, you’ll need to meet their demands, even if they go against your original direction.
It’s cheaper than ever to start a software company. Aside from bootstrapping, you could technically take on small amounts of debt, or even crowdfund your software project. If you’re in the hardware space, many investors only speak with successfully crowdfunded products because it’s an effective way to minimize the risk of their investments.
Here are eight things you shouldn’t do when trying to get an investor meeting, or once you’re in the meeting itself.
Don’t Ignore Your Network
Getting a meeting with an investor is hard, but it’s not impossible. Going back to my friend, he (again, sarcastically) summed up the venture capital space as “a good old boy’s club.” The best option you have to secure a meeting with an investor is to connect with the employees of venture-backed companies. Investors rarely make investments from cold leads. They usually only take meetings via referrals, whether those come from other investors, executives from their portfolio companies, or people close to them.
Don’t Jump the Gun
It’s much easier to raise capital today than it was in the past. One of the fastest ways to destroy your company is to accept funds from an investor who isn’t a good fit for your business. That’s why you can’t just take the first offer that comes to you during the fundraising process.
When you raise capital you should choose an investor who has skills that complement those your team has. If you have domain expertise in hardware or software engineering, a good potential investor is someone who has a track record of bringing new technologies to market.
Don’t Worry about Projection Accuracy
As you’re developing your pitch deck, you shouldn’t worry too much about your financial projections. It’s a given that those numbers are going to be wrong. If they were correct, most investments would turn a profit.
The main purpose of projections is to show that you’ll spend the money wisely and that you’re being realistic about your growth expectations.
Don’t Talk about Market Size
If you’ve seen SharkTank, you know that one of the most popular lines is something like “we’re tackling a billion-dollar industry.” Sometimes the entrepreneurs will say that they just need one percent of the market to make millions.
Investors don’t need to you to tell them the size of an industry. If they’re meeting with you, they already know there’s potential to make money. Taking that a step further, investors don’t want to work with someone who is content with getting a sliver of market share in a space.
Don’t Ask for Funds
Just because you’re meeting with an investor doesn’t mean they’re ready to give you money. Pitching to an investor is like building a relationship with your significant other. Asking an investor for money at the first meeting is like asking someone to move in with you on the first date. While it might work, it’s more likely to have negative consequences.
Don’t Use Pressure
When you meet with an investor, the worst thing you can do is claim that you have other investors are interested in your company and have made better offers. The typical response to that is, “If you have better offers, then why don’t you take them?”
You’ll develop a bad reputation quickly. The private equity space is a relatively tight-knit community and the last thing you want is to end up on an investor blacklist.
Don’t Make Promises You Can’t Keep
Meeting with an investor is just like meeting with a client: you have a product or service that you’re trying to sell. The client (investor) needs to be sure you’re a good fit for their needs. With so much money at stake it’s tempting to say “yes, we can do this,” or “we don’t have that feature but we can add it later on,” at the first meeting, but that’s building a relationship on lies.
Don’t Confuse Funding with Success
If you manage to secure a venture round, don’t make the mistake of confusing fundraising with entrepreneurial success. Raising funds just means that you found someone who is willing to give you money. Investing is a numbers game and the majority of venture-backed companies go under after a few years. In order to truly be successful, you should always assume you’ll never secure a venture round.
Frequently Asked Questions (FAQs) about Investor Meetings
What are some common mistakes to avoid during an investor meeting?
There are several common mistakes that entrepreneurs often make during investor meetings. These include not being prepared, not understanding the investor’s perspective, not having a clear business plan, and not being able to articulate the value proposition of the business. It’s also important to avoid being overly aggressive or defensive, as this can turn off potential investors. Instead, strive to be confident, professional, and open to feedback.
How can I prepare for an investor meeting?
Preparation is key to a successful investor meeting. This includes researching the investor, understanding their investment strategy and interests, and preparing a clear and compelling presentation of your business plan. It’s also important to anticipate potential questions and objections, and to prepare thoughtful and well-reasoned responses.
What should I include in my presentation to investors?
Your presentation to investors should include a clear explanation of your business model, your value proposition, your market analysis, your financial projections, and your strategy for growth. It’s also important to include information about your team and your competitive advantage. Remember, the goal is to convince the investor that your business is a good investment opportunity.
How should I handle objections or tough questions from investors?
When faced with objections or tough questions, it’s important to remain calm and professional. Listen carefully to the investor’s concerns, and respond with thoughtful and well-reasoned answers. If you don’t know the answer to a question, it’s better to admit it and offer to follow up later, rather than trying to bluff your way through.
How can I build a strong relationship with investors?
Building a strong relationship with investors requires open and honest communication, mutual respect, and a shared vision for the future of the business. It’s important to keep investors informed about the progress of the business, and to be responsive to their questions and concerns. Remember, investors are not just sources of funding, they are also partners in your business.
What should I do if an investor meeting doesn’t go well?
If an investor meeting doesn’t go well, it’s important to learn from the experience and use it to improve your future presentations. Analyze what went wrong, and seek feedback from the investor if possible. Then, use this feedback to refine your business plan, improve your presentation skills, and better prepare for future meetings.
How can I improve my chances of securing investment?
Securing investment requires a compelling business plan, a strong presentation, and a good relationship with investors. It’s also important to demonstrate your commitment to the business, your understanding of the market, and your ability to execute your business plan. Remember, investors are looking for businesses that offer a good return on investment, and that are led by capable and committed entrepreneurs.
What are some red flags that could turn off potential investors?
Potential red flags for investors include a lack of preparation, a poorly defined business model, unrealistic financial projections, a lack of understanding of the market, and a defensive or aggressive attitude. It’s also a red flag if the entrepreneur is not open to feedback, or if they seem more interested in securing funding than in building a successful business.
How can I demonstrate my commitment to the business during an investor meeting?
Demonstrating your commitment to the business during an investor meeting can be done by showing your passion for the business, your understanding of the market, and your willingness to invest your own time and resources into the business. It’s also important to show that you are committed to the long-term success of the business, and that you are willing to work hard to achieve it.
How can I make my business stand out to potential investors?
Making your business stand out to potential investors requires a unique and compelling value proposition, a clear and well-reasoned business plan, and a strong presentation. It’s also important to demonstrate your understanding of the market, your competitive advantage, and your commitment to the business. Remember, investors are looking for businesses that offer a good return on investment, and that are led by capable and committed entrepreneurs.
Charles CostaCharles Costa is a content strategist and product marketer based out of Silicon Valley. Feel free to learn more at CharlesCosta.net.
