To be prepared. On the initial release, you have a limited amount of time to cover all aspects of your deal. Highlight all the essential elements, preferably in a structured sequence. The stronger the framework, the more attractive it will be to experienced and professional investors. No need to reinvent the wheel, you can use a proven pitch structure. Personally, I always sell releases to cover the 4 pillars of your foundation. These are Team, Market, Financial, and Corporate Structure and Governance. If you clearly ‘lose’ one of them, I’m OUT.
Fundraising for your business and managing the process is (almost) a full-time job. Help yourself and potential investors by professionalizing this. Use a streamlined flow of information through various stages of due diligence. You must have a Data Room where you can lead, manage and interact with stakeholders. By simply raising the level of professionalism, you increase your chances of receiving funding. Money likes to follow professional, meticulous and prepared CEO’s. Don’t tell me, show me.
Even the concept of bringing in outside shareholders is a game changer. Many entrepreneurs, especially start-ups, do not clearly understand the current implications. It’s okay to be inexperienced, but I’ll pass when I feel ignorant in this department. Because ultimately my fate as a shareholder is directly tied to the CEO’s understanding of this. Address this as it is important to the (potential) shareholders from whom you are seeking funding.
Understand that it is a numbers game for you. One of the biggest miscalculations I have witnessed time and time again is that entrepreneurs overestimate the ability to raise funds. A lot of competition as we said before. No matter how BIG your opportunity is, it will be rejected by at least 90% of potential investors. One of the best tips I can give to the CEOs I’m working with is to build a PIP (Professional Investor Prospect List). I recommend that you spend a considerable amount of time here. Categorize by geography, size and your investment focus, stage. This becomes your central working document. Second, make a budget for your fundraising round. Invest a few dollars, even if you don’t have many, to set yourself up for success in completing the financing. As a general rule of thumb, budget 2-3% up front and 7-10% at the end of your round (depending on the size of the round, of course).
Avoid the biggest Turn-Off trap. One of the toughest actions in direct investments is VALUATION. Countless entrepreneurs have (in my opinion) ridiculous expectations regarding the valuation of their company. Often solidified by sharp ‘hockey stick’ financial projections (always into the future). It is perfectly fine to be optimistic and somewhat opportunistic when evaluating your capital. As a professional investor, I always evaluate risk-adjusted calculations. Your valuation should be a fair and realistic derivative of your plan and numbers. It is not an arbitrary number.
Every beginning has an end. You are asking me to invest together with you so that your company is a success. It is not operational success that matters to me, but financial success. You are proposing to invest in cash, so at some point it must lead to cash back (for me, the investor). Ultimately, your entire speech should revolt around that concept. Show me your plan HOW, WHO, WHEN and what’s in it for the investor.
Not all investments are necessarily in cash. In most cases in which I have been directly or indirectly involved, the best investments are combinations of cash and other resources. Many investors, certainly our Inner Circle, have great experience and connections. When put to work for your company, they just might propel you further and better than any amount of cash. Keep your eyes open and value every potential investor for all possible resources, not just cash. And even if not every investor can contribute beyond the money, just the mere proposition of you thinking about it makes a great case for YOU as the ultimate entrepreneur I want to endorse.
