This article is one of those “straight to business” articles. Out of many many hours listening to entrepreneurs pitching their startups and lobbying investors meetings, we give you a series of pointers of what NOT to do when you are talking to an investor.
TALK ABOUT EXITS
Your dream is to create a startup and get some investment capital, then pump up the valuation for a nice IPO, and then blow away with a bag full of notes to a major tax haven. Unfortunately, this noble dream doesn’t inspire much confidence. Most investors want to see that the stake they’re holding in your company will keep you motivated.
However, motivation is more than just money. It’s also about having a passion for your product and having a good team. So focus on the intangibles that will allow you to keep moving forward. One mistake that entrepreneurs make is assuming that reason why the investor is putting money in their company is to bring them a profit in the next couple of years. This is not true, as investors are looking for companies that can use the money well.
BE OBLIVIOUS AND DON’T LISTEN
Being oblivious to the various risks and hardships that come with starting a startup can be beneficial. Who would want to start a company without being aware of the potential drawbacks? Doing so can help maintain one’s sanity while attempting to accomplish something that most people consider to be insane.
Unfortunately, being naïve about starting a startup can also be detrimental to one’s chances of getting the advice and experience that they need to succeed. Most investors are looking for people who have the necessary experience and knowledge to help them make informed decisions. However, before you start a company, it’s important that you understand what investors are talking about.
Although you don’t have to follow their advice, you still have to listen to what they have to say. Even if you don’t have the money, you still have to take their advice and make sure that the product and leadership that you’re creating are proven.
SAY “I DON’T HAVE COMPETITION”
If you don’t have competition, then you don’t have a market. For instance, if you sell a product that requires money, then you are in competition with other businesses that provide the same services or ask for the same amount of money. If you don’t compete for customers, then you are not a business.
This is often the reason why many startups fail to think about their market, their users, and their potential competitors. During a product positioning workshop, I taught the participants how to position themselves against other businesses in their market.
The values on the Y and X axis are not as important as the teams can learn from their competitors’ traits and needs in order to compete effectively. For instance, a graph might show how different factors such as budget, wants, and customer needs compare to other businesses.
The values on the various vertices can change in response to your market situation. For instance, they can be related to the price, or they can be about the time investment, or they can be about the annoyance of ad-support.
The X axis is also used to determine the market needs of a business. However, it is also important to find a position graph that places the product where the competition is not competing well. For instance, if the competition is offering good quality products at a reasonable price, then my product should be convenient.
A position graph can help illustrate your market strategy. For instance, if a competitor has a good reputation, but not enough to justify their product, then you might not be able to market yourself as a top-shelf product. A compelling position graph can also help identify a potential market opportunity. However, if you can’t find one that shows a concrete example of a compelling product idea, then you might not be able to develop a viable product.
NOT PLANNING WHAT YOU WILL DO WITH THE INVESTMENT
There’s really nothing much to add to the title above. However, your answer to this question is usually directly related to the ambition behind growth and scalability.
Even if you’re an entrepreneur, wanting to invest in your product doesn’t make you an ambitious person. A poorly-laid and incompletely-written plan for the company’s future is a sign that you don’t care about its potential. Having a plan that includes a strategy for scaling the business would allow you to focus on the product and its future instead of worrying about your financial situation.
Having a well-written plan that shows investors exactly what they’re getting into can also give a founder more leverage. It’s an attractive argument to an investor who believes that a founder could easily launch his or her business without their support.
Being dependent on investors is a sign that you’re not capable of self-sufficiency. Having a plan that clearly states how you’ll use the money invested in your company is also important to ensure that you’re responsible for the funds that you spend.
Amongst Investors is a famous quote that says “A high valuation does not make you rich. It makes you accountable”. Think about that.