Revised and updated June 26, 2020
By Richard D. Harroch, Neel Lilani and Kate O'Laughlin
Entrepreneurs must beat investors in order to raise funding. Many entrepreneurs from previous step companies make common mistakes that can be avoided. Read below for some tips on how to improve investor interest and increase the likelihood of financing.
Errors are categorized as follows:
- Errors to Avoid When Planning Investor Seek
- Errors to Avoid at Investor Elevation [1
Errors to Avoid in Planning Investor Seek
Error # 1: Sending Executive Summary or Business Plan Unsolicited
While some investors are opening their process to seek answers to smooth the racial and equality field, the majority still do not read unwanted emails. They get hundreds, if not thousands, of such emails, and have no time to sift through them to find that diamond in the rough.
But what they want to take into account is a reference from someone in their network: a lawyer, an entrepreneur from one of their portfolio companies or a co-capitalist. Ask your advisors that you work with (for example, the board or the law firm) to see if they have investor referral recommendations and can offer some direct introductions.
Mistake # 2: Do not do your homework on investor-pitching your company without being clear that you are in a room, scene and geography that the investor is interested in
Some investors only care about biotechnology or mobile apps; or the Internet and digital media. Other investors have mandates for the stage and / or geographical location of a company. Do your homework first before you look up to make sure your company is in line with investors' goals.
The first place you look is investor websites, which typically state the exact stage, sector and location they invest in. Other resources include PitchBook or CB Insights. If you were introduced to the investor, you can find out everything you can about the company and the individual from the person who made the referral.
Showing some awareness of an investor's background and the companies it has invested in will facilitate the conversation, and also show that you have done some advance research for the meeting .
Error # 3: Pitching your tier 1 investor first
Each time you hit the track, you will receive valuable feedback that allows you to further refine your deck and presentation. Start with "warm" or "friendly" investors first, so you are well positioned when you are a very desirable investor. You must be prepared to provide clear answers to questions; and practice will sharpen the answers and presentation.
Error # 4: Requesting NDA to be Signed Before Sharing Information
Most investors have a policy of not signing unrevealed agreements. Why would you want to be in the way of getting in touch with an investor? If you have something very confidential, don't share it. As soon as you submit a pitch deck, you should assume that it will be split wider.
The purpose of a pitch deck is to generate interest between an investor and a company – not to provide a deep dive, which would normally take place during the careful process. For your legal protection, place a copyright notice at the bottom of the pitch and add the phrase "Confidential and private. All rights reserved."
Error # 5: Not having an effective and concise email introduction
Make a thoughtful, short introduction of four to five sentences that briefly summarize the company and motivate someone to open the pitch. The email address should not be overly technical, but rather convey why this is an exciting investment opportunity. Your advisors and others can use this disruption to help you with relevant investors.
Error # 6: Do not look at other pitch summaries
Reviewing other pitch decks and executive summaries can help you improve your own. You can ask your lawyer, other entrepreneurs or friends about angel investors about samples. Much is also available online . See A Guide to Investor Pitch Decks for Startup Fundraising.
Mistakes to Avoid in Investo r pitch deck
Mistake # 7: Having more than 15-20 slides in your deck and making it difficult to see  You have a maximum of one hour to do the course. So overloading your tires with too many slides will reduce the presentation and you won't have time to get to the slides at the end of the deck. If an investor is interested, you can always provide more detailed information later.
The deck will in many cases be viewed on a mobile device or tablet. Having a file size of 5 MB or less will ensure that any email filters or download restrictions on your mobile device do not prevent the display of your deck. Do not let investors go to Google Docs, Dropbox or any other file sharing service to get hold of. Include it in the email as a PDF file.
Error # 8: Not full understanding and articulation of competing landscapes
A competing landscape analysis should always be part of the presentation. Telling a VC that you have no competition will probably mean that you are unrealistic or naive. Of course, you have competition, whether you are direct, indirect or someone who provides a compensation solution. And the analysis of your competitors will show an investor if you have an understanding of the market.
An investor wants to know why your product or technology is better than or different from what is already out there. You can assume that they want to know about competing products or technology, so you must have a good response. For example: “We are different from Instagram in three key ways: (1) we are easier to use; (2) we have better editing features; and (3) we make money earlier than Instagram managed. "
Error # 9: Not Explanation of Traction or Current Customers
One of the most important things to forward is evidence of early traction or customers. If you have an app, will investors know how many downloads you have and how many extra you get per week? Have you got any brand name customers if you are a software company? How can early traction be accelerated? What has been the main reason for the traction? Show how to scale this early traction.
What betas / pilots / proof of concepts do you have out there? This can have a major impact on signaling.
Don't forget to convey the early noise or press you've received, especially from prominent websites or publications. Put the headlines in a slide on your deck. List the number of articles and publications that mention you.
Error # 10: Failure to highlight the team's experience and credentials
Many investors consider the team behind an early stage startup as more important than the idea or product, especially if the team includes a serial entrepreneur. Investors want to know that the team has the right set of skills, drive, experience and temperament to grow the business. Investors want to be shown all of this, along with a passion for doing something truly great and unique. Predict these questions:
- Who are the founders and important team members?
- What relevant domain experience does the team have?
- What key additions to the team are needed in the short term?
- Why are teams uniquely capable of executing the company's business plan?
- How many employees do you have?
- What motivates the entrepreneurs?
- How do you plan to scale the team over the next 12 months?
- Who's on your board and why?
Mistakes to Avoid During Presentation of the Path
Mistake 11: Does Not Show Why the Market Opportunity Is Great and Can Thrive in the Present Climate
Most investors are looking for companies that can scale and become meaningful, especially in today's COVID, political and economic climate. So make sure you address this issue right at the front of why your business can really grow. Don't present any small ideas. If the market opportunity for your first product is not great, you may need to position the company as a "platform" business, allowing for future development of multiple products. Investors want to know the actual addressable market and what percentage of the market you plan to get over time.
Error # 12: Showing unattractive or unrealistic estimates and valuations
If you show estimates for the company to be $ 5 million in revenue in five years, there won't be much interest. Investors want to invest in a company that can grow significantly and become an exciting business. Alternatively, if you show estimates of $ 500 million over three years, that would be considered unrealistic, especially if you have zero revenue today. Avoid assumptions in your projections that will be difficult to justify, such as how you will achieve 400% revenue growth with only 20% growth in operating and marketing costs.
The same applies to valuations. Often it is best not to discuss valuation in a first meeting, other than to say that you expect to be reasonably priced.
Error # 13: Pointing tough questions
You must anticipate difficult questions. Telling an investor that you want to get back to them with an answer rarely makes a good impression. If an investor asks questions, it is a good sign that they are engaged. Do your best to answer questions right away. Do not avoid the hard questions, or say that you will come to them later in the presentation. Investors will see if you can think of your feet. Expect to be interrupted during the presentation.
Error # 14: Do not understand customer acquisition costs and customer long-term value
Investors will be interested in your understanding of customer or user acquisition issues. What are the costs you would incur in acquiring a customer? What will be the likely lifetime value of the customer? What channels would you use to get that user or customer? What marketing costs do you want to incur? What is the typical sales cycle between first customer contact and closing a sale? Not being prepared for these questions will hurt the perception of how well you have devised your business plan.
Error # 15: Not being able to formulate a coherent marketing strategy
Just because you are building something big doesn't mean it will sell or get user adoption. Explain your plans to promote your product or service. Which outlets should you use? How can you reach potential customers cost-effectively? How would you like to use social media, such as Facebook, Twitter, LinkedIn, Pinterest, etc.? Do you want to do content marketing and post sponsored posts on sites like BusinessInsider.com, Forbes.com and AllBusiness.com? Do you want to promote search engines and can you show that it will be productive? What steps would you take to get a quick sale or accept your offer?
Error 16: Don't make a demo
A demo is worth a thousand words. View a prototype or working demo of your product, app or website. This will give investors a better sense of what you are trying to do. Make sure it works well and is not "buggy". Impress the investor with their look and feel. Whenever possible, consider including a video / demolink in your deck.
Error # 17: Don't understand potential risks to the business
Investors will try to test what you see is the risk to the business. They will understand your thought process and the mitigating precautions you plan to take. Inevitably, there are risks in a business plan, so be prepared to answer these questions carefully:
- What do you see as the most important risks to the business?
- What legal risks do you have?
- What technology risks do you have?
- Do you have any regulatory risks?
- Is there any product liability risk?
- What steps do you expect to mitigate such risks?
- How will your COVID-19 affect your business in the future?
Error # 18: Unable to explain the most important assumptions in your projections
For an investor to believe your financial projections, they want you to formulate the most important assumptions and convince them that they are reasonable . If you can't do that, they don't feel like you have a proper grip on the business. Expect smart investors to push back the numbers in the assumptions; they want you to give a consistent, thoughtful answer .
Error # 19: Not clearly articulated use of funds and runway
Investors will certainly want to know how their capital will be invested and your proposed burn rate – (so they can understand when you might need the next financing round). It will also allow an investor to test whether your fundraising plans are reasonable given your capital requirements. It will also allow them to see if your estimate of costs (for example, for engineering talent, marketing costs, or office space) is reasonable given their experience with other companies.
Error # 20: Don't Sell Your Intellectual Property  For many companies, their intellectual property will be a key to success. This is the case in many cases, but even more so for early stage companies. Investors will pay special attention to your answers to these questions:
- What central intellectual property does the company have (patents, pending patents, copyrights, trade secrets, trademarks, domain names)?
- What comfort do you have that the company's intellectual property rights do not infringe third party rights?
- How was the company's intellectual property developed?
- Would any former employer of a team member potentially claim the company's intellectual property?
- What actions do you take to protect your intellectual property?
Error # 21: Don't explain the product or service well enough
You must clearly state what your product or service consists of and why it is unique, so expect the following questions:
- Why do users care your product or service?
- What are the most important product milestones?
- What are the key differentiated features of your product or service?  What have you learned from early versions of the product or service?
- What are the two or three important features you plan to add?
- How often do you see yourself improving or updating your product or service?
Error # 22: Failure to send a personal thank you after the pitch event
Failure to send a thank you message, or worse, sending a generic note, is a mistake. Always send a genuine and personalized thank you note to each of the investors you met.
Not all of these errors are fatal. As you practice and make multiple presentations to advisors and investors, you will learn what they care about and what does not resonate with them. Be sure to customize the pitch and presentation from these tips.
Read all Richard Harroch's articles at AllBusiness.com.
Related articles about AllBusiness:
Copyright (c) by Richard D. Harroch. All Rights Reserved
About the Authors:
Richard D. Harroch is a Managing Director and Global Head of M&A at VantagePoint Capital Partners, a venture capital fund in the San Francisco area. His focus is on Internet, digital media and software companies, and he was the founder of several Internet companies. His articles have appeared online in Forbes, Fortune, MSN, Yahoo, FoxBusiness and AllBusiness.com. Richard is the author of several books on start-ups and entrepreneurship, as well as co-author of Poker for Dummies and a bestselling book on the Wall Street Journal on small business. He is co-author of a book of 1,500 pages by Bloomberg : Mergers and Acquisitions of Private Companies: Analysis, Forms and Agreements . He was also a corporate and M&A partner at the law firm Orrick, with experience in start-ups, mergers and acquisitions and venture capital. He has been involved in over 200 M&A transactions and 500 startups. He can be reached via LinkedIn .
Neel Lilani is the Managing Director-Customer for Orrick's global business development work for technology companies, Neel runs opportunities for customers throughout the innovation sector. He has always been fascinated by technology's ability to shape the way we live, work, think and play. At Orrick, Neel is able to help technology entrepreneurs and investors exploit their vision by leveraging their global network of companies, investors and entrepreneurs to create relationships and provide advice on financing and business strategy. He is also able to connect clients with the exact legal assistance to meet their specific needs. Neel has served in senior strategy roles with some of the world's leading law firms and Fortune 500 companies. He can be reached via the Orrick website .
Kate O'Laughlin is the director, technical and investment manager at Orrick. Kate works with new and high-growth technology companies at every stage of the company's lifecycle, from making effective, targeted introductions to strategic investors to providing advice on key hires to identifying core attorneys with accurate professional expertise. Kate brings a macro perspective when she strategies with the entrepreneurs, CEOs, general counsel and other executives on a company's immediate, medium and long term needs, and uses her market knowledge and experience as both an internal and a law firm. It is important for Kate that clients have the right connections and resources in place at the right time. She focuses on identifying and facilitating such connections by leveraging Orrick's extensive, global network so that clients can focus on running a successful business. Kate was previously an internal lawyer at Atlassian and most recently practiced with Orrick & # 39; s Technology Transactions Group. She can be reached via the Orrick website .