This is a topic that you could find useful to read before meeting with us or any other investor. Assume your hard work is paying off, and your startup is close to launch but you need to fundraise first. You've already set up a meeting with investors, and you're confident in your pitch deck, startup concept, and your plan to change the world. It's very possible that this is your first blunder.
There's always room for improvement.
Let’s go through the major mistakes that entrepreneurs make when pitching to investors.
1. You don’t know you audience
Founders frequently make the mistake of not knowing who they're pitching to.
They begin approaching investors, believing that everyone would be entitled to have a share of their startup, that’s why they often overlook this crucial element. Before you meet up with a possible investor, do your homework. Find any relevant and important information about your angel investor or the VC that you’re going to pitch to. What ticket sizes they offer, which businesses and verticals they invest in, and what expertise and connections in your sector they provide are all questions that you should know the answers to before you walk in through the door.
2. You can’t focus on delivering your pitch
If you spend too much time talking about your product or service, you won’t have any time left to tell your future investor why it is needed. Founders frequently get carried away and forget that we need to first know what problem they are solving.
You'll probably walk away without an offer if you can't properly articulate how your product or service solves a significant problem.
3. You don’t fully understand the competitive landscape
Don't overlook this crucial aspect of your pitch because your potential investors have most likely done their homework and are familiar with your competitors. Prepare to describe how you differentiate from your competition and what makes you superior. Your presentation should always include a competitive landscape analysis. You're either being unrealistic or naive if you try to convince a VC that you have no competition. Of course, you're up against direct or indirect competition, as well as someone who offers an alternative.
How you position your startup in relation to competitors is one of the primary questions that might help you secure funding.
4. You can’t demonstrate why the market opportunity is big and can thrive in the current climate
Investors are usually looking for businesses that can scale and become meaningful. This has always been the primary goal, but now in the current COVID, political, and economic situation you need to make sure that you address the issue why your business can become a big deal right up front. Investors want to know how big the addressable market is and how much of it you aim to get over time.
5. You show unrealistic projections and valuations
If you anticipate that your company will generate EUR 1M in sales for the next five years, your investors will probably be quite uninterested. Investors want to put their money into businesses that have the potential to grow rapidly and become a profitable venture.
On the other hand, presenting estimates that suggest EUR 50M revenues in three years might be seen as unrealistic as well, especially if you haven't gained any traction yet.
Avoid making assumptions in your forecast that will be difficult to defend. Be reasonable with your valuations as well. It's difficult to talk about valuation when your startup is new and has only a few consumers or none. It might be wise to wait until an investor raises this issue.
6. You don’t understand the potential risks of your business
Investors will constantly ask about your startup's potential risks and will put you to the test to see whether you are aware of all the dangers and what measures you plan to take if something goes wrong. Any business plan involves risks, so be prepared to respond to these questions.
- Which are the principal risks of your business?
- Which are the legal risks that your business has?
- Which are the technological risks?
- Are there any regulatory risks?
- Do you have product liability risks?
- What precautions will you take to address these risks?
- How does Covid-19 impact the future of your startup?
7. You don’t highlight your intellectual property
Intellectual property is critical to the success of many businesses, especially for startups. Investors will pay close attention to your responses to the following questions:
• Do you have any patents, copyrights, trade secrets, trademarks, or domain names for your product or service?
• How confident are you that the company's intellectual property does not infringe on the rights of others?
• What was the process for creating the company's intellectual property?
• Do any of a team member's previous employers have a claim to the company's intellectual property?
• What steps do you plan to take to protect your intellectual property?
8. You don’t know how you’ll use the funds
Of course, you'll need to talk about how you're going to use the capital your potential investors are going to put into your business. This will also assist them to determine whether or not your cost estimate is reasonable.
Make sure you avoid these mistakes when pitching to investors. With time you will get to know what resonates with them, just make sure you adapt quickly.