Going to a round of investment have become for some new companies, especially those in the technological field, a golden opportunity to obtain financing at a time when bank credit is in short supply. Because of this and because of the difficulty involved in accessing certain meetings with potential investors, it is important to be clear about the basic errors that we can not commit if we do not want to fail in the challenge.
But what is an investment round? And, above all, for what kind of companies is it most appropriate?
The round of investment allows a company to raise capital from potential investors, giving entry to new partners that are made with part of the company’s capital and, ultimately, with a portion of the control. This is an especially useful option for budding companies or those that are in the process of launching a product or service, that are on the verge of a restructuring due to going through a complex situation, those that can not meet their payment obligations or , simply, that they seek to grow or internationalize.
The emergence in the business landscape of startups has opened a range of business opportunities for venture capital firms or business angels.
Let’s suppose that we have an idea and that we have gotten a contact to organize a meeting with possible investors. What should we keep in mind to raise the funding we need? Or rather, what slips could jeopardize our goal?
Rick Frasch, consultant, investor and partner of a technology-based venture capital firm with 15 years of experience in Silicon Valley, figures in 8 fundamental mistakes that entrepreneurs often make in investment rounds, according to an article published in the magazine Forbes.
1. That our “elevator pitch” exceeds the minute: our message should be direct and enter the matter immediately to capture the investor’s interest. It is proven that the degree of attention given by a speaker declines after 10 seconds, so it is essential to hook from the first sentences. An effective elevator pitch should condense the presentation of your company and the business plan in 60 seconds.
2. That the presentation turns out to be very long: if we have overcome the first phase, we still have to convince the investors with the presentation of PowerPoint. A rule of thumb is that it never exceeds 30 minutes, since it is aimed at a type of person who every day hears a torrent of proposals. That means that we have no more than 15 minutes for the presentation itself and 15 minutes to answer the questions that we raise. We must be prepared both for the eventuality of granting us a few more minutes or a few less, so we must count the fundamental points as soon as possible so that the potential investor “receives” them before leaving the meeting.
3. Not having a detailed business plan and backed by conclusive figures: it will not do to have overcome the elevator pitch and the presentation if we do not have a detailed business plan that responds to any doubts that investors may have. about how they are going to make money. You have to spend time designing a business plan that is able to answer these basic questions:
- The need that our company covers
- The potential audience to which our offer is addressed
- Our competitive advantage
- The benefits that we expect to obtain and a realistic cost of the start-up of the company
- The management team that integrates
- A possible exit of the investors
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4. Do not foresee a good escape strategy for investors: the mindset of the entrepreneur and the investor are diametrically opposed. While the first is thrown into the pool to create something that lasts and helps to turn the world into a better place, the investor seeks to recover their money and achieve returns as soon as possible. Therefore, we must tell how the project is going to be monetized and how the investor could retire after a while. This is a mistake that can put everything in danger: you have to put yourself in the shoes of the investor and try to respond to their needs, and be able to explain what other formulas -licenses, strategic sales to a large company- can be contemplate so that he can recover his investment.
5. Forcing him to sign a confidentiality agreement: for the entrepreneur it may be a matter of principle, but forcing the investor to sign a confidential agreement can eliminate our chances of obtaining financing. A professional investor has probably heard of a similar project before, and will hear new proposals about the same idea in the future, so you do not want to risk signing a contract that could put you in a complex legal situation should you the agreement does not come to fruition.
6. Try to get your attention via email: professional investors and business angels are not interested in the projects that have been offered to others. Therefore, you should never try to reach them by telling them your proposals through the telephone or email because, simply, they will consider it unwanted advertising. Therefore, we must bear in mind that the only two ways in which we can access a round of financing is because someone who knows the investor recommends us, either because he has heard about our project in a networking session or event for entrepreneurs of the many that are usually organized.
7. Discuss the value of the company during the negotiations: the professional investor is accustomed to calculate the value of a company, so it is not appropriate to discuss with him on a matter that manages to do. It is convenient to wait until the subject is taken out naturally to start negotiating the valuation and the price in the contract.
8. Do not listen: it is important to be able to leave pride aside and be open to suggestions that the investor can make. In a round of investments many questions will be raised to analyze the best way to structure the investment, but some entrepreneurs are absolutely closed to any change in relation to the business model they had in mind, which will cause the stampede of the investor. Be open to their proposals as they are likely to improve your own project.
As we have seen, overcoming a successful investment round is not easy. Besides being a good speaker, you have to have the best project, something that only big startups get. This is the case of Billin, who managed to raise one million euros in his first round of investment. For this reason we want to invite you to know this tool that allows you to manage your invoices efficiently and charge on time, and discover everything you can do for your business.