The last couple of years have seen a large number of new startups entering into the UK market. However, securing investment remains an issue for these seed companies, many of whom are still relying on their own investment a year or so into their business.
The good news is that there is actually a large number of ways to fund startups these days, such as crowdfunding, bootstrapping and the more traditional small business loans. With an ever increasing number of venture capitalists and angel investors it does seems that there’s no better time than right now to start up your own business.
Starting up your own business has never been cheaper, since infrastructure costs have dropped dramatically. In addition to this, there is a lot more capital available and many more innovative ways to create revenue streams then there were a few years ago.
However, despite the seemingly positive funding marketplace, many entrepreneurs still struggle to secure the early-stage capital they need to really ensure their business takes off in a timely manner.
It can be very frustrating to read and hear about all the other companies managing to secure investment when you just can’t seem to raise funds yourself. So, below you’ll find three of the most common errors that startups make when they’re pitching to venture capitalists. Hopefully knowing what to avoid, and what to focus on, will help you secure investment the next time you pitch.
1. You’re pitching to the wrong audience
As and when you receive a no to an investment pitch, it is important not to take it to heart. Obviously it will be very disappointing but you must take into account that you may well be pitching to the wrong kind of investor.
An investor may have many reasons why they choose not to invest in your startup, and these may have nothing to do with how valuable your business might be or how good an opportunity it presents.
For instance they may feel it is too late in the fund cycle of their company to invest, they have insufficient experience in your industry, it is too competitive for them or it is too similar to an investment they’ve already made.
Before you start attending pitches, it is a very good idea to sit down and do a lot of research into venture capitalists and to identify those whose interests lie closely to your own, as well as those who may already have experience in your industry.
Don’t be afraid to call ahead and ask some more specific questions in order to ascertain whether you think the VCs you’ve identified are the right ones. After all, it’s much better to avoid a meeting which will only waste everyone’s time.
2. Make sure the answer to the following questions is a resounding ‘yes’
– Will your business idea work?
– Will the VC get a good return on their investment?
– Is your business worth their investment?
You must go prepared to answer the above questions positively (i.e. with a ‘yes’) and be able to clearly show exactly why the answer is yes. If you can make investors clearly see how your business will work, how it will get them a quick win and therefore why it is worth the investment, you shouldn’t have any problem securing the capital you need.
Entrepreneurs who fail to prepare properly and show the above are already on the back foot and unlikely to be able to secure the investment they so desire.
3. Focus on your whole company not just a singular aspect
Many entrepreneurs get so caught up in singular features of their company that they forget the bigger picture. It’s true there are a few examples where small startups have created a feature that tempted a larger company into buying them; but the real truth is, to attract the bigger, more impressive organisations into buying your entire business, you must build up a company that is so innovative and different that it is too attractive for VCs to ignore.
If you want your small business to attract larger companies for big money, you’ve got to ensure your business is as unique and perfectly formed as possible so that you’ll have VCs clambering over each other to invest in it or indeed take it over.
What next?
Try not to become disheartened when you’re doing pitch after pitch for investment – that is the key thing here when you’re trying and sometimes failing to raise venture capital. Remember there are other ways to raise money, not just through venture capital.
Stay strong, do your research and make sure your pitch is targeted and above all that it clearly explains why your business should get investment and obviously how it will make investors a lot more money!