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To be prepared. In the initial presentation, you have a limited amount of time to cover all aspects of your deal. Highlight all the essential elements, preferably in a structured sequence. The stronger the framework, the more it attracts experienced and professional investors. No need to reinvent the wheel, you can use a proven tone structure. I personally always proclaim the plots to cover the 4 pillars of its foundation. These are Structure and governance of Team, Market, Financial and Corporate. If you clearly ‘miss’ one of them, I’m OUT.
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Raising funds for your business and managing the process is (almost) a full-time job. Help yourself and potential investors by professionalizing it. Use an optimized flow of information through various stages of due diligence. You should have a data room where you can lead, manage, and interact with stakeholders. Just by increasing the level of professionalism, you increase your chances of receiving funding. Money likes to follow professional, meticulous, and prepared CEOs. Don’t tell me, teach me.
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Even the concept of attracting outside shareholders is a game changer. Many entrepreneurs, especially start-ups, do not clearly understand the current implications. It’s okay to have no experience, but I’ll pass when I feel ignorance in this department. Because ultimately my destiny as a shareholder is directly related to the CEO’s understanding of this. Please address this as it is important to the (potential) shareholders from whom you are applying for funding.
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Understand that it is a numbers game for you. One of the biggest miscalculations I’ve witnessed time and time again is that entrepreneurs overestimate the ability to raise funds. Lots of competition as we said before. No matter how BIG your opportunity is, it will be rejected by at least 90% of potential investors. One of the best advice I can give to the CEOs I’m working with is to build a PIP (Professional Investor Prospect List) list. I recommend that you spend a considerable amount of time here. Sort by geography, size and your investment focus, stage. This becomes your central working document. Second, budget for your fundraising round. Invest a few dollars, even if you don’t have many, to set yourself up for successful financing completion. As a general rule of thumb, budget 2-3% upfront and 7-10% at the end of your round (depending on the size of the round, of course).
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Avoid the biggest detour pitfall. One of the most difficult parts of Direct Investments is the VALUATION. Countless entrepreneurs have (in my eyes) ridiculous expectations regarding the valuation of their company. Often solidified by sharp “hockey stick” financial projections (always in the future). It’s perfectly okay to be optimistic and somewhat opportunistic when evaluating your capital. As a professional investor, I always evaluate for risk-adjusted calculations. Your assessment should be a fair and realistic derivative of your plan and its numbers. It is not an arbitrary number.
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Every beginning has an end. You are asking me to invest with you to make your business a success. I don’t care about operational success, but financial success. You are proposing to invest in cash, so at some point it must lead to a cash return (for me, the investor). Ultimately, your entire speech should revolt around that concept. Show me your plan HOW, WHO, WHEN and what’s in it for the investor.
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Not all investments are necessarily cash. In most cases where I have been directly or indirectly involved, the best investments are combinations of cash and other resources. Many investors, certainly our Inner Circle, have great experience and connections. When you go to work for your company, it may drive you higher and better than any cash amount. Keep your eyes open and value every potential investor for every possible resource, not just cash. And even if not every investor can contribute beyond money, just the simple proposition that you think about it is a great case for YOU as the ultimate entrepreneur that I want to endorse.
