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The following excerpt is from Scott Duffy's book Breakthrough. Buy it now from Amazon | Barnes & Noble | iBooks | IndieBound
Having spent years in businesses at all stages raising capital and investing in other people's companies, I've been on both sides of the investing table. As a result, I've learned firsthand what to do—and what not to do—when presenting to an investor. You need to avoid the mistakes below to keep the fundraising process moving forward and, ultimately, get the results you want.
"We've worked at some of the largest companies in our industry." Investors fund people, not ideas. They want founders and management who have deep domain experience. In the early stages, they like a background that includes running fast-paced, resource-constrained environments, and thus might see it as risky if, for example, someone from a Fortune 500 company were seeking to launch a startup or a technology pro shifted into real estate. If your background isn't in alignment with the stage of your company, it can be difficult getting funded. Often, a founder will need to add complementary team members that match the company's current stage so investors know the right people are in the right positions at the right time.
"We are first to market." You may think this is a huge advantage, but such a claim can actually work against you. Typically, being first to market means you take on all the risk. You'll spend lots of time educating customers, and to an investor, that says expensive. Many would rather ride in the wake of the first company. Therefore, if you have something brand-new, find some comparables. Give investors a framework so your idea doesn't sound so abstract. Pull from another industry if necessary, and make sure you illustrate how your business solves a real problem.
"We have no competition." This claim may be the most common mistake made by entrepreneurs raising capital. On hearing it, an experienced investor will roll his eyes and assume one of three things: that you're lying, that you don't really know your market, or that others before you have tried and failed. He'll probably toss your proposal straight in the trash. So find competitors—anyone out there who can take a dollar out of your pocket—and show how and why your product or service is better than theirs.
"If I build it, they will come." Maybe that works in movies, but I've never seen it work anywhere else—and neither has your investor. It takes time, effort, and money to build a customer base. For this reason, it's a good idea to get people using the product, ideally paying customers, before you ask investors for money. For example, you may be able to generate interest online, take pre-orders for your product, and get real-time feedback. You also want to have a solid sales plan explaining how you'll generate interest, your cost for acquiring a customer, and who will execute this plan.
"The big companies are too big or slow to compete." Not if they're serious, they aren't. If a market is big enough, there's a good chance someone in the industry is sniffing around. If they decide there's an opportunity, they have the resources in place to jump in. This doesn't mean they'll succeed, but they could be disruptive. If they haven't entered already, it could be because they think the market is too small.
As an entrepreneur, you need to recognize that the larger, established players could jump in at any time. Be prepared to address it, since the investors know this, and based on the product and pitch, they'll be asking themselves how the big companies will react.
"We do lots of things well." I always ask entrepreneurs what one thing their business is great at, the one thing that separates it from everyone else. Most of the time, they don't know. Instead, they rattle off three or four things they think the company does equally well. Saying you're great at everything tells the investor you don't really understand what business you're in. We're living in a niche-driven world. When we try to build for everyone, we connect with no one. Before you meet with any investors, know your single biggest strength—that one thing you do better than anyone else. That's the foundation your business will build upon.
"I can explain that." Some entrepreneurs think they need to be an expert at everything and try to answer every question that comes their way, even if they have no clue what they're talking about. If you talk in circles, that'll be obvious to the investor. Investors know that a new business is surrounded by uncertainty; assumptions must be made and lessons learned. One of the signs of strength investors look for in an entrepreneur is the understanding that no one has all the answers. Let an investor see that quality in you. Communicate that they can trust you to be straightforward and open to collaboration. If you don't know the answer to a question, you can always say you'll look into it.
"It will appeal to everyone." If you're asked who your customers will be and you say "everyone," you'll get the same response as when you say you have no competition. What an investor wants to hear is this: You're focused on solving a single problem for a very specific target customer; in other words, you have researched your demographic audience. Remember, if you build for everyone, you connect with no one. There are riches in niches. Investors want to know what niche you'll dominate.
Through the years, I've seen tons of presentations, many of which contained all the common mistakes mentioned above. People are seduced by the prospect of money and overly focused on the results, rather than how to get them. Mastering the presentation is a breakthrough unto itself. Practicing makes it even better; sitting down with people who have listened to pitches on the other side of the table is also highly recommended.
