Mistakes that Startup Founders Make while Pitching for Investors
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Startup founders may make mistakes on their journey to seeking funding or growth. However, these mistakes may be avoided if they are prepared with an action plan and have a strong go-to-market strategy. Much work is required in the founder-sphere, when it comes to creating effective investment pitches, as founders need to present all the requisite information that investors seek upfront. Here are some of the most common mistakes that founders make while pitching, and what they can do to rectify their pitching process -
#1 Setting Unrealistic Expectations
Many founders have made this mistake in the past and lost funding because they set unrealistic expectations. It’s one of the biggest problems that need to be addressed early on. You need to answer a fundamentalquestion, which is - Is your start-up similar to that of another in the industry you’re competing in? Then your valuation doesn’t automatically adapt to that of the incumbent. You need to justify why your specific valuation is what you’re coming to the market with. Hence founders must set realistic expectations of growth, revenue models, customer acquisition estimates andfinancials, and must not simply apethe industry and expect similar results. Setting realistic and time-bound expectations, is the first step to a successful founder-investor relationship.
#2 Ambiguity on Funding Requirement
Founders may be unsure about the amount needed to be raised. They may consult with friends, family members, other founders or may go online to estimate their funding requirement. This may be an incorrect approach in this case, as the founder needs to ultimately justify the valuation and why it is unique to his/her brand.
A bottom-up approach is needed here, as the founder should ideally calculate capital requirements early on and then approach investors for the appropriate capital. As the founder may have to justify why they’re seeking an investment in the first place, a concrete action plan is necessary to justify the “ask”. In multiple cases, it could be that the founder is seeking capital, but what is really neededis effective leadership.
Another attribute and source offounder-investor relationship dilemma,is the lack of flexibility that arises from the business modelitself or from the founder. Many successful founders have pivoted, after learning from their experiences, and many others continue a concurrent course of action.
It is up to the investors andfounders to collectively determine the best course of action for the brand, and that level of flexibility should be made evident by the founders even before they meet with investors. An investor isn’t looking for a “Steve Jobs archetype”; they’re looking for founders with genuine talent and a flexible business model that works for both parties involved.
#4 Lack of Differentiation
A problem that may be wrongly attributed as an “Indian founder-trait”, is the “copy-paste/no-differentiation” model of business. There are many start-ups in India that are phenomenallysuccessful, by offering a differentiated product in a niche segment with a unique communications model to effectively acquire customers. However, there are many more that insist on copying an incumbent’s model, because it might appease the investors that they are pitching to. Quite the contrary is true in India. With a differentiated model, product or business, investors would be interested in investing with higher expectations.
#5 Lack of Preparation
Founders that may not have all the requisite information, may find themselves in a flux when they enter the board room. As there are many unanswered questions that may not be addressed directly in the business plan, founders need to ensure that they are ready to answer all queries on-call or in-person. Founders may not always have all the answers needed, but their problem-solving ability and depth of knowledge of the industry could sway the investors in a positive direction. Thus, being prepared for meetings and presentations is the best way to ensure that an investor shows interest in your start-up.
#6 Poorly-constructed Strategies
There are many start-ups in India that have the right team, the right mind-set, but the wrong action plan. Since these start-ups areprimary entrants in the industry, they lack the requisite industry knowledge and nuances of the field. This leads to early-stage confusion and lack of strategy, which burns capital at a faster rate without leading to concrete results.
This mode of ‘lack of planning’ must be stopped at the forefront, and founders must prepare action plans that have a 2-3-year capital projection, and a concrete strategy to achieve those results along with a quarterly course-correction methodology.
Investors don’t want to gain unprepared and a founder can ease their concerns if they are fully prepared with a deployable strategy and a sustainable business model.
"The views and opinions expressed in this article are those of the author's. All business related to investment or investment advisory should be executed in close consultation with securities counsel. This article is not advise or direction."