I was a mentor, deal screener and speaker for the 4th annual Angle Capital Summit in 2010. Although there were specific things to look for as a deal screener on behalf of the investors, I couldn't help but to reflect on an article I recently wrote about G.U.P, as well as some of the material in my book Show Me The Money.
Many of the applicants at the Summit looking for funding had very little training in how to prepare a presentation for investors. Most had some type of business plan to start with, but some did not even have an executive summary. If you're serious about your business, you must be prepared.
So what does an investor look for? Although I acted as a deal screener, I don't necessarily have any interest in investing in a company I work with, but I do certainly have an interest in seeing that company succeed. As I've worked with clients over the years, there are many things we purposely put in place. Owners have to create a win-win situation for themselves and investors. You, as the owner, as well as the investors, are taking a risk on your ideas.
Here are twelve common mistakes to avoid as you prepare your investor presentation:
1. Having no clear business model. Only one out of ten deals I reviewed had a solid business model. There are three components of a business model: 1) Owner's passion and business purpose; ideally equaling what the customer is willing to pay you. 2) Core competency of key processes and key resources. 3) Economic engine or profit formula, which includes a plan for diversifying revenue sources.
2. Not the right time to introduce your idea to the market. Some ideas I saw at the Summit were frankly out of date. If you want to introduce an old idea, make sure to innovate or create a mash-up compelling enough to repackage the idea for presentation.
3. Not the right place to introduce your idea to the market. Did you do enough market research to present your case? How credible is your source of market research?
4. Not having the right team of people to implement your idea. Most companies I reviewed are weak on implementation, meaning they were short on resources to implement their ideas. Resources include vendors, and most likely a team of other professionals. Identify them properly.
5. Not planning to work in and run the business. I've seen, over the years, that some people just want the title without the work of the start-up. Well, that's a good strategy for an exit plan, but at least at the beginning, you must be an integral part of your business, which will help you in the future to know how to react quickly to market changes.
6. Entering without 10,000 hours of industry experience. Most of the deals I explored at the Summit were from people who did not have actual industry experience. According to research reported in Malcolm Gladwell's "Outliers," you need about 10,000 hours of experience in the industry of your business idea. If you personally don't have it, have someone on your team who does.
7. Not willing to put your own money into this business. Instead, you only seek ways to use other people's money. You must invest some of your own "skins" in the game. You can't expect only to use other people's hard earned money.
8. Having no specific go-to-market plan and not considering pull marketing strategy. I consistently see this as a huge problem in investor/business deals. Most people talk about their plan, but fail to be specific on how they will take their products or services into the market. I have seen very few businesses looking for an investor who talk about pull marketing strategy. Both your investors and you need to know how are you going to introduce your products or services into your market.
9. Having no specific profit formula and no predictable profits in the next twelve to eighteen months. One of the deals I screened had a nice projection of the next twelve months, which was detailed to the point of showing the return on investment for their investors. Although it's just a projection, you should know your goals before you start. Otherwise, you may find yourself everywhere and nowhere at the same time.
10. Having no plan for the key management team. Obviously, most owners think that they are the key management team. But one of the most important business value drivers indicates you must have a key management team in place so that the company will function with you, the owner, in it. You may not need it today, but have a plan to use in the future.
11. Having no plan to capture and maximize your intellectual property. How do you capture your ideas? For the most part, owners think it's about trademark registration or copyrighting. Those steps are a part, but it is also your processes that must be documented. Your processes make a huge difference and give you a competitive advantage, so plan to capture them and create even more value in your business.
12. Not telling the investors how they will capitalize on an investment in your company. For the most part, when you ask for funding, it is about selling them your idea. So let your investors know "what's it in for them." Share with investors how are you going to make money for them.
Not everything has to be perfect in order to find funding, but nevertheless, put your best effort forward to show you are serious about making your business idea work. No one will know you are serious about succeeding until you have a complete plan. The amount of work, research, and thought you put into an entire business plan will speak louder than just a one page executive summary.
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Chia-Li Chien, CFP®, PMP; Succession Strategist, Award-Winning Author & Speaker. She is CEO of Value Growth Institute dedicated to helping private business owners increase equity value of their firms. Her blog and newsletter was named a top small business resource by the New York Times. For a sample chapter, go to your Kindle to preview the first chapter for free, then enjoy the entire book digitally for just $9.99 http://amzn.to/QVoBTs
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