(By Eric T. Wagner)
“Just like you, professional investors (and even those who are in the crowdfunding realm) have areas of core competency. If an investor has a core understanding of enterprise software applications and their associated business models, what do you think the chances are of them investing in your pizza parlor? Not saying they don’t like pizza, but you get the point. Do the research. Seek out investors who specialize in your area.“
It’s still king and I watch hundreds of entrepreneurs come through my virtual door (read: email) asking the same question:
“How do I find the money I need to start my business?”
Now if this is an area where you struggle, I can tell you one thing… no wait, make that 10 things… you might be doing wrong in your approach to raising funds.
It matters not whether you look to a bank, angel investor, venture capitalist or crowdfunding platform. Most every one of these 10 mistakes I see entrepreneurs stumble on applies.
Clean this up, and you boost your chances of raising funds a thousand fold.
1.) Your Leadership Skills Are Lacking
Look in the mirror, because it starts with you. Trust me — you are more important than your idea. Every venture capitalist or angel (or bank) I know takes a hard look at the entrepreneur first. If your character, integrity or leadership is out of whack — you won’t get funded. So look hard and fix whatever is broken in that mirror.
2.) Your Team Falls Short
You’re only as strong as your weakest link — right? So your top level team gets the same scrutiny. Share the mirror with them and seriously address any weaknesses. Yes — it’s a hard conversation to have. But do it. I’ve seen smart founders fail to see the brokenness in their team and wonder why the check never does show up in their mailbox.
3.) No Traction With Customers
Investors with money want to see traction. Even if you pass the test of awesomeness as an entrepreneur, and you have a solid team to boot, they still want to see you have engaged customers with your ideas. Do you have proof your potential customers care about your solution? It’s called ‘product/market fit’.
4.) No Proven Business Model
Of course, it’s generally not enough to just have proof that the market actually cares about your idea, but they are also willing to pay you for it. Yes — I do remember the days of old in the late 90’s when you could raise millions of dollars with just a domain name and customer ‘eyeballs’ — but nary an idea of how you’d actually make any money. And some of that may still exist today with the hoards of cash sitting around. But in general, you must deliver some kind of ‘business model proof’. How do you plan to make money and do you have proof of that on a small scale? If you can’t answer the question, you won’t raise a nickel.
5.) Your Approach With Investors Is Wrong
Venture Capitalist Paul Jones, former Silicon Valley resident with Cooley Godward and current Chair of the Venture Best group for Michael Best and Friedrich, drove the point home about not ‘cold calling’ potential investors in my previous article. So why do I keep seeing it week after week? In fact, just the other day a total stranger reached out to me on LinkedIn with something like this:
“Hey, I am so and so and we have the greatest idea in the world. Please look at my 100 page business plan with 24 attachments and give me 30 minutes of your time so I can pitch you. Then you can invest in us.”
My response? No thanks. And by the way — you’re doing it wrong.
6.) Pitching The Wrong Investors
Just like you, professional investors (and even those who are in the crowdfunding realm) have areas of core competency. If an investor has a core understanding of enterprise software applications and their associated business models, what do you think the chances are of them investing in your pizza parlor? Not saying they don’t like pizza, but you get the point. Do the research. Seek out investors who specialize in your area.
7.) You’re Not Coachable
Somewhat like #1 above, but not exactly. I put this as its own reason because in my opinion, it’s one huge reason investors walk from potential investments. Listen — you can be strong. You can be passionate about your belief system. But if you’re so hard-headed to the point of being uncoachable and listening to input from a strong investor who also knows their stuff, then you won’t get funded. So be strong, but humble. Show ‘deep domain expertise’, but don’t come off as a ‘know it all’. I think you know the difference.
8.) Lack Deep Domain Expertise
Speaking of deep domain expertise, you better have it. Entrepreneurs who think they will raise money for their idea in an area or industry (or with a customer) they know virtually nothing about are in for a whack on the head. Those who raise serious money know what they’re talking about. They’re embedded deep in their niche or area of expertise. They know the industry. They know the players. So if you happen to lack this, I would either switch to an area you do know, or get some serious domain expertise quickly.
9.) Failure To Understand ‘Lean’
If you walk into an investor, ask for a million dollars and then show a propensity to want to blow the whole thing on some marketing scheme to ‘raise awareness’, you’re in trouble. Investors want their money back. That’s why they invest. To earn money. So if an entrepreneur does not understand the concept of ‘running lean’, investors will scatter. Yes — even if you get the full amount of money you seek, you still need to show the ability to invest it wisely on the strategies that will move the needle for your business. So if you don’t understand how to ‘do lean’, better get up to speed fast.
10.) Blindness To See You Need To Fix All Of This
Saved the most frustrating for last. Yes — the entrepreneurs who suffer from one or more of these mistakes, but are blind to it and think none of it applies to them. Ouch. Believe it or not, I run into these guys and gals every day. It’s sad because unless they awake from their blind stupor, you might as well stick a fork in them. They’re done. So do yourself a favor, run through the list again just to make sure. Hate to see you fall into this category.
Guess what? If you do fix all of this, then you’ve just multiplied the chance of getting the cash you need for your startup. Well done entrepreneur…
“Opinion pieces of this sort published on RISE Networks are those of the original authors and do not in anyway represent the thoughts, beliefs and ideas of RISE Networks.”