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7 dumb mistakes to avoid when approaching investors

Money

When pitching to investors many entrepreneurs make mistakes.

We’ve identified 7 of the dumbest mistakes which should be corrected before approaching an investor.

1. Pitching the wrong money

Many people waste time sending business plans to any investor that they can find (Banks, Angels, VC’s, Crowdfunding etc).

If you are scattered in your finance-raising strategy, you’ll experience rejection, frustration and waste a lot of your valuable time.

Research the best source of finance for your stage of business and who’s likely to invest, and focus on them. Each source of finance will require you to prepare your pitch in a different way.

2. Not making yourself cheaper than your competition

It is painful to watch entrepreneurs pitch investors and lose them because the investment is not tax efficient compared to other investments.

If only they knew that they could take advantage of the tax benefits that our government has given us to make raising finance a lot easier for businesses just like you.

If you are a UK qualifying business and you don’t get the certificate that gives investors tax relief when investing in you, you have made yourself up to 85% more expensive to investors. Apply for SEIS / EIS in advance.

3. Breaking the law

No one wants to listen to a lawyer talking about shareholder agreements, articles of association, pre-emption rights and the rest.

But when you take on investors, you need to update the setup of your company.

You need to comply with financial promotions law and to protect both yourself and the investor in case the company is the huge success you expect. If you don’t, this will cause problems as your business grows.

4. Sending a 127 page business plan

Your business plan is the document between you and the investors money.

If it is not presented in a way such that they will actually read it, then they’ll normally give you a polite ‘adios’.

Avoid templates that you find for ‘free’ with Google search. Those templates have been written with a bank in mind – they aren’t exciting to investors.

Creating a visual, exciting business plan gets investors’ attentions, and screams that you are investment ready.

5. Forecasting more revenue than Apple and Google combined

Don’t create a hockey stick shaped graph showing how your company will turn over more money than Google, Apple and Microsoft in five years.

If you’ve done your financial forecast correctly you’ll be prepared for questions on forecasted return on investment.

Start with where you are today and work the model up by going through some assumptions. Don’t start with broad size-of-market assumptions – start with your team and work through the next few years.

6. Leaving valuation up to the investor

When seeking investment you need to value your company and create a proposition that makes investors want to open their wallets.

Most entrepreneurs think their company is worth more than it is, while investors want to invest at a lower valuation. Value it properly.

If you have revenue, this is easily done. If you don’t, you need to use a valuation model based upon your off-balance sheet assets, and this needs to be presented and figured out up front.

If you leave it to the investor it will almost always be lower than what you want, and makes you look amateur.

7. Pitching for more than 20 in 10 in 2

You could have the best idea, the perfect legal structures and a great business plan – but nobody will see it if it’s not pitched correctly.

You need to be armed with a 20 minute pitch that covers the 10 important points that investors look for, in ten slides with 2 videos.

The 10 points are elevator pitch, problem, solution, team, market size, marketing, competition, financials, milestones and exit. The two videos are a mission video showing why your customers love what you do, and a quick investment pitch that fires off the 10 points very fast.

So there you have it

If you want to raise finance, it’s all in the preparation.

If you want to learn how not to make these 7 dumbest mistakes you may wish to attend the Show Me The Money In 7 Steps Discovery Session on 24th July 2013 in Central London.

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