The right venture capital partner can fuel your business to hit its growth targets and even go on to surpass them. But too many growing businesses make simple errors in their bid for funding.
Seeking venture capital funding? Make no mistake: securing investment for your business is a tough gig – and it only gets harder as the amounts increase. You might have won investment from a family member or friend, even a business angel, but institutional investors are a different category altogether.
The following are seven classic mistakes businesses make, which could be preventing your business from securing the funding it needs.
You’re not really looking for venture capital
The finance industry is a complex place and, admittedly, many of the terms used are opaque and confusing. But it is essential to understand the differences between the various levels of investors out there.
Deciphering these groups and knowing who to target is Square One in your quest for a cash injection. Venture capital companies – often known by the abbreviation VCs – are usually interested in high-value deals from hundreds of thousands of pounds to several millions.
If you want five figures, then a business angel network or crowdfunding campaign is likely to suit your needs a lot better. For more information on the different tiers of funding, check out our funding rounds guide from pre-seed to IPO.
No one enjoys reading spammy emails that are obviously fired out to a large group of recipients. What’s more, we can all spot them a mile off, so don’t be part of the problem.
Approaching a number of VCs is not a mistake in itself, what is wrong is to spray a generic message to everyone you can think of. There are plenty of ways to approach an investor – for example via events or over the phone – but if it must be email then make sure your message is fresh and original every time.
‘Dear xxx’ or ‘To whom it may concern’ are not acceptable ways to reach out to prospective VCs. Get a name, talk to them personally and directly, and ensure that your opening gambit is relevant to their business and describes why you think you might fit well within their portfolio.
Give it time and be careful with the words you use, or your email risks heading straight for the spam folder.
You’ve jumped the starter’s pistol
Winning VC investment is a long game with many stages before, during and after an organisation agrees to back you. So take your time to research the market and lay the groundwork for your pitch. That means finding appropriate backers with experience in your field, understanding what drives them and swatting up on the individuals with who you want to connect.
This investment of time and effort will vastly increase your chances of securing funding and should allow for a smoother process when you get into the nitty-gritty of the deal. For more details of how to find the right VC for you, take a look at our guide on how to find venture capital investors.
Your business plan is out of date
A business plan isn’t just something you scrawl on the back of a coaster in the pub when the first flash of inspiration hits you. In fact, it comes into its own when you raise finance.
A clear, concise and realistic description of where you are, where you want to get to and how the money you need will make that happen, is a vital companion to your bid.
Investors want to be reassured that you’re a safe pair of hands, and a well-crafted business plan goes a long way to proving you’re the real deal. Include information about your business’ market share, including profit and loss; its market potential, including information on competitors; and your strategy for growth.
It’s important to keep in mind that your business plan will be scrutinised by VCs and, if one agrees to provide you with funding, it will ensure that everything you say in the document is true, in a process called due diligence.
Due diligence is notoriously invasive, so be prepared to back-up your promises with hard facts, especially when it comes to company finances.
Your pitch is off
A slick, concise and info-packed presentation is a must for any business hoping to get the nod from the moneymen. Most VCs will give you 30 minutes to an hour for an initial pitch. You will have already made an impression with them, so this is your chance to hammer home your credentials.
The ingredients of a perfect pitch are worth an article in themselves, but there are a few essential elements to note:
- Bring the right number of people with you. Don’t leave your audience wondering why you didn’t bring along the finance director, but equally don’t flood the room with middle managers.
- Include a presentation deck. A few (10 to 12) choice slides is a great way to enhance a presentation. These should complement what you are saying, not distract from it, so go for visuals and not too much text.
- Consider a video. A well-timed two-minute video is a nice way to break up your presentation, giving you a short break to collect your thoughts and keeping your audience interested. It should be short, interesting and professional.
- Leave time for questions. It’s very easy to drag on a presentation unnecessarily, so be wary of this. You will have already provided a lot of information about your business, so don’t labour over old ground. Be ruthless with your editing, because your audience can always ask questions afterwards if they need clarification. Leave at least 20 minutes at the end for them to do this.
- Practice until you are blue in the face. It sounds obvious, but too many entrepreneurs go into pitches without properly nailing down what they will say. Your pitch should be written in stone and rehearsed as if you are giving a speech without notes. This will inject the presentation with confidence and prevent any mishaps or spur of the moment additions which detract from the point of your pitch and/or make look like an amateur.
You’ve left the room without providing a ‘gift’
Business is all about relationships, so add something to the end of your pitch to help the VC remember you. It could be samples of your product or some merchandise, but a little token gift will help break the ice, as well as separate you from other hopefuls.
You should also leave copies of your presentation, in an investor friendly format, so they can trace back what was said and have a reference guide to browse through while they make their decision.
You’re piling on too much pressure for a decision
If you’ve made it as far as making contact, supplying information, pitching to the team and creating memorable materials to impress your VC, don’t blow it all by being too aggressive with your follow-up.
VCs work at their own pace and they don’t appreciate being hassled into a decision before they are ready. It’s okay to follow up after, say, two weeks if you haven’t heard anything, but when you do, make sure it is civil and friendly.
As we have covered, this process takes time, so there’s no need to try and truncate it at this early stage. Be patient and clubbable – it’s the only way to get on a VCs good side.
In truth, the search for a backer is fraught with pitfalls, far more than the seven listed here. But most of them can be averted if you plan, target, prepare and remain calm. These simple rules will, at the very least, put you ahead of the average funding pitch that routinely passes across VC desks on its way to the recycling bin.