He’s on board. He’s interested. Should you be interested in him? Have you found a Unicorn Investor? The one who has the knowledge, experience and time enhance your business as well as money? How can you find out? Read on…
You’ve got a great idea. Your friends and family tell you to go for it. So you write a summary of your idea (keeping some bits secret). You send the summary to an online Angel Network asking for investment after paying your fee. You get thirty responses. Thirty people who’ll put money into the idea. Great! Other people believe in it too. After two months you’ve lost all every one. You’re back to being on your own with an idea which might be good. What went wrong?
Entrepreneurs can lose my interest before I’ve even had chance to look at a business plan!
And they don’t get a second chance. Having spent years speaking to entrepreneurs who are looking for investment I have seen seven classic ways that my interest can be lost, and with it, my investment, contacts and expertise.
So what are the secrets to lose the Investors (Business Angels, Bank Managers, Venture Capitalists, Friends and Family) as fast as possible?
- Be inconsistent. For example, say you need for $50,000 today and a weeks later say you need $150,000. As an Investor I’m going to ask “Which is it?” and “Why did it change?”. Changes such as this give the impression that you have no idea about how your idea is going to generate money.
- Delay responses. Once you have got someone interested, don’t keep them hanging. The longer a prospect waits for the Executive Summary, Business Plan, Meeting, etc. the more they’ll forget about the original proposition and why it excited them. Remember, you are presenting (actually selling) your company. An Investor will ask “if you take a long time to respond now, what will it be like when I’ve bought some of your company?”
- Waffle. Keep all material short, succinct and to the point. If your business plan is only six pages, then that’s it. Don’t keep repeating information to “pad it out”. This will result in the Investor “skim reading” the document and missing nuggets of information that may be key to your proposition. Oh, and use pictures, graphs and tables in documents... they break up text and help appeal to different types of people.
- Keep it secret. Every proposition that has required me to sign an NDA has not been worth looking at. In fact, they have been discounted within minutes rather than an hour or so for a more interesting proposition. I’ve written some notes on this in another blog so if you must have an NDA, at least have a good reason why.
- Fails the “Thumb nail test”. Whenever I look at a plan I try to work out the first month the company will (a) break-even; and (b) start making a profit after all costs have been paid. If I can’t work this out or the answer is over two years for breakeven it’s time to look elsewhere. With the way that the business environment is changing I would argue if you can’t break even in six months, it’s time to rethink the idea or strategy to exploit it.
- Unreasonable valuation. Looking to sell 2% of the company for £100,000 because the company will be worth $lots in 3 years’ time. Think again! When you value your company you need to consider who is adding what value. It’s true that without your expertise and effort, the company may be worth nothing but it would be much less without the additional money and contacts of the Investors. Many Investors will use your first valuation as an indication of how realistic your expectations are.
- Don’t listen to Investors. If you ask Investors, many will give you feedback as to why they have decided not to take your proposition to the next stage. Listen and take note. If many people give the same reason there may well be a reason for it!
- Keep them in the dark. So you get a customer with a well-known brand name; you attend an exhibition; you double the number of orders this month… If an Investor hears nothing they assume nothing is happening. If they hear of lots of progress they’ll want to get involved before they lose the opportunity of a big pay-out!
Did you commit none of the above crimes and still Investors went away? Then it’s time to start looking at your plans in more detail... that will be the subject of another blog!