Pitching to investors can be a challenge that compares to walking on a layer of thin ice. Making a wrong step can instantly sink you to a point you are unable to recover from. Therefore, it is extremely important to avoid pitfalls that can disable your company from being taken seriously when coming to a financing decision. Our team has extensive experience in the industry and has seen many companies falter due to an ability to meet investor requirements. Therefore, we have prepared the top five investor pitfalls to avoid so that you can learn from the mistakes that others have made.
- Don’t Delve into Details
When communicating with investors, especially for the first time, it is important to keep the details minimal and focus on high level information. Many software engineers fall into this pitfall by over emphasizing technical details that many investors will not understand unless their also have esoteric engineering knowledge. Keep the details minimal and focus on the most important points formulated clearly and concisely. If you provide too much information about minor details, it will dilute your most important elements and leave investors confused and divert their attention to other areas.
- Don’t Forget to Discuss Your Competitive Advantage
You may be surprised to learn that many companies seeking investment fail to communicate their competitive advantage, that is, what sets them apart from competitors in the market. Discussing your competitive advantage is perhaps the most important part of your investment discussion, especially when talking with investors for the first time. This is often disregarded under the false assumption that investors are already aware of the competitive edge or it is plastered all over your investment materials. However, don’t take these blatant messages for granted, as many investors might not have read these materials or not full understand their significance without being verbally explained.
- Don’t Lie
This is perhaps one of the more common sense pitfalls that are always avoided nonetheless. Companies stretch the truth and lie when discussing their details with investors without thinking through the implications. First, any lies made when soliciting an investment is financial fraud, which can land you in prison for a very long time. Second, the moment investors perceive that you are lying, they will no longer do business with you. Therefore, it is very important to support your integrity when communicating your investment details, but excuses are always fine.
- Don’t Talk about Problems Unless Asked
While it is not acceptable to lie to investors, you are not obligated to tell them about problems that you are facing. If you are in need of mezzanine capital because your initial product launch failed due to low customer conversions, don’t tell them this unless they ask. It will likely be demonstrated within the data, but it is their responsibility to ask the questions and perform the due diligence and yours to build the best investment case possible. You should always inform investors about the risks of an investment, but at a holistic level where you are being ethical and honest, but not communicating every problem that you are experiencing along the way.
- Don’t Discuss Money Until Asked
Nobody likes to be asked for money, so this can often dilute your image to investors and leave you coming across as unprofessional. Investment terms will be discussed if your investor is interested in knowing your offering, but asking it while they are questioning you about your business model is likely to show unprofessionalism and come across as slightly arrogant when they may want to learn more about your company before even considering the placement of capital to your company.
Aside from understanding how investors review your company, you must follow-up with the ability to professionally and honestly address investor queries or concerns. These questions are relatively systematic and predictable, so we have prepared the top five pitfalls for you to avoid when addressing them. The pitfalls provided within this article have sunken many companies before they enter the deal table, so we have provided them with the hopes that you can avoid problems later on and successfully acquire capital by impressing your investors and demonstrating an outstanding investment case.