Starting a new company from the ground floor is never easy; even seasoned entrepreneurs have been known to stumble along the way. First-time entrepreneurs have one brief chance to make a big impression on investors, and unfortunately more often than not they will fail. Following are four tips for early stage entrepreneurs hoping to prove to investors theirs is an idea worth opening their wallets for this year.
Think Like an Investor
Just like the first rule of public speaking – know your audience. Entrepreneurs who do not pay enough attention to understanding what investors are looking for will most likely fail to engage their audience. First-time entrepreneurs often spend too much time emphasizing their product or service during a pitch and as a result forget to answer some very key questions – the relevant experience of your management team, the go-to market strategy, the competitive landscape and potential for acquisition, just to name a few. Investors respond best to a balanced emotional and analytical appeal; think about it, would you rather have someone read you an almanac or tell you an exciting narrative based on the facts that almanac contains?
Choose Three Takeaways
If there is a lot of information to convey in a limited amount of time, abide by the rule of three. Before you step foot in the meeting, decide on the three most important takeaways prospective investors should leave the presentation with. Then, whether it’s placing an easel at the front of the room with the three takeaways listed or bringing them up several times throughout your presentation, let investors know from the beginning of your pitch that if they remember nothing else from your presentation, they should remember these three items.
One of the biggest mistakes early stage entrepreneurs make is not thinking big enough. Investors need to know how you plan to reach a large market with a sustainable competitive advantage. The most profitable ventures are able to scale quickly and efficiently; entrepreneurs who secure funding are the ones who were able to communicate how they anticipate and plan for challenges they will likely face throughout the growth of the venture. There is considerably less risk for investors, who remember are looking for a big return, if your market is enormous. An enormous market means a venture does not have to capture an unrealistically high market share to command an exit value that will enable investors to meet their return requirements ; a small market means a potentially smaller exit event that could fall short of an investor’s needs or expectations. Showing investors that you have a realistic plan to quickly scale and grow within a large market oftentimes means the difference between attracting their money (or not.)
Make Realistic (and Defensible) Financial Projections
With so many sky-high valuations making headlines in 2013, it is easy to see why early stage entrepreneurs might be tempted to overestimate the value of their idea. Doing so, however, can seriously limit the longevity of your venture and ability to secure increased funding during subsequent rounds. It is also easy to price yourself out of the market if investors are turned off by the unreasonable value you place on the venture– in this scenario you do not even get the first round of funding let alone the opportunity for future investment. Do your homework. Take advantage of online tools like Worthworm, seek the advice of mentors, and ensure you walk into a meeting with a defensible and credible value and financial projections.
It is undoubtedly an exciting time to be a first-time entrepreneur as the public continues to embrace innovative ideas in so many diverse industries. However, even the greatest ideas can fail to take off if the money dries up. As you seek to attract angel investment this year, consider these four tips as you prepare for that critical first meeting where making the right impression is more important than making a big impression.
Alan Lobock is the co-founder of Worthworm (www.worthworm.com) and SkyMall. Having been on both sides of the start-up investment scene– seeking investment for his ventures and as an angel investor himself, Alan launched Worthworm to solve one of the biggest challenges young companies and their prospective investors face—how to compute a credible and defensible PMV for an early stage venture seeking angel investment.