It’s hard to believe that October is here. And after some really hot days to start the month, even the weather feels more like autumn. Apple picking and falling leaves make Halloween feel quite close indeed. So how can a start-up founder get in the spooky spirit and put fear in the hearts of angel investors and venture capital firms?
Freaky Financials. Many investors begin their review of your start-up by looking at the financials. And many conversations will die here as well, victims of a founder who is better at “telling a story” and “painting the big picture.” It’s fine to be that founder, but IF you are, make sure you recognize it. Find someone to balance out your skills with strong analytical abilities. Don’t invent a valuation for your intellectual property to make it fit your narrative, and don’t expect an angel investor to part with her cash unless the financials are compelling.
Little Startup of Horrors. Investors are looking for you to go big or go home. If they are taking a professional approach, then they are looking to diversify across 20 or 30 start-up companies. Most of those companies will flame out, but they only need 2 or 3 to hit the big time. And a business that putters along for a decade might be even worse than a quick bust. So if your business idea isn’t scalable, then you are out of luck with these folks. If you’re looking for venture money, make sure you have a story to tell with a “hockey stick” future.
The Least Dangerous Game. You’re keeping your full-time job while you wait for your company to take off? You’re asking strangers for money, but you haven’t contributed yourself, or even asked your friends/family to pay up? You’ll be sure to scare off investors who want to see you fully committed. Unless you’re desperate to make this work, then it (probably) won’t. Might not be fair, but then again, life isn’t fair.
O, What a Tangled Web We Weave… Don’t over-complicate your business plan. Maybe you’ve got some patented technology that can be bifurcated into a product sales model and a service delivery model, with a mobile app to rule them all while leveraging blockchain and social media by way of a machine-learning algorithm. Cool stuff. And it’ll probably not get funded unless you can simplify for now, and save the complexities for after your IPO.
Fundraise the 13th, Part Seven (The Final Round?): Nobody Gets Out Alive. When investors are looking to spend their money on your business idea, they look very carefully at who invested before them, who is investing with them, and who else might buy in down the road. If your start-up has been raising money every year or two with mildly escalating raises, that can easily spook an investor who is looking for a rocket ship. They want an entrepreneur who is hungry for an exit so investors can get ten times (or whatever) their money back. Slow and steady doesn’t win the fundraising race.
What do you think? What did I get wrong? Let me know in the comments. And read my earlier piece on how startups can raise money in the Charlottesville area. Happy Halloween!