It’s time to deal with investors
It’s time to deal with investors
You’ve got your ducks in a row, you’re about to start pitching to investors and doing Demo Days, but do you really know what investors want? More importantly, do you know what they don’t want so you can avoid wasting their time (and frankly, avoid pissing them off)?
To learn what investors don’t care about, we’ve tapped into the wisdom of Launch Tennessee Chief Executive Officer, Charlie Brock who is hellbent on making his state the best place in his region to start and grow a company (and some say LaunchTN is succeeding at this mission).
Brock acknowledges that early-stage companies should be over-prepared rather than under-prepared. “You should never waste time or money on things investors neither want nor need,” he adds. “Many investors consider 100 or more opportunities for every investment they make, so providing the exact information they need with a laser-like focus will help your startup stand out.”
When standing up against 100 others for a single opportunity, how can you stand out and avoid wasting anyone’s time?
In his own words, Brock outlines the 6 things you can skip, because investors care less – or in some cases don’t care at all – about them:
- A business plan. Investors are busy. They don’t have time to read a 15-page business plan that probably took you weeks to complete. Instead, prepare a two-page executive summary or a six- to 15-slide deck. Make sure your summary includes a description of your company, the problem it solves and your financial projections. This slide deck should not take more than 15 minutes to present.
- Burn rate (sometimes). As an entrepreneur starting a business, you need to know your burn rate. However, when it comes time to pitching for investment, it’s important to remember that depending on your location, investors in different parts of the country may have unique preferences. For example, Silicon Valley investors care far more about your market size than your burn rate, whereas in the South, investors want to know if you can “break even before breakfast.”
- A huge valuation. Presenting a huge valuation creates the perception that you are overestimating the potential of your concept. Instead of impressing investors, this will turn them off.
- Top-down forecasting. Investors definitely want you to be going after a large market, and they need to know your customer acquisition strategy. Put a lot of thought into the sales cycle and the customer adoption rate. When doing this, do not build your market from the top down. Meaning, do not tell an investor your company is in a $2 billion market, so you only need 1 percent of the market to generate $20 million in revenue.
- A non-disclosure agreement. For many investors, asking them to sign a non-disclosure agreement (NDA) is a non-starter. Keep in mind the number of business ideas investors see every day. It is likely that the investor has seen a company similar to yours and will see more in the future. Asking an investor to keep track of which ones have an NDA is asking too much. They won’t do it. Besides, the chance they will pass your ideas onto someone else to implement is pretty far-fetched.
- Your pride. Having a bad attitude and not accepting constructive feedback is a good way to prevent your company from raising money. Investors take a huge risk by investing in early-stage companies, and many have their own limited partners and investors to answer to. It’s great to be confident, but arrogance is a red flag that investors avoid. They want to be able to work with you in the long haul if they invest in your company.
“Every investor is different,” Brock concludes, “but the overall expectations of what they want to see to make their decision are the same. Know your market size and projections. Know your competition. Know how you will use the investment. Focus on those important details and leave the rest on your white board.”