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The objective of this series has been to describe the characteristics of a company that make it attractive to investors. The series began with the realization that many entrepreneurs sometimes do not have the ability to see their company through the eyes of the people they are hoping will fund it. The result of this disconnect is often tragic and seldom edifying. Companies that should be funded are not. Businesses that should have a chance to get off the ground and onto a path to profitability do not get that chance.
It is important to start with a single fact. Most start-up companies do not even approach being ‘investment grade’. Most entrepreneurs have never been investors in companies. They do not have the experience or knowledge that would allow them to understand the dynamics and risks of the process. Most are so fixed on getting funded that they do not take the time to assess their company from any perspective but that of its financial needs. This can lead entrepreneurs to a one-dimensional view of investors and the process of approaching them. Nowhere is this misunderstanding more evident than during the preparation for and presentation to potential investors.
Entrepreneurs tend to know little about the people they are presenting to; even though there is often much information available given a slight effort to collect it. They tend to see the process as one of ‘selling’ the investors on the opportunity to help build a company and lead with the technology and competitive advantage that they suppose they have. But, as you have read in the first five parts of this series, investors do not look at things that way. They find little value in a presentation that appears to be designed to recruit them as team members. In fact, they are frequently irritated by the pretension and misunderstanding of the situation that drives such a wild pitch.
Presentations give investors an early insight into the quality and professionalism of the entrepreneur and team. Remember, most of them see dozens of presentations within the space of a given year. Because they focus in particular spaces, they may end up seeing the same or similar slides, hand-out materials, analysis and statistics again and again. Whole sections of business plans may be repetitively inserted by local consultants who specialize in writing business plans. If the plan and presentation appear too slick and pre-packaged, investors will tune out quickly. If it is filled with special effects or broadly crafted ‘visionary’ statements, they will also turn away. Investors prefer to hear about companies and teams that are already in business, implementing, establishing and defending margins, building an expanding customer base, subjected to effective board oversight, with an effective financial control and reporting system and looking for funding to expand. Most of them prefer to fund expansion rather than R&D. The most effective presentations begin with a list of invoices sent and evidence of payments received. Here are a few guidelines:
- Concise and to the Point: It is a shame to have gone through all the trials of producing an investment grade company and then loose the opportunity to get funded as a result of an inadequate presentation. Yet some entrepreneurs do exactly that. There are a number of reasons why this occurs. The most common is that they focus their presentation on issues that seem important to them; rather than the ones which are important to the investor. This happens when the founders make the mistake of thinking that they are presenting to someone who is as involved as they are in the underlying value proposition and is interested in the ‘neat’ advances that the team has come up with. Although this may be of some interest to investors, they are principally focusing on the company as a potential investment. In other words, they are much more concerned with progress of implementing the business plan, in monetizing that value proposition, in the generation of strong and sustainable revenue streams, the control of expenses, the likelihood that the company will achieve strong acceptance with a growing customer base and, finally, the path to a successful exit.Another mistake that many entrepreneurs make is to misunderstand the appropriately limited agenda and goals of each meeting. They come to an initial meeting loaded for bear. Their slide stack might total twenty or more and be very complex with lots of dense graphics. They pass out printed materials that go into the details of their ‘competitive edge’. Then they drone on and on. The investors come to an initial meeting with a short list of questions. If the presenters are not smart enough to realize that, the reception they get will not be positive. It is important to understand what questions the investors will be focusing on and to deliver clear and convincing responses to them.
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