Five Mistakes To Avoid When Approaching An Investor

Five Mistakes To Avoid When Approaching An Investor

All these investors claim that there are not enough opportunities out there to invest in, yet when I send them my business plan, I don’t even get a response.

Illustration: Betanews
Illustration: Betanews

Considering that venture capital investors get tens of thousands of business plans, investor decks and other pitches annually, it is hardly surprising that not all of them get an investment.  Based on reactions to one of my previous posts on investor feedback, it seems that a lot of entrepreneurs don’t even receive a response to their presentation. At the end of the day this is investor’s fault. But there are certain mistakes that I have seen entrepreneurs approaching Credo commit over and over again, which significantly diminish the chance of any investor reacting to the pitch. And they are pretty easy to fix. Here are the top five, which anyone can and should avoid:

1. Your startup doesn’t fit investor’s criteria

If Credo’s website says we invest in IT, internet, mobile and health startups in the CEE region, we are not going to invest in a gold mine in Mongolia. If the site says we invest in seed or Series A stage, we are not going to make an angel investment.

It is not that hard to research the fund’s site and portfolio to find out what kind of investments it is looking for. Some people say that if the fund has already invested in a startup in the same space as you, you shouldn’t bother asking for a meeting. While I agree that the chances of receiving an investment from a fund that has already invested in your space are pretty slim, definitely try to get a meeting, because you can gain access to a ton of market intelligence. It is more efficient to learn from the mistakes of others than from your own.

2. You cold call potential investors

This may sound more difficult than it really is: don’t send your pitch unannounced, especially to generic email addresses such as info@abc.com. And no, mailing in a hard copy also doesn’t help.

Try to get introduced to any member of the investment team before sending the pitch – the more senior, the better. Leverage your network; do your LinkedIn/Angel List research. If you come out empty-handed, attend a conference where these investors speak/participate in: on average, one of our team members is at least at one conference per month. Follow the investors you are interested in on Twitter; I announce all the conferences I am attending on my account. I still spend a significant portion of networking time at a conference talking to friends or people I already know, and I would not say no to hearing a pitch, since that’s one of the primary reasons for attending.

If for some reason you are not able to meet the investor, try at least asking someone affiliated with the fund to make the introduction: investors of the fund, CEOs of portfolio companies, etc.

3. Your introductory email doesn’t contain relevant information

I am still very surprised at how many startups don’t fundraise with a proper deck or are not able to write a clear executive summary in the body of their introductory email. Getting the investor deck right is an art, but anyone who follows the criteria outlined in this presentation passed the minimum acceptable quality bar for Credo. Even angel investor decks have their guidelines.

The accompanying email is equally important – make it short and make sure it includes at least:

  • Where I know you from;
  • What your company does – in one sentence;
  • What you are asking forM
  • Anything to spark my interest: traction, committed investors, even something out of the box (“Andrej, I am a regular contributor to your favorite charity”).

4. You hire an advisor 

This is a big no for any startup below at least Series B level. If you, your team & existing investors are not able to raise an investment without an advisor, you can be pretty sure that the advisor is not going to help (unless you are willing to try the exotic route, such as a Dubai-based investment fund). Advisors can be very useful at an exit, but not for taking an early stage investment.

The advisor might brag that he has a lot of connections – this might be true, but investors in general hate receiving pitches from advisors, so the quality of such introduction is very low. I recommend sticking to strategies laid out in point 2 when it comes to connecting with investors.

The advisor might claim that he can prepare a better presentation and financial model than you can. This is definitely not true – stick to the guidelines from point 3 when it comes to the investor deck. And when it comes to the financial model – you don’t need an overcomplicated Excel monster; as a matter of fact, most investors don’t have the time to study it anyway. If you know your market well enough, you can create a basic model with important numbers without outside help. And if the investor likes you and your company, he will help you prepare a more in-depth model, which you can then use as a budget.

Investors don’t like the advisors much because, in their minds, advisors don’t add value to the startup and yet get paid for it. Maybe some investors like using advisors; would be curious to learn why. I don’t think Credo has ever made an investment in a startup with an advisor.

5. Your startup doesn’t make sense

At the end of the day, all of these tips will be worthless if your startup doesn’t make sense. Does it solve a real problem? Does it solve it 10x better than today’s solutions? Do you have the right team to pull it off?

If you don’t have answers to all these questions (and a bunch more), even the best connections and most beautiful investor deck are not going to help you.

Comments

Leave a Reply

Your email address will not be published.

Popular

Startups

The Football Company launches NFT jersey of Croatian national football team for metaverse fantasy football

Virtual sports merchandise might become a multibillion-dollar industry thanks to the metaverse. Two Croatian founders in Germany have taken the lead to give Vatreni a head start.

Tech

Why VS Code remains a developer favorite, year after year

In this year's Stack Overflow Survey, Visual Studio Code (VS Code) has been voted the favorite tool among developers, making it the category winner for the fourth year in a row. We examined why 74,48% of all professional developers, experienced and beginners alike, prefer it to other tools.

Careers

How does IT Consulting create experts who know how to integrate IT into all business spheres?

Keeping in mind how much the IT industry influences all other industries but also everyday life, it's surprising how little is said about IT consulting, which is practically the bridge that connects the two. That's why we sat down with a junior and two seniors on different career paths - to explore this profession with those who practice it, love it, and live it.

What you missed

Careers

How does IT Consulting create experts who know how to integrate IT into all business spheres?

Keeping in mind how much the IT industry influences all other industries but also everyday life, it's surprising how little is said about IT consulting, which is practically the bridge that connects the two. That's why we sat down with a junior and two seniors on different career paths - to explore this profession with those who practice it, love it, and live it.

Tech

Why VS Code remains a developer favorite, year after year

In this year's Stack Overflow Survey, Visual Studio Code (VS Code) has been voted the favorite tool among developers, making it the category winner for the fourth year in a row. We examined why 74,48% of all professional developers, experienced and beginners alike, prefer it to other tools.

Startups

The Football Company launches NFT jersey of Croatian national football team for metaverse fantasy football

Virtual sports merchandise might become a multibillion-dollar industry thanks to the metaverse. Two Croatian founders in Germany have taken the lead to give Vatreni a head start.

Sponsored

From intern at Infobip to Engineering Department Director of Croatia’s first unicorn

Anja Hula begun her career at Infobip as an intern. Year over year she showed great progress as an engineer and a leader. Today she is responsible for the collegues and products of whole Data Department. We believe that Anja's story will inspire all who are already building a career in IT or just starting out...

Startups

Croatian startups finally got their association – CRO STARTUP

Hajdi Ćenan, member of the executive board and the president of the newly founded CRO STARTUP association, talks about how they will help startups to start, develop, fundraise, get first customers, educate themselves, and network.

Startups

The wellbeing in the workplace has never been more challenged. It’s time for new initiatives to step in.

The recent developments have eaten away the foundations of our wellbeing, and the consequences have spilled over our careers as well. So as employers shift their focus, we have turned to Q agency to see how they handle the challenge. With "Wellbeing for Qumans" initiative, their approach looks very promising.