An attractive and efficient pitch is a crucial part for entrepreneurs who are trying to persuade an angel investor to fund their startup. The primary aim of a pitch is to familiarize a potential investor with all the specifics about your business. These are ten of the worst mistakes entrepreneurs make when they are pitching to angel investors.
Lack of Research on the Investor
This mistake reveals a lack of professionalism of the entrepreneur. When you have an appointment with a potential investor, whether an angel or VC, it is vital to have knowledge about them and their portfolio. Such awareness simplifies conversation and proves that you want to establish rapport with them.
The Pitch Deck Is Too Long
If you want to succeed, your presentation can not be too long. Professional startup investors, such as venture capitalists and angel investors, will not devote a lot of their precious time. They have to choose among many startup investment proposals so you can only expect 30 minutes of their constant attention. An important strategy to use is an elevator pitch, which is a presentation that is less than one minute.
During this time you need to present your idea in the clear, concise, and compelling way. The next step is a powerpoint presentation. If you succeed with an elevator pitch, you have to be able to give out a slide presentation in about 15 minutes (around 10-15 slide deck). Afterward, make sure you have time left for questions.
Discussing Valuation Too Early
The investment process shouldn’t start with a discussion about value and profit. Entrepreneurs very often expect that investors will estimate the reliability of the value of their startup. There is no point in preempting the process of valuation since it is up to the investor. She or he should begin the discussion about a valuation. Attempts to hasten this process may result in the closure of the negotiations.
Overlooking a Realistic Exit Strategy for Investors
The goals of the investor are totally divergent of the aims of the entrepreneur. Investors want to earn money as soon as possible. In contrast, the entrepreneur spins a long-term plan, which will be profitable in the future. Therefore, you have to present your business plan clearly and show how the investor will make money (“the exit”) from investing in your business. You must be prepared to answer an investor’s questions about how the investment will be monetized through licensing agreements with larger companies or a strategic sale of itself to a more significant company.
Not Paying Attention to Detail
The presentation itself is important, but its form is also significant. It should not contain any typos and inconsistencies. The powerpoint presentation has to be well-written and visually appealing. You must include page numbers on each slide and, for your legal protection, contain a copyright notice at the bottom with the phrase “Confidential and Private.”
Asking for a Non-Disclosure Agreement (NDA)
Most entrepreneurs are sure that their business idea is great and is at risk of being stolen by a wicked investor. Entrepreneurs convinced about their success propose that potential investors sign a non-disclosure agreement form. For the majority of investors, such an agreement is unacceptable. Consequently, investors no longer have reason to see the PowerPoint presentation. Thus, the entrepreneur loses the chance for their cooperation. Nearly all professional investors, including VCs and angel investors, will refuse to sign an NDA because there is a high probability that they will see similar ideas many times in the future.
Not Paying Attention to Potential Risks
Unfortunately, many entrepreneurs ignore potential risks to their business. They forgot to analyze statistics. For example, only one in ten startups is successful. As a result, you have to be aware that your business plan is potentially imperfect so that you know what precautions to take in case of unwanted risk. Every prudent entrepreneur should ask themselves the following questions:
- What are primary risks to the business?
- What legal risks do you have?
- What technological risks do you have?
- Do you have any regulatory risks?
- Are there any product liability risks?
- What steps do you anticipate to mitigate such risks?
Ignoring Information About Other Pitch Decks
The most common mistake entrepreneurs make neglecting other pitch decks. It is ideal to review other pitch decks to improve your own. Plenty of pitch deck samples are available online. Feel free to ask your lawyer, other entrepreneurs, or angel investors for samples.
Focusing too Much on Numbers and Statistics
Focusing on stats is a big mistake committed by most entrepreneurs. They think that figures, diagrams, and calculations are the only tools to convince potential investors. Undoubtedly, statistics help to explain business and to establish your idea. It is more efficient to illustrate your business by telling a story. Use personal examples about how your service or product has solved a problem in your life. Consequently, compelled investors are likely to show their support.
Failure to Listen
If you want to succeed in negotiations with an investor, it is important to be humble than be proud. A critical mistake entrepreneurs make to disregard the suggestions of potential investors. During the fundraising process, investors ask plenty of questions about a business model and its technology platform. They have to be sure that the money invested in the startup will not be a failure. The questioning process should be seen as an exploration of alternatives rather than an attempt to undermine the competence of an entrepreneur. You should treat the curiosity of the investor as a good sign and calmly and carefully consider all possible suggestions.
No one has yet offered a reliable recipe for a successful startup. Business plans differ significantly from one startup to another. However, it is prudent to avoid these mistakes. Doing so increases your chances for successful negotiations with investors.