What steps in the booming capital raising process, and what steps should be taken for each step? Why did the investor reject our idea and product and not attract capital? What are the characteristics of a professional presentation in the presence of an investor?
These and similar questions may arise in the mind of any potential investor. In this post, I intend to write based on the conversations I have had with different people during this time to find a clear answer to these questions.
Some time ago, I was talking to a friend of mine who has just entered the field of venture capital. He had previously joined a startup as a co-founder, explaining that it had always been why I could not convey the message properly to an investor until today, I was working as a venture capitalist in the field.
When any investor sits at the table, he has concerns and desires that differ from what the startup’s founder wants.
Pitch deck, the first point of contact between the investor and the startup
The first thing a startup sends to capitalists is a presentation file. The first point of contact between the investor and the startup is established. One of the most important things to note about this file is that startups usually can not explain the size of the market well to the investor.
So startups need to provide a clear picture of their market size to venture capitalists with numbers.
Therefore, startups must show the market in which they are present with precise figures and a picture of their attractiveness to investors.
Another term that exists and can be significant is the spell of knowledge. But what does the bit of knowledge mean?
It is possible that a person has a lot of knowledge and knowledge about a subject and does not talk about it because of this structure. But on the other hand, an investor is not expected to know all the business details. Therefore, it is necessary to provide the investor with detailed and obvious information to avoid cognitive bias.
Related Post: 9 Common cognitive biases that affect our decisions
Transparency in product details
Another part of presenting an investee to an investor should be details about the product and telling the investor precisely what the product is.
What is it going to do and explain in detail to the investor? So that the investor can imagine a clear picture of the product for the investor.
If you can show the investor a demo or an initial hint of the product, you can increase your chances in this area.
Know the investor, communication channels, and mastery of the subject
For many people, the question is, how do we send information to an investor? Most investors are interested in receiving the data from the investee in a specific process and the standard they have defined.
Another point is that startups do not show the necessary control over their presentation. When this happens, the investor feels threatened and discouraged from investing. Therefore, the teams must practice their presentation and be proficient in it.
They also need to have an initial structure from their investor, albeit a small one. Because investors generally seek to create a synergy. Therefore, if startups know the investor and his investment portfolio better, they can offer better proposals to attract investors’ capital.
What is your value proposition?
Another essential point that the investor pays a lot of attention to in the initial meetings and reviews is discussing the startup’s value proposition. Therefore, teams need to provide the investor with a detailed picture of their market value.
When presenting to an investor as a startup, we define a story.
First, a problem is stated, and the size of the market is considered, and then solutions are offered to solve the problem. Here the startup tells the investor what value it creates for customers and users in that market.
The startup owner should say what value it offers to the market and its mechanism to the users. What is the difference with other similar businesses present in the market?
Investors’ deadly questions and how to answer them?
Here is a deadly and vital question from the investor to the startup owner. The investor asks if one of the big companies in the market offers such a service that you are maneuvering on, then what will happen to your business? Will there still be a value proposition, and will the necessary value be transferred to the customer?
Most startups in this area can not answer this question. Owners of startups need to present their explanations to investors with precise data about everything in the market.
Another point is that the startups should also dominate the leading indicators and axes.
That shows the business and determines that the money will attract investors from where and how it will be spent and ultimately what will be the achievement for the team.
These are things that startups need to be clear about that. These metrics may be related to user engagement, user conversion rate, sales volume, and future development for many businesses. Startup owners’ mastery of these items shows that they know where they are going and what will happen.
Financial files and its outlook
Knowing these files leads to a more accurate relationship between the investor and the investable startup.
In many cases, the product’s pitch deck and the roadmap ahead of it indicate the entry into the global market, but the effect and roadmap of their plans are not seen in the financial files.
It happens that a financial file shows one world, and the investable presentation shows another world.
Do not forget that the financial file of a startup is a financial translation of the strategy of that business.
If necessary, you should try again and again to modify the financial file so that what the startup owner says is the same as his economic file. For example, when the startup owner says I need $1 million in the capital, his financial file should clearly show the need for that $1 million. If the economic file and the business roadmap are not the same, the investor will doubt whether he should doubt or not believe in one of these files.
The presentation of a startup should be based on assumptions, references, and resources that can predict the next two years. In this case, the probability of failure decreases and attracting its capital increases. Another critical point is what happens when startups show up at the investor committee and talk?
The meetings are still going on
Startups have to go through several steps to reach the fundraising stage when they submit their application for raising capital. They usually talk to expert teams and investment management in the first step. In the second step, financial plans are presented, and larger economic groups are involved in examining the startup process of a startup.
Assuming that all the parameters we have listed so far, such as financial plan, presentation file, market size, and value proposition, are well met, we reach the final step and attend the investment committee.
At this stage, the team must have a more accurate view of the market in which it is to be present, and after this stage, the investment team, based on what it has seen, based on the market in which the startup team is current.
Decides whether to invest or not. Investors also often try to clarify to the startup team why they have invested or not.
If it is decided to invest in that startup team, the team will enter another stage called the accuracy of information. People with experiences such as technical experience, financial experience, and various other experiences enter the realm of validating the information provided by the startup.
Maintaining the startup and investor relationship is the critical point in the next step.
Regardless of the investment outcome, the startup team must have a good relationship with the investor. So it is because the investor may introduce the group to another investor.
For example, if an investor does not currently have a plan to invest, they may decide to invest in it for another six months.
So if that team can keep in touch with the investing section, it can use the investor capital later.
How much is your product value?
We should not focus too much on how much we value regarding valuation and shareholder contracts. Especially in the early stages of the valuation business, it is just a number and an agreement to know how much of our stock to sell in exchange for the money we receive.
Of course, it is important how much of a startup’s shares are transferred, but more important is the synergy created between the investor and the investee.
Privileges and obligations that the investor receives from a startup, In the form of a contract, I have to put these two next to the concept of valuation and see which one is more logical and attractive.
It is possible to attract capital with a lower valuation but better contractual conditions and salaries. It is vital that we better address the investor’s concerns to see, for example, why there is a clause in the contract.
If we can understand these concerns, we can easily accept them, and if we think they are unfair, we can discuss them.
Contractual clauses, such as preferred stock, often come up with concerns, and by examining them, one can decide whether or not to accept them.
A good team breaks all the rules
Although in this article we talked about value proposition and things like that, in the end, the most important thing is a good team. A good team is a good investor, and a good investor is looking for a good team.
Indeed, we cannot define a good team, but in my opinion, a good team means people who have found the right problem, and this problem stems from their own experience of working in a fuse and industry. Experience shows that one of the most critical brokers who refuse to raise capital for teams goes back to the unit itself. Things like not having enough knowledge or not identifying the right problem. They do not have the correct value proposition or competitive advantage, their business model is flawed, or the investor has taken too much risk.
At the end of this text, you can watch these videos to know how to fix your startups’ pitch deck mistakes.
Also, you can read this pdf file about our topic below.
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