7 reasons our first investment failed and how you can learn from it

Sofia Kermas
Aug 23, 2017 · 5 min read

Several months ago we pitched in front of a small but very selected audience of investors. There were some superficial follow ups afterwards, but there was one business angel we had a great connection to and stayed in touch with.

We were very early stage and mostly busy with finding customers than investors. We had some follow up meetings and it seemed that we were millimeters away from closing the deal. So it did come as some sort of surprise when we got a rejection.

(I mean sure, you do get rejections after sending your first pitch deck without follow ups or presentations, but in this case we were much farther along the investment closing process).

Before going crazy over possible reasons we just plainly reached out and asked for a brutally honest feedback. Here are the reasons they told us and it became clear how we can improve.

1) Details and basics: we failed to deliver something! (ouch!)

This one really hurts (in a cringy kind of way). There’s one thing we deliberately neglected. They asked us for profiles on the first meeting which got procrastinated because we didn’t really have them ready and as a designer I didn’t want to send something so imperfect. Well here’s the news: this perfection did (partly) cost us our first invest.

Lesson: If you don’t have some documents, make them, if they don’t look good make them just plain. Something is better than nothing. One is infinite times more than zero… I’m not a pro at math but you get the idea. Don’t let it slip. They notice. And they remember.

2) We failed to communicate and agree upon spoken information

We were too unfamiliar with talking numbers and evaluation. Or rather clueless. Of course as a startup we believe our baby will have the biggest impact, but if the revenue isn’t big enough yet, it’s going to be hard to convince an investor to place a bet on a millions of dollars evaluated company. We talked about numbers during our last meeting, but we didn’t write anything down as we sat together. And afterwards we sent a proposal which almost doubled the evaluation we initially talked about.

So once an investor is talking numbers, namely evaluation and percentages: be sure to make sure: did he just say it as an example? Or as an actual number you just agreed upon? Protocol your meetings instantly.

3) Our documents were not as clear as we thought.

We zipped all our files and numbers, pitch deck and proposal document together and hoped that someone who’s never seen our excel sheets will just get it in about 5 minutes of their time. Well, there we should have thought again …

Even if you make sure to name every sheet in the right order, it doesn’t mean that the person on the other side will instantly find the important numbers. How can you avoid this? Attach some kind of summary or content table on how to find all important documents so the investor won’t miss anything important and have everything at a glance.

4) Sending mixed signals

aka your self confidence might not be as attractive as you think. What we mostly heard so far is that startups who don’t come off as needy and desperate while raising money do get the most attractive offers. We stated in our proposal that our company already made money and could contain itself (!). Which didn’t mean that we can pay ourselves enough to work full time on our project. Which was basically a contradiction.

So: Be honest enough to admit that you really DO need money (I mean, why else would you seek an investment?) and at the same time make it clear what you need the money for (how will you spend it?).

5) Declaring our own milestones

During our meeting we heard about the way investors worked with milestones. Great! We’ll figure out our own milestones or so we thought. We took the initiative upon ourselves to write out the exact milestones and numbers we needed to reach to reach the additional investment goals.

It might depend on who you’re dealing with but in our case it obviously would’ve been better to work on those milestones together in a follow up meeting.

6) Failing to present a scalable strategy

This is one or even THE most important point. So far we gained most of our early adopters and customers through tradeshows and personal contact. Which so far isn’t a sustainable business model with our very cheap pricing strategy. We could not present a working formula which shows how we can scale our business, namely in form of a marketing or sales strategy as this is something we yet have to experiment on.

If you don’t have a bullet proof plan how you can grow from 20 to 100 customers and from 100 to 1.000, from 1.000 to 10.000 and so on, it might just be too early for you to look for a seed investment where both sides will be happy about the evaluation as it was for us.

7) We weren’t a 100% fit.

The first and the obvious reason was in the initial short rejection mail. “We didn’t meet their investment criteria.” This alone might not be the deal breaker. But in our case it was relatively clear that beside the great personal connection we had, the investor had their own vision and strategy which wasn’t to the point aligned with our company’s vision.

This might not be as important with investors only looking for the right numbers. But if you connect with a business angel who has strong values about the type of businesses he invests in, check very clearly if you really fit into their criteria. And of course If the person is a good fit for your company.

An opportunity for growth

We won’t dwell on the past and instead learn from it. So our cheat sheet for a better approach for investment opportunities from now on goes like this:

  1. Make sure you deliver everything necessary. (pitch deck, profiles, shareholders, finance)
  2. Protocol your meetings and check twice what you agreed upon
  3. Organize your documents in a way that is easy to understand for a stranger,
  4. Don’t be too arrogant / braggy if your numbers are speaking a different truth
  5. Try to involve them into more into your milestone process
  6. Have your business model figured out for good especially in how you will grow (this is the most vital point for your evaluation as well).
  7. Know your values

If you get rejected try to ask for details and reason and try to learn for the next time. At least that’s what we’ve decided upon. If you had a personal connection, keep in touch. Surrounding yourself with people who’re way far ahead of you will help you grow in the long term. Before we get into any more negotiations, we’ll focus on point 6 which has the biggest impact on evaluation. After this great feedback we’re prepared to grow.

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