Common Mistakes in Startup Fundraising
Caya for Startups.co
A pitch deck is quite possibly the most important document a startup will ever produce. Businesses who get it right could generate millions of dollars worth of capital, generate new leads and expose their brand to a huge audience in one fell swoop. Businesses who get it wrong could jeopardize investment opportunities in the boardroom before they even get to the second slide. Here are some of the most common startup funding mistakes — and how new businesses can avoid them.
A pitch deck is quite possibly the most important document a startup will ever produce
PITCH DECKS DON’T HAVE A NARRATIVE
Babak Nivi, the founder of recruitment platform AngelList, said it best: “Investors invest in stories, not businesses.” Brands that create a narrative are more likely to raise capital. A startup that explains what they have accomplished so far, what obstacles they have overcome and what difficulties lie ahead — and convey all of this in their slides — can generate a killer pitch that won’t bore potential investors. Startups should storyboard their pitch deck and brainstorm ideas that will dazzle their audience. There should be a focus on the key players behind a new venture — the founder, staff, existing investors — and the business decisions that define the backstory of a brand.
STARTUPS DON’T HAVE A ROADMAP
Investors like to map the journey of a startup and visualize where a brand will be in five or ten years. Companies that outline a roadmap — the strategies they will employ to achieve their goals — have a better chance of raising funds from a presentation. It’s simple: investors need to know whether a startup has the potential to make them lots of money. Slides should incorporate facts and figures that demonstrate a startup’s long-term objectives while keeping investors engaged. Lists of statistics can be a turnoff; however, a colorful graph or chart can work wonders if used properly. Startups should add all non-essential data, like research sources, to the appendix section of their presentation or explain their future goals in more detail during a Q&A session.
STARTUPS AREN’T CREDIBLE ENOUGH
Investors want to see credentials in a pitch deck. Being modest won’t cut it: startups who downplay their accomplishments, or fail to mention them at all, could risk investment opportunities. If a business has already secured capital, they should mention this in their presentation. The same goes with the number of units that a product has sold or any buzz a brand has generated. A new business model can be a scary proposition for any investor; however, startups need to convince financiers that they’re worth the risk.
PITCH DECKS ARE TOO LONG
Startups need to get their message across — and fast. Investors have likely seen a plethora of presentations, sales pitches, and fundraising drives in the past. A pitch deck that’s clear and concise is far more effective when securing capital. Recently, Slidebean featured an Airbnb demonstration that consisted of only 14 pages. The pitch deck encapsulated their business model with succinct slides that created a big impression.
Business owners should compartmentalize a presentation into different segments to create a better flow. Decks should also be light on content, preferably wth less than ten words per page. According to Joshua Reeves, the CEO of Gusto (formerly ZenPayroll), a startup that raised $6.1 million from firms like Dropbox and Gmail, presentations should show charts, graphics, screenshots and single word bullets instead of blocks of boring, bland text.
THERE’S NO PRODUCT DEMO
Sometimes a video speaks louder than words. Startups that want to raise funds should incorporate a product demo in their pitch deck. A short video usually does the trick: financiers who watch it will ascertain how a product works and whether it will provide a good return on an investment. The power of video has been well documented. In a marketing context, 90 percent of consumers say they find video useful when making shopping and buying decisions after visiting a retailer’s website.
STARTUPS DON’T UNDERSTAND THEIR NICHE
New businesses need to understand their niche before creating a pitch deck, according to Jeff Paine, a founding partner at Southeast Asian venture capital firm Golden Gate Ventures. Startups should carry out competitive analysis — to establish what makes a product or service unique and how it how it attracts the desired target market — and research their industry. Niche-specific knowledge and insights should be reflected in a startup’s presentation slides. In short, startups that know their market are more likely to close a deal.
BUSINESSES ARE SKETCHY ON THE DETAILS
Startups that are vague about their business goals when trying to raise funds could lose investment. Business owners should have a detailed financial model for the next three years that outlines what they need capital for, how they plan on spending it, and how much they expect to generate in profit. Being sketchy is a no-no, especially when thousands — or hundreds of thousands — of dollars are at stake. Investors need to see a watertight long-term marketing plan that illustrates projected growth and ROI. Startups should be practical, too: forecasting potential risks and detailing how they will overcome any obstacles could help a business secure an investment.
PITCHES CONTAIN TOO MUCH JARGON
Business owners often shoehorn niche-specific terms into their pitch deck in the hope of impressing potential investors with their industry knowledge. Financiers have likely heard it all before and technical jargon won’t be a selling point. Startups should keep it simple instead with a greater focus on what they say rather than how they say it.
STARTUPS AREN’T HONEST ABOUT THEIR INTENTIONS
Startups should be honest about their intentions from the get-go. If a business owner plans to ask an investor for additional funds in the future but doesn’t mention this during their pitch, it could cause problems further down the line. Alternatively, over-hyping a product will only lead to disappointment if a financier invests in a brand as a result of a false promise. While an investor’s decision will be based on an assumption about how well a startup will perform going forward, he or she will need to know all the facts. When creating an investor deck, honesty is the best policy.
STARTUPS HAVEN’T PRACTICED THEIR PITCH
This one sounds like a given, but a wealth of startups fail to practice their pitch before they meet with investors, instantly reducing their chances of obtaining capital. Business owners should give a mock pitch to a core group of staff and ask for feedback. If a particular aspect of a presentation doesn’t work, there’s likely still time to fix it. Startups that haven’t practiced their pitch risk looking unprofessional or overly confident. Either way, it could spell disaster in the boardroom.
PITCH DECKS DON’T ENGAGE THE AUDIENCE
Pitch decks usually run the gamut from sales presentations to product demos. Sometimes, it can all get a little tedious. A startup that engages their audience can boost their chances of getting funds, especially if a dynamic team member is giving the presentation. Investors don’t expect to be entertained when they attend a pitch deck; however, making financiers chuckle during a speech can help break the ice and create a relaxed atmosphere where investors are more likely to close a deal. Pitchers should inject some personality into their presentation and use humor without compromising the main objective of the demonstration: to raise funds.
STARTUPS DON’T USE THOUGHT LEADERS AND INDUSTRY EXPERTS
Startups often lack the clout of their big-name competitors — something that could prevent them getting the funds they crave. Pitch decks that include quotes or testimonials from niche-specific thought leaders and industry experts are a great way to overcome this rookie problem, especially when used at the right moments in a presentation. Startups who reach out to influencers and local authority figures in the initial stages of pitch deck development can include insights from the industry’s most powerful figures in their slides that could convince an investor to part with their cash.
SLIDES AREN’T CONSISTENT
Slides that aren’t consistent in their formatting could give off the wrong impression. To increase their chances of raising funds, startups should create a uniform slide design across their pitch deck, with colors and graphics that stay faithful to their brand message. SaaS company Moz did this perfectly in a presentation they gave in 2011; they use the same font and layout throughout the pitch, and their logo is at the top of every slide.
SLIDES LIST FEATURES INSTEAD OF BENEFITS
Investors want to hear the benefits of a product or service instead of a long list of features or technical specs. Startups should focus on the value that their product provides to a customer and what sets them apart from their competitors. Financiers are more likely to invest when they discover a product has far-reaching benefits that provide lucrative returns. Business owners might also want to detail any pain points that could prevent them offering these benefits to their target customers.
Startups should focus on the value that their product provides to a customer and what sets them apart from their competitors.
INVESTOR DECKS AREN’T TRANSPARENT
Transparency is imperative when creating a deck. Investors want to see revenue projections and finance forecasts before they commit to a brand. Buffer — whose motto is “default to transparency” — are frank and honest about their fundraising initiatives and clearly describe their business model in a 2013 pitch deck. Slidebean recently redesigned Buffer’s investor desk to give it a streamlined, minimalist look that demands attention.
DECKS DON’T HAVE A CALL TO ACTION
The conclusion of a pitch deck is arguably the most important section of the entire presentation. Failing to include a call to action — an instruction that provokes a response from investors — could leave business owners walking out of the boardroom empty-handed. Even if a startup has already asked for finance at an earlier stage of their pitch, they should reiterate their request at the conclusion. This way, investors know exactly what’s being asked of them and they can respond accordingly. Just like in marketing, a call to action should be short and get straight to the point.
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