Working with investors can be a rewarding and challenging experience for any entrepreneur or startup founder. However, it also comes with some potential pitfalls and mistakes that can jeopardize your relationship, your reputation, and your business. Here are some common ones to avoid and how to handle them.
Before you approach any investor, you should do your homework on their background, interests, portfolio, and expectations. You should also have a clear and compelling pitch deck, business plan, and financial projections that showcase your value proposition, market opportunity, traction, and scalability. Failing to do your homework can make you look unprepared, unprofessional, and unworthy of their attention and money.
One thing I see a lot of people pitching their deals is they sugar coat it without thinking that the investor will do their own due diligence and see right thru it.
Because an angel investor worked for British Gas, it doesn't mean their hobby is Energy. Try to create passionate, driven pitches that appeal to a wide range of personality types, this will reduce your need to "target" specifically. VC investment is different however, they have a set criteria called a thesis you need to match,
One of the most difficult aspects of working with investors is determining how much money you need and how much equity you are willing to give up. Asking for too much can scare off investors who think you are unrealistic, greedy, or overvaluing your business. Asking for too little can signal that you are not confident, ambitious, or strategic enough. You should do your market research, validate your assumptions, and use realistic metrics and benchmarks to calculate your funding needs and valuation.
No one will ever penalise you for asking for too little money, where as asking too much will end the conversation in its tracks. Be realistic, its better to come across as resourceful than wasteful.
Communication is key to building trust and rapport with investors. You should communicate regularly, honestly, and transparently with your potential and existing investors. You should update them on your progress, challenges, milestones, and feedback. You should also listen to their advice, feedback, and concerns, and respond respectfully and constructively. Avoiding communication, hiding problems, or ignoring input can damage your relationship and credibility with investors.
Trust is important and this should be part of your purpose on this platform. Can you create content that builds trust and enables conversations to happen smoothly?
Investors are not just looking for a great idea or a promising product. They are also looking for a return on their investment. That means you should have a clear exit strategy that outlines how and when you plan to generate revenue, profits, and cash flow, and how and when you plan to exit the market, either through an acquisition, an IPO, or a buyout. Not having a clear exit strategy can make investors doubt your long-term vision, viability, and sustainability.
Exit strategy and using this as a slide in an investor deck has become a "mistake". Investors want you committed for the long-term and eyeing up a sale in the next few years gives little confidence to this. Be mindful of sharing this information in an investor deck.
Working with investors is not just a financial transaction. It is also a strategic partnership that requires alignment of goals, expectations, and values. You should look for investors who share your vision, mission, and culture, and who can offer more than just money, such as mentorship, network, and resources. You should also be clear about what you expect from them, such as involvement, support, and feedback, and what they expect from you, such as performance, reporting, and governance. Not aligning your goals and expectations can lead to conflicts, misunderstandings, and disappointments.
Finally, working with investors means respecting the terms and conditions of your agreement, such as the equity stake, the valuation, the milestones, the dilution, the board seats, the veto rights, and the exit clauses. You should read and understand the fine print of your contract, and consult with a lawyer if necessary. You should also honor your commitments, deliver on your promises, and comply with your obligations. Not respecting the terms and conditions can result in legal disputes, financial penalties, or loss of control over your business.
Must clear that investor expectation always not exist in the market! Real estate agent can do is, drag the investor expectation close to the market and search market deals close to investors! Emotionally work with investors,understanding there is gap and not too emotion for not able to get things done as expected result! Understanding investors looking for deals only is small portion of deals exist! Try your best to help these investors! And learn from them!