Raising Capital Investment; 7 common mistakes!
Through the years our team have worked with some great managers and entrepreneurs. Many of whom have had great experiences and successes raising capital investment, and some…not so much! I thought it might be a good idea to share the most common, and hopefully you won’t suffer the same.
Number 1: Underestimating the time you need to invest in fundraising.
Successfully completing a financing takes time. Lots of it. And unfortunately many don’t consider this when going through the process. In an ideal world somewhere between 500 and 750 work hours over a 6 month period should be committed to raising capital investment. Key components should include;
Making sure the business plan is perfect (we can help with that!)
Identifying and creating a comprehensive list of would-be investors.
Contacting the investors on the list and actioning any due diligence they require.
Number 2: Lacking presentation skills.
One thing to remember when raising capital investment; the key decision makers within an equity firm or investment house, especially if you’re a start up, receive and review a large number applications for their funding.
The key is to stand out from the crowd. All too often the unsuccessful applications are unsuccessful due to a breakdown in their presentation. Lack of real knowledge, direction and confidence are all reasons why a lot of entrepreneurs will fail to get what they need.
The moral of the story here is be fully prepared, exude confidence and deliver a punchy, fact-filled and inspiring pitch. You might consider investing in some professional coaching or self help resources.
Number 3: Non-Detailed Use of Funds Statements.
The major question you’re going to face is along the lines of “how much do you need and what do you need it for?” It is imperative you factor in all financial needs, such as salaries, supplier costs, overheads, postage stamps even! The more detail you can put, the more confidence a would-be investor will have in those raising capital investment.
Number 4: Not fully understanding cash flow.
Having a strong grasp on operational and marketing components of their business is of course to be expected of most executives and leaders. They can however be somewhat lacking in explaining how they actually make money! How they actually create cash. Investors need to be utterly convinced that the money they put in will sooner rather than later end up making more than they invested initially. What’s needed is a solid revenue and cash flow model. There are variables to be considered such as client acquisition costs, taxes, admin costs and so on. A credible investment offering will be directly linked to a solid understanding of these figures.
Number 5: Targeting the Wrong Investor Audience.
Raising capital investment relies in targeting the right bunch of investors. Far too often time and resources are wasted by identifying investors that just aren’t suitable. Once you’ve created your “wish list”, the first piece of research you should do is verify their experience in investing is companies or industries similar to yours. Failure to do so will surely result in failing to achieve your objective.
Number 6: Accepting Too Much Feedback.
Raising capital investment is a tricky process. It’s very much trial and error. Every rejection will be accompanied with feedback highlighting potential flaws in either the business plan or presentation. Let’s face it; feedback is great. But there is such a thing as too much. I can’t stress enough how important it is to ensure that all feedback is filtered, and more so evaluated in terms of relevance. Stick to your guns, take feedback that matches closely your level of belief and integrity. Disregard the rest.
Number 7: Going It Alone.
Fundraising is probably the most important and difficult challenges any business will face. But you don’t have to go it alone. It’s important that you forge relationships with the right support network of professionals. From having the business plan professionally researched and written, to having an experienced investment banker on board, to having the right legal team with the relevant experience in your corner. Don’t fool yourself in to thinking you can handle it all, all the time.