10 Mistakes When Raising Capital

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10 Mistakes To Avoid When Raising Capital

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10 Mistakes When Raising Capital

  1. 1. 10 Mistakes Entrepreneurs Often <br />Make When Raising Capital<br />Andy Cars, CEO<br />Seedcap AB<br />2010 © Seedcap AB www.seedcap.se<br />
  2. 2. 1. Trying to raise money too late <br />Raising money is time consuming! <br />Count with an absolute minimum of 3 months, <br /> with a more likely scenario being 5 - 7 months.<br />2-4 weeks 2-4 months 1-2 months Total: 3 - 7 months<br />2010 © Seedcap AB www.seedcap.se<br />
  3. 3. 2. Trying to raise money too early <br />There should be a logical relationship between the <br />perceived value of the company in need of cash <br />and the amount of cash to be raised. <br />Trying to raise significant sums simply <br />based on an idea usually fails.<br />2010 © Seedcap AB www.seedcap.se<br />
  4. 4. 3. Lacking a realistic assessment <br />of the companys' value<br />Some entrepreneurs seem unaware of what <br />drives value and ignore the importance of <br />building some form of substance before <br />approaching investors. <br />2010 © Seedcap AB www.seedcap.se<br />
  5. 5. 4. Not building enough substance <br />before approaching investors<br />• Team, advisory board and board of directors<br /> • Strategic partnerships<br /> • Customers and customer value<br /> • Prototype/proof of concept<br /> • Immaterial rights/protection<br /> • Scaleability and market potential<br />Before approaching investors ask yourself what <br />you can do right now to build substance.<br />2010 © Seedcap AB www.seedcap.se<br />
  6. 6. 5. Not splitting the message into <br />smaller chunks<br />Although having an impressive business plan <br />is often a requirement for obtaining financing, <br />the importance of creating a variety of pitch materials <br />that are tailored to the different stages of the <br />communication cycle, is often overlooked.<br />2010 © Seedcap AB www.seedcap.se<br />
  7. 7. 5. Not splitting the message into <br />smaller chunks<br />Split the message into smaller chunks to <br />make it easier for investors to digest it.<br /> • The 15 second "elevator pitch".<br /> • The "Executive summary" or "Flyer".<br /> • The 10 minute power point.<br />2010 © Seedcap AB www.seedcap.se<br />
  8. 8. 6. Preparing poor pitch material<br />Preparing poor pitch documents that raise more <br />questions than answers is all too common. <br />2010 © Seedcap AB www.seedcap.se<br />
  9. 9. 6. Preparing poor pitch material<br />Ignoring the importance of the team, <br />board of directors and advisory board <br />Most investors choose an a-class team with a <br />b-class business idea before a b-class team <br />with an a-class business idea.<br />2010 © Seedcap AB www.seedcap.se<br />
  10. 10. 6. Preparing poor pitch material<br />Ignoring your customers<br />Not talking to potential customers early on <br />is a very common mistake. A true entrepreneur<br />will always include the customer in the <br />development process. <br />The inventoris usually the person shutting <br />himself off from the world to develop the <br />most brilliant product on the planet that in <br />the end no one wants.<br />2010 © Seedcap AB www.seedcap.se<br />
  11. 11. 6. Preparing poor pitch material<br />Ignoring to clearly state how to reach the market <br />Simply stating word-of-mouth is not enough <br />or<br />Defining future market share as an <br />imaginary percent of the total market instead <br />of basing future potential market share on <br />product offering, budget and planned <br />marketing activities.<br />2010 © Seedcap AB www.seedcap.se<br />
  12. 12. 6. Preparing poor pitch material<br />Ignoring the competition <br />If there is no competition <br />there is usually no market. <br />2010 © Seedcap AB www.seedcap.se<br />
  13. 13. 6. Preparing poor pitch material<br />Ignoring hidden agendas<br />Although the product may be great and offer true value <br />to the consumer, there may be hidden agendas <br />preventing the product from catching on. <br />For example, any product or service that shifts <br />the power balance within an organization cannot <br />simply be pitched based on value to the end consumer.<br />2010 © Seedcap AB www.seedcap.se<br />
  14. 14. 6. Preparing poor pitch material<br />Ignoring your strategic partners <br />Gaining market acceptance and quickly building a <br />significant user base is usually not possible without <br />strategic partnerships. <br />How much time do you spend on building <br />your strategic partnerships within manufacturing, distribution, marketing and sales?<br />2010 © Seedcap AB www.seedcap.se<br />
  15. 15. 6. Preparing poor pitch material<br />Ignoring the importance of scaleability<br />What can you do to improve scaleability?<br />2010 © Seedcap AB www.seedcap.se<br />
  16. 16. 6. Preparing poor pitch material<br />Ignoring the international market<br />Your local market is usually not large enough. <br />From day one define your<br />potential international markets<br />and how to reach them.<br />2010 © Seedcap AB www.seedcap.se<br />
  17. 17. 6. Preparing poor pitch material<br />Ignoring future milestones<br />Be clear on what your milestones are and <br />what you need in order to achieve them. <br />Investors will hold you accountable with regards <br />to the milestones that you set. <br />Make sure to make them realistic. <br />2010 © Seedcap AB www.seedcap.se<br />
  18. 18. 6. Preparing poor pitch material<br />2010 © Seedcap AB<br />2010 © Seedcap AB www.seedcap.se<br />
  19. 19. 7. Pitching to the wrong investors<br />Establish contacts with financiers who have <br />deep enough pockets so that they can participate <br />in the next financing round. <br />Be clear on what type of investors you are looking <br />for and what you expect from them. <br />- Investment horizon<br />- Competence and network<br />- Cash and time that they can put in<br />2010 © Seedcap AB www.seedcap.se<br />
  20. 20. 8. Not pitching at all<br />Don't worry excessively about communicating the value offering to others thinking that they will "steal the idea". <br />It is not the idea that is the most important but the <br />successful execution of the idea that matters. <br />Welcome feedback on how to develop your business idea <br />and business modell to make it even better. <br />Be open to forming strategic partnerships.<br />2010 © Seedcap AB www.seedcap.se<br />
  21. 21. 9. Getting too greedy<br />Getting the right kind of investors onboard can mean the difference between making it and not making it at all. <br />Be prepared to give up around 20% during round 1. <br />Offering less than 10% is usually pointless. <br />Offering more than 50% during round 1 <br />probably means that you are looking for <br />too much money too early. <br />2010 © Seedcap AB www.seedcap.se<br />
  22. 22. 10. Not willing to share risk<br />Investors tend to favour those who <br />put their money where their mouth is. <br />Entrepreneurs who want "out" by <br />trying to raise money to pay off <br />personal loans normally end up <br />with nothing. <br />If the entrepreneur shows that they do not believe <br />in the venture why should the investor?<br />2010 © Seedcap AB www.seedcap.se<br />
  23. 23. Thank you for your attention !<br />Andy Cars, CEO<br />Seedcap AB<br />www.seedcap.se<br />2010 © Seedcap AB www.seedcap.se<br />

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