Clarity is the key to effective fundraising for your venture
I’ve been involved in seed and series A funding rounds, both as an investor and as an executive search consultant. Here are my tips for raising the money your company needs:
Be clear about what you’re doing and why
· The first question I ask entrepreneurs is, “What problem do you solve?” A surprising number can’t answer this question concisely. In some cases they’re presenting ‘a solution in search of a problem’. Customers spend money on solutions to problems, so if you can’t define what the problem is, they won’t hand over their money. Neither will a rational investor. (There are plenty of irrational ones, but I wouldn’t rely on them if you want to build a very large business.)
· The second question is, “For whom do you solve this problem?” I meet entrepreneurs who insist that their product or service is for everyone. The difficulty with this approach is that they end up trying to solve a very wide range of problems — and not very well. There will always be specialists and niche operators who do a better job. Apple’s products are now used by a very wide range of people. However, the Apple Macintosh was originally developed for designers. It solved problems for them.
· The third question is, “What’s your moat (around your castle)? What are your barriers to entry?” To put it another way, what’s to stop an equally clever person from creating a product which does something similar to yours — and then charging less? If there’s no moat, then at some point there will be a price war which slashes your profits and hands most or all of the value you’re creating to the customers, with little or nothing left over for shareholders.
· The fourth question is, “Why are you doing what you’re doing?” Simon Sinek explains why this is so important in his video, How Great Leaders Inspire Action. In this case, the action you want to inspire is investing in your company.
· The four questions above will help you to prepare a much better pitch deck. Once you’ve written it, I recommend you test it on a financially literate person who knows very little about technology. Among my favourites are people who’ve studied history or law. First of all, they tend to have very high standards in terms of grammar and syntax. (Ask them to be super-critical and edit a print-out of your deck with a pen.) Secondly, they know how to marshal an argument which leads inexorably to one conclusion. In this case, “You should invest in my/our company”.
· Most decks I’ve seen contain information which isn’t directly relevant to establishing credibility and explaining why the reader should invest in the company. It’s best to cut that information out. The clearer and simpler the message, the better.
· Follow George Orwell’s advice in Politics and the English Language:
- Never use a metaphor, simile or other figure of speech which you are used to seeing in print.
- Never use a long word where a short one will do.
- If it is possible to cut a word out, always cut it out.
- Never use the passive where you can use the active.
- Never use a foreign phrase, a scientific word, or a jargon word if you can think of an everyday English equivalent.
· Always explain a TLA (three-letter acronym) the first time you use it.
· Include photos and bios of your top team. Be ready for the investors who spot the gaps in your line-up and ask how you’re going to fill them.
· When we prepare thoroughly for a meeting, we can end up with a head full of facts and figures. There’s a real danger of speaking at the investor without being present, communicating the value which your business is creating — or listening.
· What we need to do is be present, listen and let go. Then we allow the best possible outcome to emerge — for everyone. This six-minute video, by SPH Sri Nithyanananda Paramashivam, explains how to do this, using a technique called unclutching.
Ask for Feedback
· At the end of the meeting, ask these two questions: (1) “What makes you more interested than you were before this meeting?” (2) “What makes you less interested?” Then you’ll know where you are with each investor. You can follow up accordingly.
John Purkiss (Banahasta) is a partner with August Leadership and a co-founder of Enlighten Ventures. He is the author of The Power of Letting Go, published by Octopus Books / Hachette. www.johnpurkiss.com