A start-up business is like a hot kitchen. There are knives and hot oil flying all over the place, and the only people who should ‘go there' are those who can stand the heat.
When you are pitching to entice an investor make sure that they've had experience in a hot kitchen and that they understand what you are cooking. If you're whipping up a Boeuf bourguignon and they are on a diet then it simply won't work.
I've found that the best people to invest in the ‘early early' stage of start-ups are entrepreneurs who have been successful, and want to help the next generation of start-ups. We have 53 entrepreneurs turned investors who have created a virtuous circle of investment in start-ups.
The first step in any pitch is seduction. You must create a picture of the market and the impact your business will have in it which is attractive and pulls the investor in. However, just as soon as potential investors seem hooked they often start to analyse reasons why the investment may fail, and here is where I see the most mistakes.
Most entrepreneurs are good at seduction because it's fun, but they fail to shift gears and give potential investors a real sense of their trouble-shooting and execution abilities in the outlining of their approach to taking their product or service to market.
The first step in any pitch is seduction. You must create a picture of the market and the impact your business will have in it which is attractive and pulls the investor in
They think they have won the investor over but then the investor often moves into analytical mode. They have the ability to move from empathy for the entrepreneur to business questions, such as ‘What are the risks?' ‘How will they be managed?' and ‘How big is the competition and market?'
The deal is always done at the beginning of any relationship, and it's true with your investors as well. Whatever power-play is going on will persist and you can never fundamentally renegotiate a deal. Entrepreneurs can course correct, but must make sure that the terms agreed on at the start is something they can live with.
There are three levels of power inside of a firm - the shareholders, the Board and the management. If I consider the thousands of entrepreneurs I've interacted with and those who have allowed Ariadne to play a role in their firm, the companies who do best have the strongest CEOs.
That is not to say that corporate governance doesn't matter, but a CEO who constantly has to justify himself in the boardroom often fails to convince the market that they should follow them.
Actually, what you want as an investor is an entrepreneur who is willing to live an abnormal life to succeed and has the ability to create the conditions of trust within their team and the mentality that they are all in it together.
Remember when you are raising capital that financing is not the only goal - you also require a positive architecture for the firm where nothing will impede future financing or growth.
Financing should be completed to hit a milestone, not to survive for a period of time. There are five stages of company development: concept, product, validation, scale and sustainability or exit. Articulate how the money gets you to the next level, and most importantly, what you have done with no money already to get there.
Finally, put on your optimism every morning like a piece of clothing, so that you radiate success. People who achieve understand the mystery of success: there is no mystery - just passion, determination, and perseverance when everyone else quits.
For more information about Julie please visit www.ariadnecapital.com [1]