10 mistakes when raising capital

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10 Mistakes Entrepreneurs Often Make When Raising Capital Andy Cars, CEO Seedcap AB 2010 © Seedcap AB www.seedcap.se

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10 Mistakes To Avoid When Raising Capital

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  • 1.10 Mistakes Entrepreneurs Often
    Make When Raising Capital
    Andy Cars, CEO
    Seedcap AB
    2010 Seedcap ABwww.seedcap.se

2. 1. Trying to raise moneytoo late
Raising money is time consuming!
Count with an absolute minimum of 3 months,
with a more likely scenario being 5 - 7 months.
2-4 weeks2-4 months1-2 monthsTotal: 3 - 7 months
2010 Seedcap ABwww.seedcap.se
3. 2. Trying to raise moneytoo early
There should be a logical relationship between the
perceived value of the company in need of cash
and the amount of cash to be raised.
Trying to raise significant sums simply
based on an idea usually fails.
2010 Seedcap ABwww.seedcap.se
4. 3. Lacking a realistic assessment
of the companys' value
Some entrepreneurs seem unaware of what
drives value and ignore the importance of
building some form of substance before
approaching investors.
2010 Seedcap ABwww.seedcap.se
5. 4. Not building enough substance
before approaching investors
Team, advisory board and board of directors
Strategic partnerships
Customers and customer value
Prototype/proof of concept
Immaterial rights/protection
Scaleability and market potential
Before approaching investors ask yourself what
you can do right now to build substance.
2010 Seedcap ABwww.seedcap.se
6. 5. Not splitting the message into
smaller chunks
Although having an impressive business plan
is often a requirement for obtaining financing,
the importance of creating a variety of pitch materials
that are tailored to the different stages of the
communication cycle, is often overlooked.
2010 Seedcap ABwww.seedcap.se
7. 5. Not splitting the message into
smaller chunks
Split the message into smaller chunks to
make it easier for investors to digest it.
The 15 second "elevator pitch".
The "Executive summary" or "Flyer".
The 10 minute power point.
2010 Seedcap ABwww.seedcap.se
8. 6. Preparing poor pitch material
Preparing poor pitch documents that raise more
questions than answers is all too common.
2010 Seedcap ABwww.seedcap.se
9. 6. Preparing poor pitch material
Ignoring the importance of the team,
board of directors and advisory board
Most investors choose an a-class team with a
b-class business idea before a b-class team
with an a-class business idea.
2010 Seedcap ABwww.seedcap.se
10. 6. Preparing poor pitch material
Ignoring your customers
Not talking to potential customers early on
is a very common mistake. A true entrepreneur
will always include the customer in the
development process.
The inventoris usually the person shutting
himself off from the world to develop the
most brilliant product on the planet that in
the end no one wants.
2010 Seedcap ABwww.seedcap.se
11. 6. Preparing poor pitch material
Ignoring to clearly state how to reach the market
Simply stating word-of-mouth is not enough
or
Defining future market share as an
imaginary percent of the total market instead
of basing future potential market share on
product offering, budget and planned
marketing activities.
2010 Seedcap ABwww.seedcap.se
12. 6. Preparing poor pitch material
Ignoring the competition
If there is no competition
there is usually no market.
2010 Seedcap ABwww.seedcap.se
13. 6. Preparing poor pitch material
Ignoring hidden agendas
Although the product may be great and offer true value
to the consumer, there may be hidden agendas
preventing the product from catching on.
For example, any product or service that shifts
the power balance within an organization cannot
simply be pitched based on value to the end consumer.
2010 Seedcap ABwww.seedcap.se
14. 6. Preparing poor pitch material
Ignoring your strategic partners
Gaining market acceptance and quickly building a
significant user base is usually not possible without
strategic partnerships.
How much time do you spend on building
your strategic partnerships within manufacturing, distribution, marketing and sales?
2010 Seedcap ABwww.seedcap.se
15. 6. Preparing poor pitch material
Ignoring the importance of scaleability
What can you do to improve scaleability?
2010 Seedcap ABwww.seedcap.se
16. 6. Preparing poor pitch material
Ignoring the international market
Your local market is usually not large enough.
From day one define your
potential international markets
and how to reach them.
2010 Seedcap ABwww.seedcap.se
17. 6. Preparing poor pitch material
Ignoring future milestones
Be clear on what your milestones are and
what you need in order to achieve them.
Investors will hold you accountable with regards
to the milestones that you set.
Make sure to make them realistic.
2010 Seedcap ABwww.seedcap.se
18. 6. Preparing poor pitch material
2010 Seedcap AB
2010 Seedcap ABwww.seedcap.se
19. 7. Pitching to the wrong investors
Establish contacts with financiers who have
deep enough pockets so that they can participate
in the next financing round.
Be clear on what type of investors you are looking
for and what you expect from them.
- Investment horizon
- Competence and network
- Cash and time that they can put in
2010 Seedcap ABwww.seedcap.se
20. 8. Not pitching at all
Don't worry excessively about communicating the value offering to others thinking that they will "steal the idea".
It is not the idea that is the most important but the
successful execution of the idea that matters.
Welcome feedback on how to develop your business idea
and business modell to make it even better.
Be open to forming strategic partnerships.
2010 Seedcap ABwww.seedcap.se
21. 9. Getting too greedy
Getting the right kind of investors onboard can mean the difference between making it and not making it at all.
Be prepared to give up around 20% during round 1.
Offering less than 10% is usually pointless.
Offering more than 50% during round 1
probably means that you are looking for
too much money too early.
2010 Seedcap ABwww.seedcap.se
22. 10. Not willing to share risk
Investors tend to favour those who
put their money where their mouth is.
Entrepreneurs who want "out" by
trying to raise money to pay off
personal loans normally end up
with nothing.
If the entrepreneur shows that they do not believe
in the venture why should the investor?
2010 Seedcap ABwww.seedcap.se
23. Thank you for your attention !
Andy Cars, CEO
Seedcap AB
www.seedcap.se
2010 Seedcap ABwww.seedcap.se