By JP Kalmeijer & Rich Koontz
The LESSON – Know Your Audience
Most entrepreneurs or CEO‟s believe that since they have built the best “mouse trap”, the
institutional investors will beat a path to their door and become involved in a bidding process to
invest in their company. In fact, the opposite is true.
The entrepreneur and CEO‟s must work diligently to “sell” the idea of investing in their company to
the institutional investor (the “Buyer”) who is looking for reasons to say ‘No’.
Here are the 3 most common mistakes that entrepreneurs make when seeking capital:
Failure to provide a supportable business model that generates positive cash
flow. The key word here is “supportable”, which means things like market and or
industry data from third party independent resources. Just because you believe
something is true, does not make it so. The truth will come out when the investor
performs his due diligence.
Underestimating the size of the investment. Most entrepreneurs believe that the
lower the investment, the more likely they are to receive it. This comes from well
meaning friend, family and early stage investors who have not done the due diligence
that therefore do not totally understand need of the company or the marketplace. If
interested in the investment, institutional investors will provide funding to ensure that the
company is successful and do not like to be forced to put in additional funds because
something negative that should have been known happens.
Approaching investors with their expectations in mind. Entrepreneurs like to
impress people by telling how much they know about the product and the market which
results in two major flaws.
o They send out a detailed executive summary (six or seven pages) that tells the
reader everything about the company (and plenty of reasons to say „No‟ to the
investment). The executive summary should be one to one and one half pages.
Think of it as a flyer to garner initial interest.
o They prepare and present a one hour PowerPoint presentation (60+ slides) that
details everything about the company (and gives many reasons to say no). In a
face to face (or conference call) meeting, the investor will allow one hour for the
presentation which must include time for a Q&A session. Therefore the
presentation should be given in 35 to 40 minutes allowing 20 minutes for Q&A.
This presentation must cover items such as the market, company niche, etc.
o Hide weak points in the company or business model. Instead of trying to hide
these points, address them head on and give alternatives that have the result of
mitigating, minimizing or turning the issue into a positive.
In today‟s market, investors are much more conservative – there is very little if any “stupid money”
out there that will invest in anything that “sounds good”. That does not mean there is no money
available, but it is invested in solid, well thought out deals.
If you are not familiar with raising large sums of money in this market, bring in an expert to help you
– it will be well worth your investment.