Board Member at Vikua
Fundraising can be intimidating. No matter how confident we are in the idea or product we’re fundraising for, the feeling of being under scrutiny by others is hard to endure, not to mention the pressure we feel because so much is riding on the eventual injection of capital. As in every project we undertake, one of the underlying key factors for success is proactive and clear communication.
When one of the two sides—or both—is not speaking the same language, the probability of success goes way down. Based on this reality, there are three tactics that, in my experience, put everyone involved on the same page:
The Numbers: Focus on how instead of how much.
Everyone wants to get to the numbers. Even after the sexiest and most compelling product pitch, it shouldn’t come as a surprise that a potential investor wants to do a deep dive into the financial aspects of the business, especially the revenue model.
An instinct many founders act on at first is assuming investors only want to see great revenue numbers, starting as soon as possible. While seeing good numbers is always welcome, a seasoned investor knows that most forecasts live—unavoidably—in a grey area between fact and fiction. They will encourage the entrepreneur to commit to a certain financial objective but will be far more interested in how it will be accomplished. In other words, they’re more interested in your plan to generate $1,000 tomorrow than in your plan to reach $1,000,000 in a year.
The Pitch: Remember that less isn’t always more.
So much entrepreneurship material centers around this activity and rightfully so. It’s that key moment where we have an investor’s undivided attention, and we have to focus on being convincing, yet succinct. If we take too long or add too many details, the investor might lose interest and not even notice the hook.
Where it can get tricky is after the pitch—especially when it was successful. At the beginning, potential investors appreciate and encourage concrete and powerful information. However, after we awaken their interest, the pendulum swings and they want to hear more detail about every aspect of the business (founding team, revenue model, investment plan, etc.). It’s at this point that entrepreneurs need to avoid just pitching over and over again. Investors are not looking for a reminder of what generated the original interest; they’re looking for a wide range of details that will allow them to come to a decision.
The Catch: Proactively communicate and address weaknesses.
What’s the risk or downside of the idea you’re pitching? We have to eliminate from our thinking that having a downside is a death sentence to the business or to fundraising. It’s absolutely natural—it could even be considered suspicious if it didn’t exist.
It’s human nature to hide weaknesses, especially when we’re trying to convince others to believe in us. The paradox is that, in doing so, it’s very possible we’ll lose trust instead of gaining it. Being open about the risks of our ideas shows humility, integrity and pragmatism. While it’s true that one of the possible outcomes is that the investors will prefer not to join the project—which can happen anyway for a whole range of reasons—there are also practical benefits to this course of action, the main one being that potential investors will suggest strategies to address these risks.
Above all, it’s important to not only openly discuss risks but also provide possible measures to mitigate them. This will send a message to investors that you are grounded and proactive, which are invaluable traits in a founder.