Mistakes In The Preparations
Once you have decided to seek venture capital to fund your Next Step, you have to determine what it takes to get a full proposal in front of a VC or, rather, a consortium of VCs.
It will take some time to prepare the “snapshot” that shows where you are and where you want to go. Teams with a strong background in planning and execution understand the need to keep material current, be it financials, market outlook, competitive field, etc. Their preparation time is most driven by compiling. Teams that are less experienced and are more “flying by the seams of their pants” approach will require more time to not only compile but, more importantly, think about critical parts of the value proposition, the way their business model is going to work when they grow, etc.
Underestimating these preparations is a fundamental mistake we frequently encounter. This mistake is further amplified by assigning a single person “to fill the holes, so we can move on” approach. “Filling the holes” often concerns key aspects of the startup including strategy, operational financials, etc., something that should be covered by the whole team, not by a single person.
THINKING YOU DO THIS ALL TO PLEASE THE VCS
Often teams tend to think that VCs have them jump through hoops when asking for a competitive analysis, an eco-system description or even a specific platform model with financial analysis. Truth is, virtually all materials needed for a venture round are materials that should be part of the regular business process of a company (including a startup). If you don’t have them, it is likely you have neglected one or more business essential components to a level that they have not been part of the regular team discussions and/or business considerations and as such might have created unknown vulnerabilities in the company’s business execution.
DEVELOPING THE INVESTOR STORY ON THE GO
The urgency to get started overrides the common sense of complete preparation. Teams make up the quick pitch and get out there to “get started”. In the same spirit of “we don’t have time to do it right, we do have time to do it again” this is a major mistake often made when teams suddenly realize they are running out of cash faster than expected/planned. Rather than considering a proper preparation, they think they can go through the fundraiser step-by-step while generating the material as needed. This approach will result in inconsistent material, hastily put together, while still lacking a prompt response track record that VCs so much like and respect.
TAKING TEMPLATES AS TRUTHS
Nothing easier than searching the web and downloading templates – templates for pitches, templates for stories, templates for financials, etc.. The mistake with the addiction to templates is that you tend to lose sight of the fact that your company, your startup has its own personality, its own fingerprint. Always look at a template as an “advisory”, not as something cast concrete.
WRITING A 60-PAGE BUSINESS PLAN
Write a business plan that reads like a novel, like a story because it is your story. You will find that VCs will read it. Ensure that you use no more than a page and a half to two pages per section, use sensible metrics, graphs, and tables and keep all non-story related parts limited to the appendices. Start each section with a short summary paragraph.
OVERLOOKING THE OBVIOUS: TEAM
If you think your team is incomplete, the VCs are certainly going to think that. VCs will foremost invest in the Team – your team is number 1, 2 and 3 on the checklist of any VC. Don’t try to hide it but acknowledge the hole in your team and engage with interested VCs to see if their network might have a suitable candidate. Scrutinize your team and ensure that this is the team you want to take to the bank – don’t delay necessary changes because you want to start your round efforts.
BOARD
Most startups ignore the Board of Directors question until after the round is complete at which time most of the related decisions have already been made. Think about your BoD ahead of your round and think of who a suitable Chair person would be. Not only will this demonstrate to the VCs that you’re thinking ahead, a good Chairperson will also be useful in the fundraising process.
HIDING THE SKELETONS
If you have trouble spots in your story, never hide them, as they will always rise to surface at the most inconvenient time. Put them on the table as part of your preparations and address them rather than hiding them. If you can’t solve them ahead of your round, be open and honest about them when engaging with a VC, it is better to see them reject you at the start of the process than dropping out at the end with a lot of wasted time and anger on the side of the VCs.
IGNORING NEW INFORMATION
While preparing, you suddenly encounter new information that radically changes the outlook of the company. As you need your funding, you think it is better to ignore it for the time being and complete the preparations and start your funding process. As with other “problems” you might want to hide, these things will come up at the most inconvenient times and will force you to restart or rework your proposition when you have no time left.