4 guaranteed investor turn-offs
Raising finance? Several of the UK’s leading private equity and angel investors share the things they hate to hear in a pitch with Growing Business
Pitching your business to a room full of investors can be unnerving for even the most established entrepreneur, but there are several ways in which you can make your business an appealing investment prospect.
Likewise, there are several ways in which your pitch and proposition can actually deter investors from backing your business idea.
To help you successfully raise finance – be it from a venture capital house, fund or angel network – we’ve compiled responses from some of the UK’s leading investors on their biggest ‘turn-offs’.
From “daydreams” to insufficient research, make sure you don’t make these mistakes in the boardroom…
Lack of transparency
Will Gibbs, part of the ventures team at Octopus Investments, won’t invest in business owners who aren’t honest and open from the start:
“We place a huge amount of importance on the relationships we have with our portfolio CEOs and management teams. We are open and honest with them about how we think about situations but holding information back can completely undermine this and can make it hard to move forward.”
“There’s a line between putting forward the best face of your business and presenting a different face entirely”
“The cardinal sin is lying about something to your potential investors. I don’t think that happens very often, but we do see minor versions of it quite a lot – things like hiding bad news, over-selective facts and figures, ‘deliberately misleading’ charts and misrepresenting what others have said or promised. There’s a line between putting forward the best face of your business and presenting a different face entirely.”
Poor communication skills
“Entrepreneurs need to be persuasive to raise money, to hire a great team and to make sales for their business. We particularly notice if they don’t listen well or aren’t good with people.”
In order to communicate your business effectively, Mercia Fund Management managing director Dr Mark Payton advises you to follow the rule of a 15 minute presentation and a three to five page executive summary:
“Mercia, as with other successful investors, receive an awful lot of approaches for investment. Being sharp and snappy improves air time and therefore face time.”
Inadequate market research and planning
To get investors on side, Mercia’s Payton advises prospective portfolio business to know their ‘addressable market’:
“Think carefully through your route to market, think about what the scalable business model is to return revenue growth and if you have got the team to execute the plan.”
“Know your addressable market”
A view also held by Gary Robins, director of Radius Equity:
“[Don’t] offer a half-baked proposition. Entrepreneurs need to fully think through and test their business plan before approaching an investor. Practice pitching your business plan to a sophisticated investor or a private equity professional before approaching your target investors.”
“If you can’t sell your business, it’s hard for any investor to believe you can sell a product”
When it comes to investing, Angel CoFund investment director Tim Mills says that, while he respects entrepreneurs with vision, he is “not interested in backing daydreams”:
“[I won’t invest if there’s] an inability to articulate how the business represents a strong commercial proposition or a plan that relies on weak or un-tested assumptions. If you can’t sell your business, it’s hard for any investor to believe you can sell a product.”
Jan Rutherford, partner at Scottish Equity Partners, is equally deterred by entrepreneurs with unrealistic goals:
“There are a few potential pitfalls […including] stepping over the line from entrepreneurial optimism to unrealistic projections and of course, being unrealistic about valuation.”
So, if you want to successfully raise external investment the golden rules to remember are to be honest, believe in your idea and sell it to investors, have substantial market research and a solid business plan, and, lastly, to set realistic goals that will in turn create value for your backers.
As Rutherford summarises: “An ideal investment is one that meets or exceeds plans, is really innovative in terms of what it delivers to the market and will eventually secure a great return for its shareholders.”