By Alan RamÃrez Flores, Entrepreneur
Venture capitalists agree: although business credit is down 12.8% this year and investments in emerging companies are down, they are always on the lookout for good business opportunities… although not all convince them.
What are the essential characteristics to obtain financing?
When you have more than 100 startup proposals a year, these five characteristics are crucial:
1. Be direct
Venture capitalists can often determine in a short time whether they want to dig deep with a startup or refuse to fund it. This evaluation occurs in the first 30 seconds. Thus, consistency is required. This means that you should be direct and avoid “hanging around” or showing a long introduction.
A 30-second introductory speech about the value proposition is recommended. At that time, investors must know the target market, the need for that market, and its solution.
Slow or "mysterious" disclosures don't work. Investors often dismiss those who make them find out what business they are in over time. Instead, whoever articulates the value proposition at the beginning of the presentation gets them to listen.
The quick pitch can be followed by a quick compelling story or statistic to pique the interest of a potential investor.
This advice sounds simple enough, but one of the most common mistakes entrepreneurs make when introducing their startup is to start by setting the perfect stage rather than diving into the story itself.
While providing a bit of context is fine, ironically beginning the presentation with this information implies that potential funders lack the framework to understand the proposal. Thus, the research gathered on the size and dynamics of the market is mentioned until the essential idea has been shared with them.
2. Concentrate the market
When introducing investors, many entrepreneurs focus on the vast size of the potential market for their product or Total Addressable Market (TAM) and how much of it they trust they can eventually capture. That may sound sensible, but targeting the TAM is too broad to be useful for young companies.
It is not just about communicating the size of the market and the players but showing investors the specific niche. Realities, not visions.
By identifying the market segment, you find a more immediate foothold for the business, gain some traction, and begin to prosper.
3. Support the team
Entrepreneurs often present their business with a few key people available to provide additional information on aspects of the business. But it pays to offer a quick and impressive overview of what each member offers the company.
Show off what is impressive about the team, because these endorsements build credibility for them even before they have spoken at the meeting. It also provides investors with specific and timely information on what roles these people play and which of them can be counted on to do a specific job. Finally, they manage to project a leader capable of leading the company and providing a healthy return to investors.
4. Automate the demo
Presentation meetings are great opportunities to impress. But they also involve potential technological failures that can cast doubt in the minds of funders.
Rather than trying to navigate an untested product in an uncertain environment, make a video of the product with a voice-over, show wireframes of the new concept, or develop a series of screenshots of the new concept. Either of these will show the customer's experience with the business while minimizing the risk of technology failure.
A usage scenario ahead of time is also recommended so they know exactly what you want to show them. A scenario involving a target customer should be sufficient to get a proper preview of the model.
5. Make sure of financing
Presentations are about securing funding. Success means that an investor decides to invest in exchange for capital in the company. This is not the time to be shy or too frugal.
So when you ask for money, you have to ask twice for what is needed because not everything you do will go smoothly and unforeseen costs happen all the time. By duplicating the application, unforeseen problems can be covered without turning to investors to request additional funds.
When communicating financial needs, the total questions should be divided into four groups: 1) people, 2) product refinements and improvements, 3) infrastructure, 4) sales and marketing. Allocating approximate amounts in these groups will help investors understand the needs of the business and configure its infrastructure.
Read more: 15 Key Questions Venture Capitalists Will Ask Before Investing in Your Startup
Explaining how you intend to use the capital and what the success metrics are along the way generates certainty.
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