I mentioned in my last post that I will analyse the second pitch I had heard and I also made it clear that the pitch was unclear to me.
So here is how it started. I got an overview of what the product is and honestly, it sounded very interesting. He told me all about why the competition has failed and how they have pinpointed those problems and made sure that those points are addressed so that they can succeed.
We then talked about financials and fundraising and here is where it all went wrong.
>> A note for the entrepreneur startup that had the free online session with me This is my feedback which you can use to improve the next time you pitch.
I asked how much money they were looking to raise. He said around 1 to 2 million. My first reaction is, OK there is a lot of difference between 1 and 2 million. If you have made a financial plan you should know how much funds you will need in the next X month.
I know where the problem lies, we have an idea and we have a rough idea of what it is going to need to take off the ground but only a rough idea. We have done the math yet, there is no financial plan and in some cases, we do the financial plan but the plan is far from reality, it is obscured and totally out of proportion because we think that we have to present investors with fast and high returns. We think that growth is absolutely linear and exponential and that all marketing efforts will work effortlessly.
I know. I have done it. When I did the first plan. I took the first few sales and the way we sold and I extrapolated the same equation for the rest of the sales …. Unfortunately it did not work out that way. It was far from my expectation and it was the biggest punch I received. I couldn’t figure out why it was not working and so I applied the same strategy and extrapolation to different channels in the hope that those channels would work.
I digress but I just wanted to let you know that I have been there before. How would I do it and how would I fix the problem now is what I want to share with you in this post.
When you are fundraising and in particular in your early stages try to aim for shorter periods. Make an objective of reaching a particular achievable goal. Make the goal 10 or 20% higher so that you push yourself a little more or keep two sets. One that you present to the investor with lower numbers and one that you keep for yourself so that you push yourself harder. If you get better results the investors will only be happier and back you up for the next round.
In the world of startups, you will sometimes need numerous rounds. The important thing is not so much showing profitability, but rather growth and reaching objectives that add up to profitability in the future.
In the last startup that I and three other founders have been working on, we have been practicing what I preach. We have gone for extremely small rounds. We have set ourselves achievable objectives and we have reviewed our progress every month.
If you are fundraising make sure you have a clear understanding of your cash flow and ask for what you need with a small margin of error. It keeps you accountable and it helps you focus. Otherwise, you become prone to just burning money without control, needing another bigger and bigger round, and prone to being the monkey that hordes.
Presenting a short-term fundraising round with an understanding of what your next rounds will be is much better than a vague large funding round that can cover well the foreseen and the unforeseen plus what you had not planned, the latter is a guaranteed burning of any cash pile.