Over the years I’ve sat in on hundreds of business pitch decks. Most were very good with smart, likeable people with great and novel ideas. Yet, many struggled to get past the first phase of venture participation. In hindsight, their fundraise problems stemmed from three major issues.
First: Too Small a Market
Great products/services need to have widespread adoption. If your target market is too niche, even if you are very successful, the customer base is too small for the company to scale. Venture investors require returns in the 5x-10X range in a short period of time – normally 18-36 months. So, even if the plan executes perfectly there is not enough momentum for great returns given the limited size of the market.
Second: The Team is Weak
Another issue which stymies venture investment is a weak management team or a team that falls short on required skills. I have seen many companies that were strong technically with great product development and know-how but fail on having any financial or marketing skills.
Companies looking to fundraise need to be ready to address how they are going to promote and how they are going to account for their activities.
Third: The Plan Doesn’t Make Sense
This is the most problematic issue I have witnessed in the fundraising effort of startups.
Your plan must make financial and marketing sense. Pro-forma financial statements going out 3 to 5 years need to be realistic in terms of revenue generation, expense run-rates levels, and staffing requirements.
Similarly, the marketing and promotion scheme must be well devised and make sense. The product/market fit should be thoroughly delineated. Branding starts on the first day the business opens, and all marketing initiatives must center around the Brand.
To summarize, these are the three issues that are the biggest fundraise killers. Make sure these three elements are thoroughly addressed in your pitch deck. You’ll find that venture investors much more receptive to your overall funding request.
By: Jim Lavorato, President, 4M Performance