Entrepreneurial

Top 5 funding mistakes by entrepreneurs

By Guest Contributor
December 8, 2010

– Adam Hoeksema is the founder and CEO of startup consultancy firm ExecutivePlan. This article appeared on Under30CEO. The views expressed are his own. –

For most entrepreneurs these days, funding is nearly impossible to come by.

According to the report titled, “Important Things for Entrepreneurs to Know about Angel Investors” and distributed by the Angel Capital Education Foundation, only 1 to 4 percent of applicants successfully raise angel investment capital. So before you ruin your chance at securing investors, make sure you have not committed any of the following deadly mistakes.

1. Wait until you need it. So many entrepreneurs make the mistake of waiting until they need the capital “tomorrow” to begin the process of seeking funding. Make no mistake about it, the process of raising capital can take months and months. Even a simple loan will require enough paperwork to kill a small tree. Ironically bankers and investors are more likely to provide you with additional capital when you don’t need it. So don’t wait until you have an immediate need to begin the funding process.

2. Submit a full business plan. Another great way to get your funding application thrown in the trash is to submit an unsolicited, full business plan. An investor or banker is not going to waste two hours to read through an entire business plan with your initial funding request. Submit a short executive summary, then if you are asked to submit a full business plan – great. Just don’t start with your business plan.

3. Claim “conservative” projections. It can be a major turn off to some investors and bankers when you call your financial projections “conservative.” Of course you think your projections are conservative, but the fact of the matter is that many, if not most, businesses fail within a few years of launch. If every entrepreneur’s projections were truly conservative, then why are so many small businesses unsuccessful at reaching their projections? Don’t let yourself sound ignorant. Simply state your projections and let the bankers or investors make their own judgment.

4. No next step. Maybe you get a chance to submit an executive summary to a potential investor or even recite an elevator pitch to an interested banker. This is a golden opportunity that can be worthless if you fail to outline a clear next step. For instance, in your executive summary you should request a meeting or a phone call as a clear next step. If you simply end your elevator pitch without a clear next step, your audience will quickly forget your funding needs.

5. No follow up. Don’t just assume that a potential investor will follow up with you if they are interested. They may want to gauge your commitment by waiting for you to follow up. Give the investor a couple of days to review your executive summary, but make sure to follow up before you fall of their radar screen.

Keep these potential deal breakers in the forefront of your mind as you begin the funding process for your small business.

Comments
2 comments so far | RSS Comments RSS

Also, make sure that you secure the right amount of funding. Your business plan will be off and will have a higher burn rate than you thought. Make sure you get more funding than you think you need. Expect the best, but plan for the worst.

Posted by ChrisBellacose | Report as abusive
 

As a serial entrepreneur who raised money from both corporate venture group and Private equity firms i would like to comment on your point #2
1) You don’t always need even a executive summary, i never made one, however what i focused was on face to face meeting by figuring out where those investors hang out and ensuring i was there to hear what are Critical Success factors to invest. With corporate venture group all you need is to show them how you can do what you say you will in less time than their internal teams and couple that with an execution strategy. I personally showed to Chevron Technology Ventures, give me milestone based Series A money (investment) in 3 tranches to develop my initial prototype and if i fail they can walk away. This lowered their risk tremendously

Posted by mvnteam | Report as abusive
 

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