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3 Common Financial Mistakes Founders Make During Investor Meetings

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If you’re an entrepreneur who has recently decided to take on the startup life full time, one of the biggest challenges that you’re likely to face is securing the funding you need to survive in such a competitive landscape. For every innovative idea making billion dollar headlines, many more are quietly fizzling out because they couldn’t find the funds needed to stay afloat, or didn’t know how to properly distribute the funds that they did receive. Demonstrating the ability navigate the financial realities and hardships of startup life during an investor meeting is often the determining factor between securing the funding you’re after or not. Consider three of the most common financial mistakes a founder will make during an investor meeting and how you can prepare to do better.

Don’t overvalue your venture
Keep in mind investors have heard from and invested in multiple startups by the time they hear from you. They know exactly what the landscape is like and what is likely to result in a return for them down the line – their ultimate goal. Presenting an overblown valuation of a venture’s worth is the quickest way to turn them off right from the get go. Instead, you should present defensible financial predictions that demonstrate how you plan to invest the money you are asking for and scaling your idea over time. Not doing so runs the risk of making you appear inexperienced or downright unreasonable, possibly attracting incompatible investors or creating difficulty securing additional money, if you can’t justify your worth when seeking funding a second time.

Don’t rely solely on a good idea
It’s easy to get excited by a great idea and forget the rest of your pitch when meeting with an investor, including the financial plan to make that good idea a reality. Truthfully, there are a lot of great ideas that never manifest into something sustainable, while less impressive ideas steadily work their way into reality. No one expects you to be an overnight success, but an investor will expect you to have a clear go-to-market strategy. Do your homework and understand where your idea fits into the current marketplace. If you can’t demonstrate a sustainable competitive advantage including pricing models, customer acquisition, scalability and more, an investor is less likely to put their faith and their money into the future of your company.

Don’t neglect history
The benefits of the startup playing field being so vast is that there is a genuine opportunity to learn from companies that have been successful before you – something many founders neglect to take advantage of. If you take a look back into some of today’s companies making headlines, you will see that they didn’t start with millions of dollars in funding. They sought what they needed, distributed it wisely and as a result, strategically grew them into the influential companies they are today. Facebook, for example, began with just $500,000 in angel investment. That’s a relatively modest investment when you consider they had an IPO in 2012 with a valuation of $104 billion. Tumblr began with a bit more – $750,000 in its Series A Round – and went on to be acquired by Yahoo! for $1.1 billion. The best advice is to seek only what you need. This will reassure a potential investor that the money will be going where it is most needed and positively impact the overall trajectory of the company.

If you can successfully navigate the financial hurdles in the early days of running a startup, you will put you and your team in the best position for the future. So go out there and be sure to  avoid the many traps that have befallen those who came before you by implementing rigorous and defensible financial standards – and secure that funding!

Image credit: CC by Jeff P

About the author: Paul Jackson

Paul Jackson is the Founder of Worthworm.

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