I frequently advise startups and have been a mentor and expert in many startup contests and battles. I collected several main problems due to which startups do not gain sufficient support from the jury and, accordingly, do not find investors.
After all, these categories are very connected: jury members are often investors. And investors who look at startups for the purpose of investing, in fact, are their real jury. But they vote with their wallets.
Problem number 1. Financial miscalculations
The first and main problem of a startup is not in the correctness of the pitch, but in financial miscalculations. More precisely, in their absence. All assurances that if you manage to convey your idea beautifully in three minutes, you will receive investments, are broken against the harsh reality. The pitch is certainly important, but nowadays everyone looks at the essence. And the essence very often shows that a startup is financially “raw” or simply poorly calculated.
Here are examples of budget pages for specific startups that did not inspire much confidence either among the jury members or potential investors.
And these are the startup tables, which after the presentation was developed.
It may seem to you that the tables are too complicated and not everything can be seen on them during the pitch. Partly it is. But the final figures can always be announced, and concrete positions can be discussed later.
It is important that such a slide with the project budget is as thought out as possible and based on deep miscalculations. This is not just a picture, but the result of multi-page budgets.
Plus, when discussing the budget, the speaker should not “float”, but answer any question right away:
- What salary fund per month – to whom, how much and why a startup is willing to pay.
- What is Marketing Cost. This usually includes everything that cannot be explained. But do you really think that no one knows about it?
- A clear understanding of when the startup will reach the break-even point and other financial indicators.
Remember: no matter how beautiful your speech and presentation is, the people who listen to you are not looking at the pictures. They are well aware of the budget and cash flow. If you understand this superficially, you will not count on luck.
What to read to do everything right: instructions for compiling three standard financial statements: balance sheet, PNL ( profit and loss statement. – Approx. ed. ) and Cashflow ( cash flow statement. – Approx. ed. )
Problem number 2. The founder does not understand the value of the product
The second main problem is when there is no understanding of the key value of the solution that the product or service carries in the head of the team or the founder, neither in the presentations nor, what is worse, in the head of the team or the founder.
“Often the founder likes the idea of a startup so much, he is so in love with it that he forgets or is simply not able to convey why this is all to people, what is the main problem the startup solves.
Any product has key values for which it is bought. These values can be categorized in order of importance: the level of basic characteristics, the expected, supplemented and potential level of the product. If a product or service has them all, it is the undisputed market leader.
Ideally, there should be one key value, for example, “Our kettle boils water twice as fast as all analogues” or “Our appliance saves 100 kW of electricity per month” and so on.
What to read: The 5 Levels of Product Development by Philip Kotler, the 30 Consumer Values Pyramid, the 40 B2B Values Pyramid.
Problem number 3. Wishful thinking
Almost 90% of startups do this. Their founders read books about successful success, about the fact that you need to believe in yourself and proclaim it. Often they confuse the context – with ardor and fervor they prove that their product is the best and this has never been and never will be.
Perhaps it won’t. And in my practice, there were cases when the founder of a startup, thanks to charisma and faith in his product, received the audience award. But for some reason, investments were given to a startup with a boring, but financially literate and realistic miscalculation.
“Believing in the project is important. But it is important for an investor to believe in it himself. And here everything depends on a hard miscalculation and lack of illusions. Yours first.
What to read: Articles and blogs by specialists and well- known investors on how they evaluate ideas and teams and what they want to receive. Just read the investors of the markets you plan to enter.
For example, the American market is very different from the British one. And even more so from Ukrainian. American investors make a decision in a week, and the British – in three to four months from the first response to the request. Also, British investors are very focused on your personal connections. They look through whom you came through, they appreciate the support of state funds. And the American ones are more about MVP (minimum viable product) and the potential of the team.
But reputation is always important to everyone. And also a written partnership agreement. After all, it shows real relationships within the team, which means it helps the future investor make a decision.
It is important to consider these three issues. After all, they interfere with creating that very first impression, which, as you know, determines all relationships. Both personal and financial.