Sealing the Startup Deal as the Owner
Before negotiating with an investor, a startup owner should be aware of the most common mistakes startups make and how to fix them. Here is what a startup owner should have for a successful deal:
- Solution to a pressing problem your startup aims to resolve;
- Uniquely smart startup;
- Competition awareness;
- Thoughtful Go-to-Market strategy;
- Reliable revenue projections.
Investors will be in triage mode from the very beginning of the conversation. You have to start your presentation with an important problem your project will resolve. Time is money, so it should be immediately clear whether your startup has something to offer or not. This is somewhat similar to a doctor evaluating patients when they come into ER. If there is no pulse and the body is already cold, the medical staff will declare the patient dead and direct their attention elsewhere.
What does this have to do with venture capital funds and startups? The problem you are offering to resolve is your project’s pulse.
More than 50% of all startups fail because they do not aim for large and urgent problems that most customers would care about. If you cannot convince an investor that you are doing something big and important for a lot of people, your startup — and their “patient,” — probably does not have a pulse.
Investors hear a lot of proposals and see new startups like yours every day. If you start the conversation with a promise to solve a noteworthy problem, this will help steer the conversation in the right direction.
Figure out what makes your startup uniquely smart and, hopefully, not too single-minded, then prove this to the potential investor. You may be working in an area that many people ignore because it is boring, but boredom and unpopularity can be useful.
You are smart because you have come up with a new algorithm, device, or a formula that is unique and hopefully protected by some form of intellectual property.
Think ahead and come up with specific points that you can talk about to demonstrate this.
The third thing you should possess is a ton of information about the competitive landscape as well as your own competitive advantages over others, plus which of those things really matter to your customers. Do the analysis yourself or go to specialized agencies, but make sure that you grasp the big market picture.
So many startups stumble when it comes to detailing the competition and why customers should choose their solution over others.
Ready a focused, scalable, and thoughtful Go-to-Market strategy. Unfortunately, many newcomers do not even know what that means. Most confuse the term with a sales strategy. For example, direct, online, B2C. or B2B. But this is a different concept entirely.
Investors want to understand the key characteristics of the first target audience or market you are going for, why those characteristics are important to your strategy, and which markets you are going to prioritize. At the end of the day, they want to understand how do you aim to gain traction quickly and efficiently.
Most investors will not believe your earnings and growth projections. That is because they will likely doubt your revenue-related calculations. According to some statistics, more than half of startup founders present extremely inaccurate revenue projections.
How do investors figure this out? They start by asking questions that peel back a layer of your assumptions to see what lies behind often times wishful thinking. They ask detailed questions about your sales processes, conversion rates, the time it takes to close sales, and more.
So think carefully about every step of your sales process and the critical assumptions you make along the way. Be sure to work with someone who will openly challenge your assumptions and have you defend them in detail, then redo your sales forecast “from the bottom up.”