As most everyone over the age of five knows, people don’t always tell the truth. Untruths come in many flavors, ranging from nonspecific or slightly misleading information to pathological lies.
When raising money for your business, you have control over the truths you tell, and therefore the ability to earn trust from investors by demonstrating integrity. But there is at least one truth that’s difficult for entrepreneurs and investors to candidly discuss, even though it’s a vital factor in the decision-making process of most investors.
Investors won’t write a check to your company if they don’t like you or find you credible.
Some may tell you to your face (particularly if you live in New England), but most will either simply stop communicating with you, or will offer a less offensive reason for not investing. In either case, it can be difficult to know what really went wrong.
The best way to address this problem is through preparation, presentation materials that invite discussion, honesty, and humility. Here are several tips for each of these issues that can help increase your likeability, credibility, and capital raising success. They’re not meant to be comprehensive, but rather to point you in the right direction.
Preparation Highlights
- Be thoroughly familiar with the way you have developed the financial projections for your business. Build your revenue model not on capturing some percentage of the market, but rather on specific activities that should result in the revenues you project.
- Be conservative in your assumptions – it’s better to underpromise and overdeliver. Find external data to show that your assumptions are reasonable. Don’t lead with this data, but keep it handy to show if asked. Identify a significant and painful problem your business will solve, be prepared to give a few “real world” examples of how your solution is or will be better than other alternatives available to customers. You’ll always have competition, and you need to be able to convincingly explain why customers will choose your solution over those offered by competitors.
- Be highly conversant in the “secret sauce” aspects of your business – those things that give you a significant competitive advantage. While you won’t give the recipe to investors, they will have to get enough of a taste to validate your claims of competitive strength.
Presentation Materials
- Your presentation materials will perform several critical functions, which include demonstrating professionalism, communicating specific information, and providing a framework for dialog.
- Your materials should be professional in appearance and content. Typographical and grammatical errors, sloppy formatting, and faulty data must be eliminated. Investors are not the federal government, so they usually don’t want to be buried under a mountain of research and projections from entrepreneurs.
- You need to say the right things in the right way in the right amount at the right time to efficiently and effectively move investors through the decision-making process.
- Lastly, your documents should lead investors to ask you questions about those subjects they are most interested in. If you are properly prepared, this is one of the most effective ways to demonstrate both your likeability and your credibility.
Honesty
- The tendency for entrepreneurs is to maximize business strengths and opportunities while minimizing weaknesses or problems. This is both naïve and dangerous when raising capital. Investors will usually see through the smoke and mirrors, hurting your chances to get funded. If investors let you slide on these issues and make an investment, you will likely be unable to achieve your projections, opening a whole different can of worms that can put the future of your company in jeopardy.
- A balanced discussion of strengths and weaknesses is a far better approach. Show that you understand the risks, know where the company is weak, and have appropriate strategies for addressing these issues.
- If you cannot answer a question asked by an investor, don’t bluff. They’ll know. It’s better to recognize the validity of the question, promise to get back with an answer, and follow through on your commitment.
Humility
- Investors like smart people, not smart alecks. So don’t act like you know it all. Be confident, but be receptive to input. This does not mean that you have to implement all input, but you should at least express thanks for and appropriately consider it.
- While there are certainly some arrogant business owners, the majority of those I’ve encountered are approachable and open to the ideas and concerns of others. In my capital raising experience, arrogance on the part of entrepreneurs is a deal breaker.
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