Adapted from a piece that originally appeared on The Seraf Compass.
By CHRISTOPHER MIRABILE
I was speaking with Jim Connor of Sand Hill Angels in Silicon Valley and Catherine Mott of BlueTree Allied Angels in Pittsburgh and the subject of fundraising advice for first time entrepreneurs came up. I took the opportunity to jot down answers to 12 questions every fundraising entrepreneur should think through. Here’s an edited transcript of the discussion.
If you could give one piece of fundraising advice to a first-time entrepreneur, what would it be?
Mott: Be prepared; Do your research and also surround yourself with knowledgeable team members who can compensate for your weaknesses.
Connor: It depends on the entrepreneur’s weaknesses or blind spots. Most suffer from a lack of experience in launching a new product or a company – most managed some aspect of operations in a larger company, but might not understand the infrastructure support that made their jobs easier that what they are about to undertake.
Mirabile: I agree – building a great founding team is a critical first step; I tell students that the first real market test is whether you can attract co-founders.
How important is the slide deck?
Connor: In my opinion, a slide deck provides a logical discussion and the ability to practice that discussion in a logical manner, regardless of where you have to start.
Mott: Yes, it allows you to lay out the key points in an organized way and tell the story in a comprehensible flow.
Mirabile: It can also be efficient – a picture is worth a thousand words, but there are traps for the unwary; complex or unappealing decks can confuse, show cloudy thinking and even reveal poor communication skills.
Connor: When a deck is good, it is great; when it is poor, it is a disaster.
What is the single biggest mistake a first-time entrepreneur can make when raising money?
Mott: Expecting all angel investors to be “dumb money” and not recognizing the value that can come from finding great investors.
Connor: Assuming that investors will accept the valuation offered because social friends of the founders all said it is what the company should be worth.
Mirabile: Failing to network and use connections and context for first approach has to be up there, too?
Is it risky for an entrepreneur to just email in their plan or submit it cold via the web?
Connor: Cold submissions are almost always a complete waste of time. It’s analogous to trying to meet people though CraigsList. You have to do a little networking.
Mott: Exactly. You need to provide some context; everyone is busy and they are much more likely to spend some time with your plan if it is referred by someone at least remotely connected to them.
Should companies in “stealth” insist on NDAs?
Connor: Only if they do not wish to engage with investors.
Mott: Given the number of plans in a year, we cannot take on that responsibility. File a provisional patent before engaging with investors if need be.
So what are the worst slide deck mistakes?
Connor: There are so many possible deal killers, probably the first is being a complete clone of another funded and fully deployed company and not being aware of this fact.
Mott: One of the worst mistakes is to focus too much on the technology and not enough on the business opportunity.
How important are first impressions with investors and what are they based on?
Mott: Very important—you must keep investors engaged in order to have them hear you out.
Connor: It’s more a question of whether you can recover from a bad first impression; generally it’s very tough when there is negativity to overcome.
Mirabile: Right—when the person you are dealing with is in triage mode, sifting through similar deals, your first impression needs to be pretty strong and very positive.
Both: If you let your potential investors disengage, expect that it will be impossible to get them to re-engage.
How much personality should an entrepreneur show when raising money? What constitutes too much?
Connor: If passion is personality, then show what you have as long as it is authentic, credible and realistic.
Mott: Jim is right, keep it authentic and real; show your passion, but remain credible and don’t go over the top.
What is the best way to present financials?
Connor: Know thy financials, know thy assumptions, be able to discuss the assumptions, recognize and admit that they are a “best guess” with the information you have at hand.
Mott: Be ready to explain them.
Mirabile: It is more about showing how you think and why you think it, than it is about convincing investors that your forecast guestimates are spot-on.
Connor: Like a discussion or collaboration.
What is the best response you’ve ever heard from someone who didn’t know the answer to the question?
Connor: ‘Let me be sure I understand your question, you are asking if …’ ( redefine the question into something you can answer), then answer it.
Mott: After you rephrase the question, admit you are not sure and promise to get back with and answer by X date.
Mirabile: I am a fan of: ‘Great question. I don’t know, but here is how I think about this issue … here is what I think the answer will be … and here is why. But I agree we should dig into this further.’
What is the most common rookie mistake when pitching a company?
Connor: Not knowing the challenges of the market, not understanding the importance of building a strong team.
Mott: Exactly; not understanding the importance of building a “balanced” team.
Mirabile: Lacking the humility to realize you don’t yet know what you don’t know.
What is the difference between confidence and arrogance?
Connor: Confidence is “I am confident that if you give me your time, money and participation, we can, with your help, build a great company,” versus just give me your money and I will show you that we can dominate the world.
Mirabile: To me, arrogance is: I am going to kill this and it will be a piece of cake; confidence is: There are going to be bumps and challenges, but I know we will keep at it until we succeed.
Seraf Co-Founder Christopher Mirabile is the chairman of the Angel Capital Association and also co- managing director of Launchpad Venture Group. He has personally invested in more than 50 start-up companies and is a limited partner in four specialized angel funds. Mirabile is a frequent panelist and speaker on entrepreneurship and angel-related topics and serves as an adjunct lecturer on entrepreneurship in the MBA program at Babson.