Below is the first part of the final post in our series of articles dealing with the various aspects of being an entrepreneur. This series has been authored by Eric Zoetmulder, one of Endeavor’s VentureCorps Mentors.

Pitching for funding is the ultimate sales job. If you cannot sell or effectively and passionately communicate your ideas, you will find raising funds very hard. But, it is not rocket science and I hope that with the practical do’s and don’t’s in this article, you will achieve some success.

Pitching for funding is not so much about your business; as it is about you. If the investor trusts you and your acumen for business, he will trust you to have a good plan and execute it well. Whatever you say or show in your presentation to potential investors, make them understand that with you, they are getting somebody with integrity, passion, experience, realism, commitment, knowledge & skills, leadership, and coachability.

Once they’re sold on YOU, they’ll want to hear your idea – not the other way around.

Here are a few good rules of thumb to remember;

  • Keep your ego in check. Avoid giving the impression that you’re going to do it all by yourself, that you know it all. Be as frank and open about your weaknesses as you are about your strengths and relevant credentials. Loners are high risk investments.
  • Highlight the combined strengths of your team. Show how you have brought together a well rounded team and that you are still working to fill gaps with more good people.
  • Explain the business idea, but focus on how you are going to make it work. Talk about execution and your roll-out plan, show milestones and quantifiable goals.
  • Never mind the product technology, show customer benefits first; how you are solving a problem, a pain in the market. Explain the opportunity and why customers will pay for your product.
  • Whoever you approach for funding, never forget that their return has to come from your customers. In your business plan and presentations to investors, focus on real people, not on market size.
  • Display realism in your projections. Show how you are going to make money, keep your feet on the ground doing your numbers, but do not harp on your conservative approach.
  • Focus; avoid being all over the place. A business plan with multiple customer segments, each with different products is sure to scare investors away.

Before we go and pursue investors, let’s have a look and see how much and what kind of money you need to finance your venture and at what it will cost you.

You need capital, investment money, to buy equipment, pay salaries and generally keep the ship afloat till operations yield positive cash flows. Obviously, you will want to keep all expenses in that period to the minimum, starting with your own salary, if you pay yourself at all in this early stage. Use your business plan and financial projections to work out what “cash burn” you will go through till revenue tops product cost and overheads. Depending on the nature of your business and the “burn time”, you may want to go for a single funding round or pitch for a new round of funding each time you reach a significant development milestone. As each round will take at least 6 months and requires a significant amount of your time, you will want to give this a good think.

Money can come from many sources and at a significantly different cost. A quick overview:

  • Most new and young businesses are financed by the founding owners who may put all their personal wealth on the line. Careful here! Maxing credit cards comes with so much ancillary stress that you may no longer be fit to run the business.
  • Commercial bank loans for new business or expansion are usually available only to those who have the creditworthiness and existing cash flow to service repayments, so forget about those as new businesses typically do not qualify.
  • A strategy commonly used is bootstrapping, or keeping expenses to a minimum, and re-investing profits back into your business. There is a lot to say for bootstrapping; without new shareholders there is no equity dilution and you keep full control. However, lack of capital may keep you on the ground level forever. But, being able to show later investors that you achieved one or more milestones while bootstrapping is a super way to advertise your commitment.
  • The most common source of start-up finance is “love money”, whereby family and friends chip in to help you get off the ground. Very often this comes in the form of a “soft” loan (one that you pay back only if you can) and without equity commitments. In many countries, this form of finance is four times as big as the entire Venture Capital sector.
  • My preferred way of financing a business is with customer money. See if you can sell an early release of your product or talk b2b customers into making pre-payments.

To be continued