Top 4 Pitfalls to avoid when seeking investment

Have you ever wondered what it takes to impress a top investor?
Have you ever tried raising capital in the past, but got no response?

We hosted Zachariah George at our first in-person event. He is Africa's leading Tech Angel Investor and the Co-founder & Chief Investment Officer at Startupbootcamp Africa, having invested in over 88 companies.

He says there are some MASSIVE PITFALLS founders make that prevent them from getting the response they are looking for from investors. Let's look at his advice about the 4 biggest mistakes founders make when seeking investment, and how to avoid them.

1. Not having skin in the game

The first thing investors look for is the extent to which you have exhausted all your other options before approaching them. Have you put your own money in? Taken a mortgage on your home? Obtained money from friends and family?

In short - if you are not willing to invest your own resources into your business, how can you expect someone else you don't even know to invest theirs?

Related to this, is founders who pay themselves outrageous salaries, or wanting to raise capital to cover their salary. As a founder - your reward is your equity. Work to increase the value of your equity to increase your reward.

2. Not knowing what you need money for

When you are raising money, what are you raising it for? What is the plan? What is the goal? Where will the capital you are raising take you?

As a rule of thumb, take note of these sources of capital for different uses:

If you want to raise funds to buy assets, get working capital, increase space, etc - get a loan. Debt is the cheapest form of capital.
If you want to raise funds for Research - approach the government or other organisations that fund R&D.
If you want to raise funds to build technology, hire a team, spend on marketing or customer acquisition - raise equity.

VCs and Angels want to pay for one thing - and one thing only: GROWTH

3. Not knowing who you are talking to

Not all investors are the same. Get information about them first. Most VCs have a portfolio on their website of who they have invested in. Take the time to look into them. Be sure of the following:

What geographic areas they invest in
What industries they invest in
What stages they invest in
What can you do in preparation for your meeting to show them you are thorough, can add value to their current portfolio, and are a good fit for them?

Also take the time to speak to other companies who have received investment from the firm you are approaching. Make sure it is a good fit for you too.

4. Overstating

Overstating what you have achieved and who you are communicating with is another major pitfall. The VC industry is pretty small. They have contact with each other and it is easy to check any claims you make about other investors and offers you have received.

Be open and honest about where things are really at. You are building a relationship of trust. Be transparent about the number of clients you have and the income you generate.

You also need to know your market and industry before you pitch, and who your competition is. You need to show you are an expert in the industry you operate in.

Key Takeaway

It is important to know that an investor often makes their decision about investing within the first 10 minutes of speaking to you. It is up to you to show them that you are a good fit and what you can offer within this time frame.

Zach explains these pitfalls in the following video: