As an Angel investor I have made many of bad investments in the past where I have allowed myself to fall in love with the product or service which has blinded me to the obvious problems. And some of these problems are easier to spot that others since they are fairly typical of most entrepreneurs. That;'s why I love attending deal screenings in Silicon Valley.
One of my favorite deal screening sessions happens at Kerietsu Form with Randy Williams as the CEO. During these sessions, entrepreneurs have about 10 minutes to present to investors. After the presentations there is a brief Q&A session where the investors can direct questions to the entrepreneurs in attendance. However the clever part happens when the entrepreneurs are asked to leave the room and a private discussion is encouraged among investors. Below are the Top 5 mistakes that leave a bad impression on the investors:
1) Barrier to Entry: It's unhealthy to assume that no one will be able to compete with your product or service. The entrepreneur needs to comfort the investors that they have taken all possible measures to prevent someone else from easily crushing their company. So, as the entrepreneur has to be prepared to answer questions about what they have done to protect the intellectual property of the company.
2) Single Minded: I don't remember any deal screenings where investors did not ask about the ability of the CEO to understand and accept criticism. Does the entrepreneur listing to understand the concerns of the investors or does he/she to just respond? Whoever is meeting with potential investors should not come across as if they have all the answers. The investors want to feel comfortable that the company leaders will not just listen to input but that they will indeed act on it.
3) Financial Projections: Keep financial and revenue projections well grounded and supported by reasonable assumptions. For example, if you have a $100,000 revenue in 2013, projecting a $1M revenue in 2014 would take a lot huge leap of faith that most investors lack since a 10X revenue increase does not happen without massive shifts in the market. Investors call this the hockey stick effect where the projections rise so drastically that they have no option but to assume that the entrepreneur has not done his homework.
4) Competitors: Claiming no competition is the most frightening thing for investors to hear during deal screening. Claiming a product or service is so rare that no other company is offering anything similar is rare. In fact, majority of the investment opportunities that Angels and VCs review are just a better version of a previously invented mouth trap. So, researching competition will go a long way to improve the success of any capital raise.
5) Poeple, Product, Process: The secret sauce of most successful companies are the combination of People, Product and Process. Granted that it's not fair to expect the entrepreneur to cover all these 3 topics in 7 minutes, but it would help if the entrepreneur communicated the importance of these 3 topics to the success of his venture. It helps to convey that you have a well developed plan to market and sell your product. It also helps to convey that you have surrounded yourself with the best industry talent.
Finally, as an entrepreneur be prepared to answer what plans are in place for the money. And remember that this is not a loan and these investors want to know when they will get their money back plus some serious interest.