Sure, your product is great. But how's it different from your competitor's?
Don't lose sight of the bigger picture, says Shivjeet Kullar.
Photograph: Thomas Peter/Reuters
Investor sentiment is bullish, and funding for new ventures flows more freely than ever before.
At the same time, the array of start-ups grows relentlessly, keeping competition constant, if not intensifying it.
There are many great ideas, and all of them are vying for a share of the jackpot.
Now, put yourself in the shoes of the average VC (venture capitalist), boggled and overwhelmed with the sheer diversity of ideas before him.
How do you stand out from the sea of rivals? What are you doing differently?
You have a great product. But is that enough?
You have a great idea. But have you charted a future course for it?
Don't leave crucial threads untied.
Avoid these common faux pas to ensure you secure the investment you need:
1. Giving up too much equity early on
Don't start off on the wrong foot. By giving up too much equity early in the game, you're relinquishing control of your business, and diminishing the chances of raising additional money later.
If you're a minority shareholder in your own company, it's no longer your own company as taking and executing key business decisions becomes near impossible.
Think twice before giving away 50 percent of your baby to the guy with deep pockets.
2. Focussing on everything but financial planning
It is important to focus on various facets of your venture for multi-pronged growth, but never to the exclusion of other factors.
Don't lose sight of the bigger picture -- the whole is greater than the sum of its parts.
One such crucial part, financial planning, cannot take a backseat unless you want your business to run dry.
3. Not telling a compelling story
Math is important, but don't underestimate the power of emotion in convincing your investors you're the right candidate.
They're only human, and they know fiery passion when they see it.
So skip the boring slideshow and tell a story.
Tell them where you come from. Tell them where you're going.
Tell them about your dreams, and what inspires you. Let your eyes glimmer and your words cast a spell.
4. Not knowing the use of funds
You need to know where exactly your money is being pumped as the lack of a financial break up will get you neither here nor there.
This entails creating a blueprint of what percentage of funds goes where.
5. Not creating a differentiated product
Sure, your product is great. But how's it different from your competitor's?
Does it add value to the market, or are you reinventing the wheel?
Remember -- the latter isn't necessarily bad, as long as you have a concrete philosophy backing it.
6. An inadequate detailing of the business model
A common problem that leads to overlooking many critical aspects of the cost is an incomplete or carelessly crafted business model.
A sound plan has a bearing on your finances in that it helps chalk out expenditure accurately, allowing you to realistically assess the funds your business needs.
7. Having a weak rationale to back the amount of money needed
Most founders 'guesstimate' the amount of money needed, rather than methodically doing the calculations.
This can be the worst possible mistake for your business -- sort of akin to knowing you need antibiotics for your cold, yet not discerning the difference between a three-day course and a three-week one.
8. Asking for too little, or asking for too much
Know what your business is worth, and ask for what is due.
It's easier said than done, of course, for a truthful appraisal of your business requires a grounded and rational approach.
Don't be afraid to seek external help for a tempered perspective.
9. Undervaluing or overvaluing the business
Again, if you forgo methodical rationality, and don't seek advice from peers and advisors, you are likely to value your business inaccurately, which will prove to be a roadblock in getting funding.
Nothing kills credibility as quickly as lacking an understanding of your own idea.
10. Lacking a plan for future business growth
A business isn't a business without a plan.
Where is your business going? What do you see yourself doing six months from now? Where do you see the company five years from now?
These are important questions to ponder upon.
Even if you don't have answers, ask questions -- they will give you direction.
11. Relying on a single valuation metric
When valuing your business, use multiple approaches.
The discounted cash flow method is commonly used, but often not enough for an accurate appraisal.
Employ a combination of strategies -- comparable company analysis, comparable transaction analysis, the net asset value method, etc -- to arrive at a valuation range.
If you're doing it correctly, the ranges shouldn't be too far apart.
12. Lacking an understanding of pre-money and post-money
Pre-money valuation refers to the value of your company minus external funding or the last round of funding.
Post-money valuation includes external financing or the latest capital investment.
Know the difference. It is impossible to value your business without these basic tools.
Even this list isn't exactly exhaustive.
The simple fact is that each pitch is unique, and must be tailored to the specific circumstances you face.
However, these twelve basic pointers are a good place to start. Keep them in mind, and do your best to get the funding your dream deserves. Good luck!
The author Shivjeet Kullar is council leader of SuperStartUps Asia and the CEO of research start-up NFX Digital.
