Over the years I have personally seen several 1000's of business plans, balance sheets, projections and investment proposals. They all look very different, operate in different industries, countries and have people involved with wide experience and backgrounds. However, from a 30,000 ft perspective ALL of them have a useful of EXACT commonalities. And these are frequently huge deal breakers and kill the opportunity for both the entrepreneurs as well as investors.
To be honest, I find myself repeating the same words trying to identify, explain and suggest possible resolutions to each entrepreneur individually. Agreed, every company and situation is unique and requires a custom tailored approach. But every company can close the gap themselves with a little help.
The bottom line: professional investors do not have the time or desire to assess your shortcomings, help fix them and then invest. The entrepreneur has one chance to present its Opportunity and one chance only. If the presented plan is too far off the mark, investors will reply with standard escapes such as “Too early for us, come back in a few months” or “Let us know when you've closed that deal you're referring to” , OR you may simply hear “No thanks”.
In any event, the 2 common deal breakers that we see all the time are:
The company is convinced of its own future success. The sky is the limit. Based on well-mean projections and assumptions the corporate value is HYPERINFLATED.
There are several methods to guestimate (not a hard science) a start up company's valuation. None are perfect, but if done correctly there is always a range of valuations that will at least benchmark your share value. Almost all companies (I kid you not) pluck some kind of number out of the air based on liabilities that are biased and unrealistic. Not only will you lose many potential investors at a very early stage in the process (sometimes even before you get the chance to present), but it will also reflect badly on your experience and savvy as a CEO.
The corporate structure is not built to create and defend shareholder value. Typically the structure is something that has “happened” with little or no planning and forethought and has several issues from the past. Every prospective serious investor will focus on your share cap table and controlling positions. Honestly, most entrepreneurs propose some kind of investment participation while they are solely focused on THEIR position, not the implications for the investor. Granted, it is perhaps an easy subject on the surface but in fact it is complicated to address these corporate structure and Corporate Governance items.
So, if you're part of an exciting company and you struggle to attract the required investment capital to finance the next big phase of super growth – ask yourself – have you really addressed these 2 major elements?
Sometimes it is hard to assess these things when you're inside the fish bowl looking out. Get a professional outside perspective on your situation. Investors, be it existing or prospective, love that extra attention to these matters. Your share cap table and structure is essentially where the “marbles” are. Think about it.