Many entrepreneurs approach me for funding. I find the biggest misconception is that you must first raise funding before you can launch and grow your business. In reality, the ones who raise funding have a growth story and can communicate it effectively to investors.
Investors funding startups look for market validation and product validation – the product works and people will pay for it. There are some investors who fund deals based solely on the team, the space, or the technology, but these are rare examples.
Most look for what I call the “Growth Story”. They look for an operational revenue model in the business with increasing numbers on sales, team, product and fundraise.
In talking with startup entrepreneurs, I find they avoid discussing their current revenues because they think the investor wants to hear big numbers. I tell them that investors don’t expect startups to have big numbers. Instead, the investor looks for repeatable and predictable numbers.
If your company is pre-revenue, then you can show how the business model is successful based on the unit economics level. At the core, this shows that you can generate leads, qualify, and close them for revenue that exceeds the cost of acquiring and fulfilling the customer. Over time, you can improve these numbers.
Scott Adams once wrote “Losers have goals. Winners have systems.”
A startup pitch deck filled with forecasts alone is just a set of goals. A pitch deck showing how the business model currently works is a system.
It’s best to show up with a pitch deck showing how your system is working today.
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NOTE: Investor Connect is a program under the Texas Open Angel Network which is a 501(c3) non-profit dedicated to the education around startup funding. Hall Martin is the principal contact, and may be reached at http://www.investorconnect.org/contact.
Hall T. Martin is the Director of Investor Connect which is 501c3 non-profit dedicated to the education of investors for early stage funding. All opinions expressed by Hall and podcast guests are solely their own opinions and do not reflect the opinion of Investor Connect. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions.