Mistakes C-level executives make raising capital

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<p>STERN
The 13 most costly mistakes 
C-level executives make raising capital
Save yourself time, money, and heartache by avoiding 
these all-too-common pitfalls and set yourself up for 
success before you even start
Your business plan should be the crux of your 
presentation; the foundation, if you will. This 
will demonstrate to investors exactly who you 
are, what you bring to the table, how youâ€™re 
different and the overall health of your 
company â€“ all of which they will use when 
considering whether to take a chance on 
you. Skimping on this piece of the puzzle will indicate to your 
proposed investors that you either donâ€™t know what youâ€™re 
doing or you simply didnâ€™t care enough to make an effort, 
neither of which will make a good impression.
Invest the time and resources into developing a solid, 
comprehensive business plan complete with all the 
necessary elements, including company description,  
ï€nancial projections, unique value proposition and a 
competitive analysis. That being said, donâ€™t overload your 
prospects either. Your plan should contain all the pertinent 
information in a succinct format to quickly and accurately 
tell target investors your story.
If you want potential investors to buy 
your pitch, youâ€™ve got to do much more 
than just ask them for money. Youâ€™ve got 
to clearly deï€ne and demonstrate 
exactly what that money is going to be 
used for. Without speciï€c milestones, 
your  investors  wonâ€™t  be able to 
recognize the value in your proposition. Instead of 
simply stating how much you want, focus on exactly 
what you will deliver with that amount.
Likewise, if your projected milestones or timelines are 
so unrealistic that itâ€™s highly unlikely youâ€™ll achieve 
them, investors arenâ€™t going to be willing to take that 
chance. Venture capitalist Richard Harroch states, â€œIf 
you show me projections where you are at $500 million 
in three years, I will just think you are unrealistic, 
especially if you are at zero in revenues today.â€ End of 
conversation. 
Unclear or Unrealistic 
Milestones
13
Incomplete or Inadequate 
Business Plan
12
Over or 
Undervaluation
11
Properly valuing your business needs and 
opportunities is essential if youâ€™re going to 
land enough capital to achieve your short 
and longterm goals. The problem is, many 
business owners make the mistake of either 
overest imating their  future revenue 
forecasts,  underest imating var iable 
expenses or both. The result is a valuation that is 
inaccurate and unlikely to come to fruition. 
Quality investors â€“ especially those that are experienced 
in your particular ï€eld â€“ can spot a miscalculation a mile 
away and they wonâ€™t be likely to take a chance as a 
result.
Whether youâ€™re trying to raise money for an early-stage 
startup or an established enterprise, you may beneï€t by 
asking a seasoned professional whoâ€™s been through the 
process to help you reach an accurate valuation. Or, 
better yet, allow competing lead investors to help set your 
price.
Your pitch should clearly indicate that while your milestones 
may seem challenging, you can â€“ and will â€“ be able to 
achieve them based on your particular value proposition, 
whether itâ€™s skill, technology, experience or the like.
To complicate matters even more, making the actual 
pitch to investors is  something that doesnâ€™t 
necessarily come naturally to many, regardless of role 
or career status. In these instances, it can be helpful to 
know what not to do in order to hone and perfect your 
strategy.
Backed by years of industry experience and an over 
$250 million track-record of success, this in-depth 
white paper identiï€es the 13 most costly mistakes even 
C-level executives make when raising capital. Save 
yourself time, money, and heartache by avoiding 
these all-too-common pitfalls and set yourself up for 
success before you even start.
1
Raising capital for your business can be an incredibly 
overwhelming process. In fact, most business 
executives end up paralyzed by questions like:
Where do I start ?
Who can I trust ?
What does the right investment
partner look like ?
How do I get the deal thatâ€™s right
for me in front of multiple 
decision makers ?
STERN
Great Idea, 
No Execution
10
 You may have the greatest idea since sliced 
bread, but if you canâ€™t present it effectively, 
you wonâ€™t get the capital youâ€™re looking for. 
Investors receive dozens of pitches in a 
given week. If you want yours to hit the mark, 
youâ€™ve got to make it stand out. Donâ€™t 
assume that your presentation is perfect or 
that your product or service alone is enough 
to win them over. Look at other executive summaries and 
pitch decks that have been successful and use these ideas 
to inspire and improve your proposal.
If you know any other investors, business advisors or 
executives who have had success pitching proposals, tap 
into that knowledge base. Ask for samples, ideas and best 
practices that they may be willing to share and then use 
that information to further hone and improve your own 
presentation.
Asking for Too Little or 
Too Much Money
9
Most investors already have a pretty good 
handle on how much capital it takes to fund 
a given set of milestones, so if you come in 
asking for too much or not enough, chances 
are youâ€™ll miss the mark altogether. Under or 
overestimating your needs indicates to your 
prospective investors that you donâ€™t know 
enough about running and/or growing a 
business to be trusted with capital.
This is a scenario Josh Elman of Greylock Partners sees all the 
time. "At the end of the pitch, entrepreneurs share how 
much money they are trying to raise," comments Elman. 
"However, when they explain why they chose a certain 
amount, they talk about how long it gets them, or how big a 
team they can hire. Instead, they should focus on results-
with X amount of money, I should be able to drive the 
business to these signiï€cant milestones. That's all investors 
care about--how much money does it take to get to the 
next proof point.â€œ
In preparation of meeting with investors, conduct ample 
research to determine exactly what amount of money 
youâ€™ll need to achieve your objectives. Remember that 
raising too much money will result in greater dilution, while 
not raising enough will prove costly to the business and to 
the investor. Adequate research, valuation and projection 
should help you achieve capital efï€ciency.
2
"THAT'S ALL INVESTORS 
CARE ABOUT--HOW 
MUCH MONEY DOES 
IT TAKE TO GET TO THE 
NEXT PROOF POINT." 
Josh Elman, Greylock Partners
STERN
3
Bad (or No) 
Legal Advice
8
When working within a certain budget, 
many executives are tempted to forgo 
legal counsel due to cost reasons. Others 
either rely too much on their advisors or 
donâ€™t do enough due diligence to ensure 
the lawyers they hire are competent. Like 
it or not, there are a lot of critical legal 
aspects involved in closing an investment deal, and if 
you donâ€™t have all your ducks in a row, it very well might 
cost you dearly.
Unwinding a bad or biased agreement is agonizing and 
a waste of management attention. Not only could a 
dispute over an investment cause headaches in the 
present, but it could also hinder your ability to raise 
additional capital in the future.
Prepare ahead of time by seeking out and hiring 
qualiï€ed, experienced legal professionals that can 
help keep you on the right side of the law.
Poor 
Cash Flow
7
If you donâ€™t have adequate control over 
the cash ï€‚ow of your business now, why in 
the world would an investor give you 
more money to waste? Yet, many 
executives make the mistake of seeking 
money without a proven track record. If 
your cash ï€‚ow issues are the result of factors beyond 
your control, such as economic downturns or delays in 
materials delivery, it may not be cause for too much 
concern.
Overspending, poor revenue management and 
inaccurate income/expense forecasts, on the other 
hand, will serve as a huge red ï€‚ag to would-be 
investors. Make sure youâ€™re able to demonstrate your 
executive teamâ€™s ability to manage money if you want 
people to send some your way.
Too Few 
Target Investors
6
To be successful in any big deal â€“ whether 
setting your prices in the market or pitching 
your request to investors â€“ creating a 
competitive environment is key. If you donâ€™t 
have enough target investors, you wonâ€™t have 
any leverage. Some executives even go so far 
as to bluff about the number of offers they 
have in an attempt to create a sense of urgency and force 
the hand of a prospective investor. Unfortunately, most 
learn the hard way that this can quickly go south. 
Legitimate, healthy competition can help provide more of a 
rich pool of investors from which to choose, and can even 
attract the interest of investors that previously seemed off 
limits. Youâ€™d be surprised how quickly the schedule of that 
hard-to-reach investment ï€rm opens up once they catch 
wind that youâ€™ve received offers from multiple bidders.
Failure to Acknowledge 
Competition
5
Every valuable business proposal has some 
type of healthy competition, whether itâ€™s 
direct, indirect or some type of substitute. 
Overconï€dent business owners make the 
mistake of going into a pitch indicating they 
have no real competitors. What they fail to 
realize is that without competition, thereâ€™s no opportunity, 
which makes their proposal not worth considering. 
As seasoned venture capitalist Bryan Stolle puts it, â€œIf you 
donâ€™t know your competition and the customerâ€™s view of 
the alternatives available to them, you arenâ€™t ready to raise 
capital yet.â€œ 
Before heading into any meeting with an investor, be sure 
youâ€™ve done your homework and developed a 
comprehensive competitive analysis. Not only does this 
validate your knowledge, but it also provides the ideal 
opportunity to show would-be investors why and how what 
you have to offer is better.
â€œIf you donâ€™t know your competition and the customerâ€™s 
view of the alternatives available to them, you arenâ€™t ready 
to raise capital yet.â€œ 
Bryan Stolle, Mohr Davidow Ventures
STERN
4
Bad Timingâ€¦Too Early 
or Too Late
4
Perhaps there is no scenario for which the 
term â€œtiming is everythingâ€ applies more 
than in raising money for your business. If 
you try to raise capital too early, you will 
inevitably sacriï€ce leverage. Waiting too 
long to raise money, on the other hand, 
may make it difï€cult, if not impossible to 
get investors to come on board. For instance, if you 
head into a proposal looking for money to fund a 
milestone thatâ€™s 2 weeks away, chances are slim youâ€™ll 
get any bites. The odds are even worse if you have a 
short runway and are in desperate need of operating 
capital.
The goal should be to raise as much money as you can 
on your own, through bootstrapping and hard work. 
This will allow you to establish a more stable business 
environment prior to seeking investment offers. At the 
same time, you should also be preparing to raise 
capital at least 9-12 months in the future. This will allow 
you to ï€nd the right target investors, start cultivating 
relationships with them and develop a strong, 
comprehensive pitch.
Not Knowing 
Your Audience
3
Before heading into any meeting, you 
should prepare ahead of time. Perhaps 
no situation is this more critical than when 
attempting to raise capital. While you 
m a y  b e  a b l e  t o  i m p r o v i s e  t h e 
presentation portion, youâ€™l l  be i l l -
prepared to handle the inevitable barrage of questions 
from your would-be investors. As a result, your audience 
will be less than impressed. Do your research ahead of 
time to get a clear understanding of who you will be 
pitching to so you can walk in prepared to wow them.
Itâ€™s also important to point out that your pitch shouldnâ€™t 
be one-dimensional or rigid. Not every approach will 
work with every investor. When you know exactly who 
youâ€™ll be presenting to, you can adapt and hone your 
strategy accordingly to improve your chances of 
success.
DEVELOP THE RIGHT 
PARTNERSHIPS WITH 
INSTITUTIONS WHO 
SHARE YOUR GROWTH 
OBJECTIVES
STERN
5
Failing to 
Follow Up
2
Once youâ€™ve wa lked out  o f  the 
boardroom after an investment meeting, 
the waiting game begins. What many 
executives fail to realize is the importance 
of following up after the fact. Not only 
does this keep your proposal at the top of 
your investorsâ€™ minds, but it also creates a sense of 
urgency that may move things along faster. At the very 
least, sending a follow-up email to thank your 
audience for their time is just good business etiquette.
Of course, not every response you receive will be 
favorable, but in either case, knowing where you stand 
sooner rather than later is much better than waiting in 
limbo.
Accepting Capital from the 
Wrong Strategic Partners
1
Believe it or not, you donâ€™t have to take 
money from the ï€rst investor that offers it. 
It may seem counterintuitive, but not 
every investor you pitch to will be the right 
ï€t. Thereâ€™s nothing more painful than 
being tied to a institution or ï€nancial 
partner who places their own interests ahead of yours. 
In fact, the goal is to ï€nd someone that brings more to 
the table than just cash alone. You should be looking 
for a longterm partner, not just a ï€‚y-by-night cash cow; 
someone who will have a vested interest and the 
proven ability to help facilitate your ongoing success.
Many business owners fail to realize the importance of 
targeting investors that have speciï€c industry 
experience. Not only is it ok to be selective when 
choosing an investor, but itâ€™s imperative to the success 
of your venture. Itâ€™s also important to note, however, 
that investors who are already involved with your direct 
competition should be approached prudently to 
assess genuine intention and avoid potential conï€‚ict of 
interest.
Foster competitive demand ... with your 
company at the center
STERN
STERN
6
Even for a successful company, 
raising strategic capital can be a 
real challenge. In fact, according 
to the Harvard Business Review, 
fewer than 1% of US companies 
have successfully raised money 
th rough venture capi ta l i sm. 
Furthermore, obtaining funds alone isnâ€™t enough. 
Itâ€™s even more crucial that you receive funding 
from an investor who shares your growth 
objectives, under the terms that protect your best 
interests.
These are the proven results we deliver at Stern 
Ventures. With an extensive network of 6,750 
ï€nancial institutions, 12,900 U.S. and 16,410 
international C-level executives, we can match 
you with the right investment partner who earns 
your trust because the partner you select aligns 
with your strategic goals while offering the most 
competitive terms.
Contact us today to discuss your strategic goals, 
the resulting capital needs, and how we can help.
Conclusion
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www.sternventures.com
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