Jamie Pride, who authored the book Unicorn Tears: Why Start-ups Fail and How to Avoid It, told My Business that many business owners seeking venture capital to expand are going about the process the wrong way, or even seeking out funds they don’t actually need.
“Money and capital doesn’t solve many, if any, issues related to business,” he said.
“If your start-up doesn’t have product to market fit, doesn’t have the right team, it’s not solving the right problem, no amount of money is going to solve that problem. But a lot of entrepreneurs think that it will.”
Mr Pride suggested that having money can make business leaders lazy or distracted from their core goals.
“Sometimes having too many resources is actually a bad thing,” he said.
He also said that another common problem is not with the business itself but who they take capital from.
“A lot of venture capitalists talk about being founder-friendly, but have never founded a business themselves. So they don’t know what it’s like,” claimed Mr Pride.
“I think they can intellectualise what it’s like to run a business, but they’ve never stared into the abyss and had to work out whether or not they’re going to make payroll. And because of that, it’s hard for entrepreneurs to respect them.
“I see entrepreneurs who come into my office and pitch ideas and say they want 20 million bucks and all sorts of nonsense. I also see entrepreneurs who have taken money from venture capital and are just left to their own devices and aren’t getting the help and the support that they need.”
However, Mr Pride said this is now changing, with many successful former entrepreneurs now investing money into venture funds and influencing how those funds are invested.
As such, Mr Pride suggested that any business seeking venture capital follow the “five Ps”:
- Persona: What kind of investor do you want? Target someone aligned with you and your values, their timeframes to exit, their experience.
- Preparation: Do your homework, build a proper pitch deck, prepare your financial statements and be realistic about them.
- Proof: What proof do you have that your business is viable? Consider your users, customers, revenue, pilots etc.
- Process: Your business is not to raise capital, so have a process in place for raising the right amount at the right time, and having fixed processes in place for when and how the money will be used. Don’t get stuck on a capital-raising treadmill with no fixed dates or timeframes.
- Pitching: According to Mr Pride, half of pitches are terrible, most of the rest are just ok. Only 10 per cent are amazing. “I think the biggest mistake that entrepreneurs make when pitching for venture capital is to not listen, and certainly to not read body language, ask questions, ask for feedback, get a sense of whether the person is paying attention to you. If someone won’t invest in your company, they may still be able to give you valuable feedback or they may connect you with some other investors.”
By following these tried and tested steps, Mr Pride suggested that any capital investment is much more likely to produce positive results for all involved parties.