Pitching for Investment
You might think Dragon’s Den is more of an amusing television show than a program about serious investment, but the points argued by the Dragons against poor businesses and pitches are both valid and very noteworthy. Time and time again, business owners walk in and fail to secure a deal, somewhat reflecting the fact that 80% of bids to raise cash for business fail. Here are some of the most frequent reasons for failure:
Unrealistic financial projections
Often people go into investment pitches with wildly inflated figures, in an effort to impress the potential investments. Worse still is to go into a pitch with a sketchy knowledge of figures. Forecasting isn’t easy, and there’s no way you’ll get it exactly right, but figures need to be consistent and defensible. Saying your business is worth a million pounds on the back of just an idea is one sure way of getting on an investor’s nerves.
Lack of clarity
Business plans need to be clear and concise, describing how opportunities can be exploited for profit, along with outlining the how the company will deliver these. Many people are venturing into internet start ups these days, and if this is you, then you’ll need to cut the technical jargon and make sure your investor’s understand. If they can’t understand what you’re intending, they won’t invest.
No evidence of demand
It’s imperative that you show a substantial evidence of demand. Any business with no evidence of sales or potential market will construed as a very high risk. Before you head into a pitch on the back of a great idea, it’s much better to test it out on a small scale to begin with.
Evidence of Poor Cash Flow
Business start ups rarely make a profit straight away, so it’s no shame walking into a pitch without clear evidence that you’ve made a profit. If you have, then that’s great, otherwise it’s got to be down to your cash flow. Evidence of poor cash flow will put investors off straight away, because it’s a major cause of small businesses becoming insolvent. Making sure you have good cash flow management and evidence of this is imperative before you pitch. If you can show this, then you’ll be at a distinct advantage.
Of course, you don’t necessarily have to go to an investor to secure extra finance. The most usual way for business start ups to get cash is to ask a bank for a loan or overdraft facility. If you have a strong business plan, and attractive potential, then the amount of risk to the bank will be lowered, and they will be more willing to give you the required sum. Take a look at loans available to businesses from NatWest as a good place to start.
Think carefully before securing other debts against your home, your home may be repossessed if you do not keep up repayments on your mortgage.
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