The number one problem cited by young entrepreneurs is raising funds with Forbes reporting that an astonishing 90% of start-ups fail.
A key element in raising funds is the power of your inner circle. Your network dictates your level of success in capital raising. Liddle says: "The better your networks the more likely you are to raise funds".
Failing an extensive network, an increasing number of start-ups are turning to the crowd funding market to capital raise. By 2025, the World Bank predicts that the crowd funding market will be worth $96 billion.
The Six Biggest Mistakes
Liddle is President for the G20 Young Entrepreneurs Alliance and co-founder of Capital Pitch - the world's first capital raising accelerator funding platform. His company uses experts and technology to accelerate the start-up investing process.
Like many entrepreneurs today, Liddle made these six exact mistakes when he failed to raise the series A round for his health food company, RioLife.
The first three years were tough and at one point he was fighting off liquidators wondering how he would pay his bills. He did and went on to turn a
profit of $150K in his fourth year before jumping to $2.4 million in his seventh year of operation.
1. A High Valuation
Entrepreneurs invest a lot of money in fancy financial models that produce a net present value based on future cash flows that are often unrealistic and too high.
A valuation is based on future forecasting, comparables, and conditions within the economy. Basically, your business idea is only worth what investors are willing to pay.
In January 2016, The Wall Street Journal reported that start-up valuations fell to the lowest level since 2012 as investors become more wary.
This proves problematic as in the early stages, it is difficult to evaluate the true value of start-up's based on growth potential. Ideally, investors want to see growth within eighteen months of inception.
2. No Communication Strategy
Entrepreneurs do not have a robust communication strategy validated by experts.
Liddle invested five thousand dollars for a sixty page information memorandum which was sent to potential investors. The issue was that there was no existing relationship so investors simply wouldn't read the documentation.
This led to Constantine Georgiou, the Chief Coach at Capital Pitch creating an investor centered design based on global research. Every piece of communication is from the investor's perspective whether it is a pitch deck, email, or executive summary.
3. Unsubstantiated Commercial Data
Liddle is astounded at the number of start-ups that have less experience and sophistication than those entering the public market yet forego validation and testing of their commercial data from an expert.
Liddle claims that in the United States, 12% of successful unlisted private equity and early stage start-ups engage broker-dealers versus 100% of start-ups entering the public markets.
To simplify the process, Capital Pitch helps you create financial data that covers historical actuals, future projections with sound assumptions, pragmatic capital raising amounts and integrates the rational valuation with the sales and marketing plan.
4. Unorganized Data
Entrepreneurs time and time again make the mistake of mismanaging their data, which could lead to loss of a deal.
Once investors have your binding or non-binding term sheet, they may want additional documentation such as: intellectual property protection, employee data, or non-disclosure agreements.
To solve this issue, Capital Pitch provides impressive templates and guides along with a solid list of legal agreements and protection.
5. Inability To Source A Lead Investor
Entering into a market with zero momentum on your capital raise and without a lead investor, significantly increases the likelihood of failure.
Figures from Seedrs an equity crowd funding platform from the UK proves why.
0% of target raised - fail 75% of the time
20% of target raised - succeed over 80% of the time
35% of target raised - succeed 100% of the time
Having access to an extensive network of investors is crucial as is one's ability to source a lead investor who trusts you, knows your terms and industry.
6. Limited Social Capital
Think about how likely it is that an investor who has never met you before, listens to your pitch then feels immediate confidence and trust in you before writing you a check for anywhere between $25k to $100k. It often doesn't happen that way.
To quote from Liddle: "As an entrepreneur, if you do not have a network of investors, it is a 'death' sentence".
There are multiple ways to establish relationships with investors, start by attending networking events, connecting via Linked In, ask business associates for introductions or find a suitable mentor.
The Idea Is To De-Risk
Investing in start-ups is a risky business for investors. Capital Pitch has created a unique six-step system with the aim of accomplishing three outcomes:
1. Due diligence
2. Build investor confidence
3. De-risk the investment
To accelerate your success to capital raise, start-ups can methodically work through this process which means you won't be in the 90% of start-ups that fail.
(Source: Inc. Magazine )