Previously I wrote reasons why entrepreneur failed miserably in their business’ capital fund raising. In this article I am going to share when entrepreneur can’t understand finance they will continue to fail big time in getting the capital required to grow their business.
- Lack of commitment to build a balance sheet. Traditionally the owners leave the construction of the income statement and balance sheet to accountant. When entrepreneurs doesn’t understand how it works they failed to build a balance sheet that could demonstrate the growth in the business over the years.
- Never got the essence of a business model right. A simple way to focus on what matters in entrepreneur business model is to examine these two key questions. 1.) Can you find a scalable way to acquire customers; and 2.) Can you then monetize those customers at a significantly higher level than your cost of acquisition. The answer are two simple terms. The CAC / LTV “Rule”. CAC must be less than LTV. CAC = Cost of Acquiring a Customer and LTV = Lifetime Value of a Customer. If you would like to have a capital efficient business, I believe it is important to recover the cost of acquiring your customers in under 12 months.
- Unsubstantiated Commercial Data. Entrepreneurs often cite data that cannot be verified. Numbers are pluck out of thin air. Testing of the entrepreneur’s business commercial data from an expert is virtually none and such data makes it way into the public market.
- Unorganised 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.
- Inability To Source A Lead Investor. Entrepreneur think they can do all thing by themselves. Fund raising is best left to experts. Entering into a market with zero momentum on your capital raise and without a lead investor, significantly increases the likelihood of failure. 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.
- 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 RM25k to RM100k. It often doesn’t happen that way.As an entrepreneur, if you do not have a network of investors, it is a ‘death’ sentence”.
Investing in any business is a risky business for investors. I have created a unique 7-steps system with the aim of accomplishing three outcomes:
- Due diligence
- Build investor confidence
- De-risk the investment
To accelerate your success to capital raise, businesses can methodically work through this process which means you won’t be in the 90% of business that fail to raise capital.