Wednesday, June 23

The 3 Biggest Reasons Pitch Decks Fail Even the Best Business Ideas



As entrepreneurs–and dreamers, we’ve all been there with that genius, million-dollar idea. But these types often require a large sum to get off the ground, leading you to assume that you need to pursue investors. However, chasing money isn’t always the best move in the early days of building a startup. Unless you have a record of building successful startups, seeking capital too early is a surefire way to burn your business before you even build it.

Statistically, only about 1% of pitch decks attract investors and land investment money. Of course, part of this equation is finding the right investors, who will resonate with your idea, but even when you found them, expect that your pitch deck will get less than three minutes of their time. In that small window, there are three things that will land your deck in the trash and into the 99% of pitch decks that fail to get funding.

Here are three common reasons pitch decks fail even the best ideas:

1. You Have an Idea, Not a Business 

Just about anything could make money–after all it’s why something as simple as a silicon bracelet, such as Silly Bandz, became a 15 million-dollar company. But until you prove that you and your team have what it takes to turn a profit with this concept, you don’t have a business, you have an idea. And the reality is that investors don’t simply invest in ideas, they invest in the people behind the ideas.

It’s the reason investors often ask the question, “why should you be the one to start this?” Of course, the answer that because you came up with it, isn’t the answer. At least not one that will help you get investors.

To answer this question correctly, and to help successfully attract investors, the answer should illustrate why you and your team are able to turn this idea into a business. It’s not about your passions and dreams or even first-hand needs–something entrepreneurs have a tendency to get hung up on. But those very things may be why you’re the one to start the business, as they can lend to having the expertise, industry contacts, and a solid network. 

2. Your Financials Are Half-Baked  

It’s not uncommon for early-stage startups to avoid including detailed financial projections. Or even worse, you overestimate your financial projections. Don’t use the token, “if we only get a 10% market share, then we’ll generate [insert amount] in revenue. It’s elementary, and as appealing as it is as an entrepreneur, it’s not realistic-looking to an investor.

Even if your startup is generating revenue, you still have the question of what it could make as it scales. After all, you wouldn’t be pursuing capital if it was at its peak. Founders have the dilemma of how to value their startup and what’s the sweet spot in terms of financial forecasting. By overshooting, you appear unrealistic and out of touch, and yet, if you underestimate your potential, your startup may not appear as enticing to investors.

Commonly, investors generally seek to get an annual return of around 30 to 40% for early stage startups. Keep this in mind when balancing the capital you’re seeking to your company’s potential earnings. Asking too much and yielding too little is simply a bad investment for an investor, and providing unrealistic expectations damages your chances of landing capital.

3. Your Team Isn’t Fully Invested 

A major indicator, statistically, of the likelihood of a startup’s success, is whether its team has reached the point of no return. In other words, you can easily gauge how invested a team is by whether or not they themselves have invested in the idea so far as to get to the point of no return. If the founders can’t invest fully, then why would a third-party person want to invest their money? As founders, we need to put our money where our mouth is.

Part of this is also showing that you and your co-founders have invested your own money. A founder who says they need all this capital, but who won’t use any of their own, is a red flag. Typically, initial investments will come from founders. For example, before Google pursued investors its first few rounds of funding were supported by the founder’s contributions.

Preparing the Pitch

The art of the perfect pitch, like a lot of things in life, depends on timing. Pitching investors can be very time-consuming, and focusing on acquiring money means you’re spending less time focusing on building your business. Founders who seek investment too soon, are far more likely to fail to acquire money and fail to launch their startup.

Stay focused on building your business and put the idea of investments on the back burner. In doing so, you’ll have the time and focus to turn your idea into a business, and in return, you’ll set your startup up to be far more attractive to potential investors.

The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.



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