Yesterday I attended a ‘Pitchpreneur’ event and the experience made me realize how important it is to have a simple yet solid framework in place BEFORE you put yourself before investors. Speaking from experience (having co-managed a sizeable tech strategic investments portfolio in a Tier 1 bank as well as being part of fund raising processes for GBP25 million), here are ten simple pointers:

(1.) KNOW YOUR BUSINESS + PLANS INSIDE AND OUT, WHERE THE VALUE PROPOSITIONS ARE AND WHY THEY’RE WORTH COMMITTING TO.

(2.) Money does not grow on trees. The entrepreneur has to EARN their capital investments.

(3.) Be realistic about the amount of money you’re seeking and the corresponding level of equity you’re prepared to give in exchange.

(4.) Go through your balance sheets carefully and make three sets of projections — optimistic, pessimistic and realistic. This will help you properly orientate the level of capital you NEED for each stage of development rather than what you want or “would be nice to have”.

(5.) Bootstrapping in some areas of your business can spark innovation and shows budget management tenacity.

(6.) People talent is worth paying for and be sure to define roles to suit their expertise and development.

(7.) Do your due diligence on prospective investors. Are their values and interests complementary and aligned with your business objectives?

(8.) Approach each engagement or objective with a win-win attitude.

(9.) Every mistake is a learning experience and invaluable — provided we adapt accordingly.

(10.) Enjoy the adventure.

There were two pitches in the room I chose to sit in which highlighted the need for points (1.) and (4.). The founder of the first company marketed her start-up as an “incubator”. Now, I did technology incubation in the bank. For example, we allocated a few US$ million to building an IM solution in-house which was subsequently spun out and later sold to Microsoft. It’s now a core feature of MS Integrated Office suite. I’m also aware of the types of incubation services provided in academic institutions, by government entities like NESTA (National Endowment for Science, Technology and Academia) and in technology VC funds. Therefore, when I hear a founder trying to pitch her start-up as an “incubator” but it doesn’t offer any capital investment or FSA-regulated type service like finance raising, then at best it’s a business consultancy service. It is not an incubator.

The co-founder of the second company was asking for GBP300,000 but didn’t provide any information about the level of equity he’d give in exchange. Although I wasn’t on the investor panel I spoke with him during networking drinks. I asked him whether the company actually needed GBP300K and whether GBP150-180K might be a more appropriate amount to seek. He commented that someone else had said GBP300K was too low an investment and that if they wanted to be taken seriously they should be seeking GBP500K.

Well, I’ve facilitated seed investments of up to US$10 million as well as everything from Series A to Series E to write-downs and exits. Asking for higher amounts of money don’t equate with being taken seriously. It means the investor(s) will scrutinize even more carefully what the company’s capital expenditure (CAPEX), cost/income and internal rates of return (IRR) will be. In other words, investor(s) will want to know how their capital investment is going to be spent with greater clarity and will check the company’s cost base is manageable, i.e. no silly cash burn.

How much an entrepreneur says they’re seeking also reflects on their company’s valuation. If they say they want US$100K and are willing to give up 10%, then a back-of-the-envelope calculation indicates they’re valuing their company at US$1 million. This is fine IF these factors are true:

* established and sizeable returning user base;

* growth potential exists; and

* scalability of platform and business model exists.

There is no point pitching for US$100K for 10% and valuing your company at US$1 million when you have only a handful of irregular users or only completed 1 partnership contract worth US$1,000.

KNOW THE BUSINESS + THE BALANCE SHEET.