Here are the FIVE key reasons why fundraising fails. 1. The principals in the deal do not commit any cash to the deal. ‘Sweat equity’, ‘long term service’ and ‘salary sacrifice’ – none of those terms cut the mustard with investors. They want to see a contribution of cash that if the venture fails will make the founder’s eyes water. 2. It might be the greatest idea since sliced bread – but just because the idea seems like a no brainer – the chances of the owner actually being able to execute it are minimal – as more often than not the owner of the idea has no experience of operating in the actual sector that their idea is based on. 3. The investee business has built an ‘advisory board’ of people that they think will add value to the business – but in reality, they are just hangers-on. 4. They produce a set of forecasts that show a loss in year 1. A profit of £900k in year 2 and a profit of £5m in year 3 – you would be amazed by how many times we see those exact numbers. 5. The business seeking investment has an unreal expectation of its value. They offer an arbitrary percentage of the business to incoming investors with no science behind their valuation.
By Chris Silverwood
