Entrepreneurs, next time your pitch is rejected by an investor, don't blame them for something that could be your mistake.
On my travels in the community, one common bugbear is the difficulty of securing investment from angels, venture capital firms and institutional funds. In fact, last year, one of my most popular columns was a piece about how the Oz venture capital industry missed the boat.
I was lucky enough to hear the other side of the argument during a very interesting chat to a highly influential and active investor in the local start-up scene (definitely in the top five in the country).
When asked why Australian investors are perceived as conservative and risk averse, he said the truth was that most businesses aren't worth investing in.
It's an interesting concept because often entrepreneurs are convinced that their idea is the best thing since Facebook.
He believed that most entrepreneurs have been intoxicated by the start-up hype in the United States that's also starting to occur locally, with sky-high valuations based on unrealistic revenue projections. He believed they should pull their head out of the clouds and come back to Earth.
To support this argument, he pointed to the ASX 200 as an example of how many multimillion- and billion-dollar businesses actually exist in Australia.
Of course, this doesn't mean investors just twiddle their thumbs waiting for Mark Zuckerberg to make an investment offer, it's just that they're more realistic about the potential in Australian start-ups than entrepreneurs realise.
In his top three criteria for judging a pitch, there was no mention of a particular idea, application or market segment. Investors expect at least 50 per cent of companies in their portfolio to fail, he said, so they are looking for businesses that will give them a return, via profits or a healthy exit. His investment criteria are the:
- Ability to get traction via sales
- Ability to raise more funding.
So the next time an investment pitch doesn't meet your expectations, don't shift the blame to external factors, but look internally to see what can be done differently.