Scott Duffy explains that the biggest mistake entrepreneurs make when raising capital is speaking to the wrong investors. He advises building a "target customer avatar" for the ideal investor and walking through a short checklist to qualify prospects: (1) where the investor made their money (domain/industry fit), (2) what investment stage they prefer (pre-revenue, early, post-revenue, EBITDA scale), (3) typical check size they write, (4) return-on-investment expectations (times-money), (5) expected timing for returns, and (6) the investor's decision-making process (individual vs. committee). The tone is practical and advisory.
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So the biggest mistake I see entrepreneurs make when they're raising capital is they spend all their time talking to all the wrong people. And here's what I mean. Investors are in the business of not only making money, but mitigating their risk. And so they invest in things that they know. They invest in things that they know how to analyze. They know if they're working where they know if things go sideways, they can jump in and they can help.
And so what I always encourage an.
Entrepreneur to do is start their fundraising effort by creating the perfect target customer avatar, the perfect representation of who it is that's going to invest in this deal. And here's how you do it. Number one, you want to ask yourself, where did this person make their money? For the reasons I just explained, where did they make their money? If you pitch a real estate deal to a tech investor, you have a disconnect. If you pitch a real estate deal to a real estate investor, then you have a much more likely match. Now, by the way, your passion and your energy may get that person to invest in a deal. That's a mismatch for them, but, but.
They'Ll be like your worst investor ever. And the reason is they'll never really.
Know if it's working.
They'll always have nervous knots in their stomach. It just doesn't work out.
They'll be all over you. So number one is where do they make their money? Number two, what stage do they like to invest in? Are they early stage? Are they pre revenue? Are they post revenue? You got to be doing $10 million in EBITDA. What stage do they invest in? Number three, what's the average size check do they write?
Do they Write checks for 10,000, 25,000, 250,000 or two and a half million dollars? Number four, what's their expectation for return on investment?
Do they want 1, 2, 10, 15, 20 times their money? What is it next? What is their timing? When do they want to see their money come back to them? And then finally, what is the decision making process? Are they the only person involved in making a decision about this deal, or are you going to have to influence a whole group of people in order to get a deal done?
