How to pitch your startup to an investor – Part 2
Last week, I have enumerated some “magic ways” of pitching (read more here), but the bottom line would be to actually use your pitch for showing your product/service, your expertise and your needs. Obviously, you should know your own motivations for pitching, but what are the key areas that investors would definitely like to hear from you?
Éva Réz is investment manager at Day One Capital; Photo credit: Éva Réz
Good structuring is half the battle. Build your pitch on the following topics and give them a specified weight within the defined timeframe according to their importance (this might depend on who exactly you talk to and whether you have three or 15 minutes):
- problem to be solved
- the solution – product/service
- market and competitors
- target customers
- business model
- financials – revenues & costs
- capital needed
This is not the Bible of pitches, but you definitely want to touch on these points. A typical mistake is that startuppers talk about their solution at least 80 percent of their time and forget about important issues (see them in bold). I would suggest to allocate at least half of your time on the pitch items in bold, because investors of course, would like to understand how you want to make money and how they will achieve the desired returns on their investment.
I often come across enthusiastic founders, who are a little bit offended when I interrupt them while they are talking about their “dearest baby”. But you have to accept the fact that even the greatest idea is not enough if nobody wants to buy it and/or if you cannot sell it. Obviously, investors will only put their money into your company if they believe that you and your team are capable of building a viable and sustainable enterprise. Think of the investment as the means of value creation and let investors know where the specified amount takes you (e.g. what are the milestones that you can achieve from the investment).
Now, assume that I am your potential investor…
At first, make it as simple as you can, because I am not an all-industry expert.
When you talk about your solution, make me understand the problem you intend to solve. Explain me how your product/service will answer the defined market need, and persuade me that your differentiators will allow you to create a competitive advantage. I am especially interested in your innovation, technology or business solution, so try to focus on that. At first, make it as simple as you can, because I am not an all-industry expert. If you cannot describe your idea to me in a few sentences, you would better keep on working on it. Your customers will also want to get clear messages on your value proposition.
When I ask you about the market, do not tell me that you need capital to finance a complete market research. We live in the age of the internet, so at least give it a try on your own! Validation, traction, patent (pending) is like music to the investors’ ears, so do not hold back any important details on these. Ideally, my take away from here would be: a good understanding of your innovative solution and what makes it unique.
I would also like to see that you have a clear view on who your clients/customers are. Based on my experience, this one is probably the hardest part for many startups. Some even do not know whether they would like to go B2C or B2B. It is easy to say that you will try both, but in most cases it will simply not work.
Try to find your focus, because you have limited resources.
Try to find your focus, because you have limited resources. Besides that, I am curious about your business model: who you will be charging and for what. Do not make this too complicated, but have arguments why you think your pricing is reasonable and why people would be ready to pay for your solution. Conversion rate can be crucial here: if you do not have a valid one yet, use relevant benchmarks. Out of these inputs you will be more or less set with the revenues side of your financial plan. My take away from here would optimally be: an insight into the demand side of your product/service and how you would like to make money out of it.
Do not forget about the introduction of your team. I would like to see who I will work with in case I choose to invest into your company. You should not be afraid of telling me what skills are missing from your team, because hiring these people can (and should) be part of your capital spending plans. Also, take the opportunity to find these people with the help of your audience. Investors have extended networks, so they can help you with match making. My take away from here would optimally be: it is a “people business”, thus I would like to get to know you and your background.
And then it is all about money…
I often have discussions with startuppers whether they should make financial projections or not. My answer is definitely yes. Of course, you cannot predict the future, but you can demonstrate to me that you have a good understanding of how you want to grow your business and what resources you will need to do so. In a pitch, I do not expect you to go into details, but do highlight the key lines of your operation. I am particularly interested in what purposes you would like to use the requested investment for. Your roadmap will give me information on how far this amount takes you to, and whether you plan with future investment rounds.
Exit – but how?
And finally, we get to the point, which 99 per cent of startups neglect: exit strategies. There are two typical ways of exits: being acquired by a third party (e.g. a bigger company) or selling shares via an initial public offering (IPO). Here, you can impress me by presenting recent transactions and related valuations of similar companies, but even more by having an idea about who your future acquirer might be. My take away from here would be: how much money you are seeking, and how you would like to use it for building a successful business, which will compensate for my risk by decent returns.
The Q&A session is also something you should be prepared for. If you cover the above topics in your pitch, you have already addressed most of the key issues. But investors will surely try to get a solid grasp of your startup. Delete the ‘I do not know’ answer from your vocabulary! Either you should be able to give information on the given question, or at least show your commitment to find the missing piece. Besides attending pitch competitions, you can train yourself for such situations by exposing yourself to similar talks before performances that really matter. You can learn a lot from feedback!
Your pitch is ready to use
Out of the presented ingredients you can now make a good pitch, which will deliver the most important messages to your potential investors. However, take pitch as a facilitator to achieve your goals, not as your key activity. Try to build your personal brand (characteristics which make you outstanding) and your startup’s image as an integral part of your daily occupation; and use your pitch at the right time, at the right format and with the right content!