Investors see hundreds of pitches by start-up companies and the reality TV program, Shark Tank, receives thousands of applications from aspiring entrepreneurs who are sure they have invented the ‘next best thing’. The companies that pitch successfully, are the ones that understand the fundamental concepts. You are probably not pitching to a reality show for investment by Mark Cuban, but these tips can help you to get organized. Make a good impression on your potential investors, whomever they may be.
Our 7 Tips – How to Pitch to Investors
1) Investors Invest In Businesses they Know
The key is to make sure you are pitching to the right type of investor. If the prospective investors are interested in technology companies, they may not be interested in contributing to a home healthcare company. If your start-up is a company that automates an aspect of home care scheduling in an app., now you have a fit. Matching your start-up company to the investor is an important first step. Knowing your audience helps you adjust your pitch.
2) Investors Invest In YOU and Your Team
What kind of track record to you and your Management team have? One of the key players on your team should be an expert in the product/service. Is there someone who is great at sales and marketing and a person for finance? Investors are looking for a diverse set of skills within the management team. If you have gaps in your team, do not be afraid to address these gaps. Perhaps filling the gaps is part of the reason you need financing.
3) Never Say “I have no competition”
This is a huge turn off for investors. There is competition in every market. Often “no competition” equals no market for your product. Competition is a really good thing. Your story could outline why your solution is a better way of solving a customer’s problem. The Apple I-phone wasn’t the first smartphone, but it changed the dynamics of the industry. Apple designed features that appealed to customers and has continued to deliver customer solutions in all its updated versions . You can fill in the blanks here. All their efforts to make life simpler for the smartphone user encourages and drives customers to upgrade. Your secret sauce is what will make your product/service stand out in the marketplace. You can be the difference maker if you pitch properly.
4) A Well Thought Out Business Plan
When you are pitching to the investors, they will be looking at your business plan from the 30,000 mile high view, but it still means you need to have a well thought out business plan that consists of a compelling idea, competent management, and cash flow. Investors are looking at whether a company will be profitable and sustainable in the future. Our business planning blog can help you with the basic concepts of a business plan. Once your business plan is complete, understand all the details, especially the financial spreadsheets. Investors will expect you to have some personal financial investment in your Company. They will not take 100% of the risk. If your start-up is expected to have a high cash burn in the first year, is your burn rated related to finding and retaining customers, or investments in high priced office space and management salaries?
5) A Great Pitch Deck for Pitching to Investors
Your investors will be spending 20 to 30 minutes reviewing your pitch, so your pitch deck is very important. Produce 10-12 slides maximum. A professional looking Powerpoint presentation is the gold standard. Here are the key slides to cover in your presentation:
- Cover Page (logo, company name and contact information including website)
- Opportunity (what is your product/service idea and why it solves a problem).
- Team (names and skillset of each member).
- Product – a brief description, application and picture.
- Market size (backed up by quantifiable research) It’s important to narrowly define the market. For example if you are a restaurant for paleo and gluten free products, your target market is the portion of the population who favor a paleo diet and are gluten intolerant, not everyone in your community.
- Business model – how is your channel to market structured (direct to consumer, wholesale, through distributors, retail store, online store or a combination of several channels).
- Competition – List your competitors with their approximate market share.
- Go to Market Strategy – What are your strategies for gaining users, customers?
- Traction (your present revenue and your proposed revenue for the next 2 years). Any partnerships you have that can help you gain revenue in the marketplace.
- What you need from the investors (how much money and how you will use this money)?
6) A Compelling Pitch
Know your story inside and out and tell it in a personal way to engage the investors. Give them a window into how you came up with your product/solution. Keep it real. Investors are savvy people, who can detect when someone is exaggerating or lying. They are looking to emotionally connect with you and believe your story. Background research on the investors will help you make that connection. Lori Grenier of Shark Tank recently paired up with John Daymond to invest in Scholly, an app that finds scholarships. She invested because she believed in the founder’s story, rather than proven business results. This caused a fight on Shark Tank with the other would be investors, Mark Cuban, Robert Herjavec and Kevin O’Leary, who all felt left out of the opportunity.
7) Ask for Adequate Funding
You won’t have a second chance to pitch to the same investors, so make sure you have asked for the funding you need for this stage of investment. Use our 7 tips to pitch to investors as your guide to a better pitch presentation. Leave plenty of time for questions, but don’t try to answer questions that haven’t been asked.
To sum up, be well prepared by telling a compelling story. Be concise, emotionally invested and know your numbers. Above all be confident in your pitch by practicing in front of business people you trust and incorporate any feedback they may have into revising your pitch, until it is pitch perfect. And our final tip, don’t forget to ask for next steps in the process. This lets your investors know you are ready to close, get the terms sheet signed and get back to launching your start-up.
XL Consulting Group works with start-up companies and operating companies to develop business plans for financing. We also create business/marketing strategies for improved business results and increased market share. Contact us for a complimentary 30 minute call to explore how we can help you.