Things to Consider Before Presenting Your Idea to Investors

What to consider before presenting your idea to investors

Entrepreneurs often focus on finding investors for their businesses and determining the type of investor, such as angel investors or venture capitalists, best suited to their endeavor. However, finding investors is only half the battle. You must also be ready to demonstrate a solid understanding of your business and market. 

Consider the following crucial elements you must firmly grasp ― and be able to convey ― before stepping into your investor meeting. 

1. Consider your path to market before presenting to investors.

How do you envision introducing your product or invention to the market? Your path to market can take several forms, including the following:

• Licensing and technology transfer
• Contract manufacturing
• Starting a business   

Here’s more about each path to market: 

Licensing and technology transfer

Inventors often opt for licensing deals or technology transfers. They don’t want to sell a product themselves; instead, they want their invention to thrive with outside involvement.

Licensing deals can be complex to understand and execute because there’s no universal process or path. When pursuing a licensing agreement, you must dedicate sufficient time to the following:

• Finding the right potential buyers
• Researching intellectual property matters
• Perfecting a licensing agreement
• Consulting professionals for help and guidance

Technology transfer is another common way to bring a product to market. It usually means moving an invention or innovation from a university or government lab into the hands of a private company that can commercialize it. This approach is especially popular for patented technologies developed in academic or research settings.

Technology transfer enables quick monetization and frees inventors to focus on new projects while partnering with organizations that have the resources to bring the product to market.

Contract manufacturing 

Product creation can be challenging for inventors and entrepreneurs because accessing specific parts and equipment can be nearly impossible. Contract manufacturing can help. 

Contract manufacturing firms will produce a specific quantity of your product for a set fee. This approach may make sense for startups and solopreneurs who must amass product inventory. It also allows them to entrust the entire creation process to one entity without spending money on manufacturing equipment. However, these firms vary widely by industry, so do your research to make sure you find the best partner for your invention. 

Starting a business

Some inventors want to start a business to sell their products. Setting up a company requires a significant investment of time and money. However, if your product is promising and fulfills the needs of a target audience, it’s worthwhile to seek funding and create a business framework to present to investors. 

As an inventor, if you believe in yourself and feel you have the expertise and experience necessary to start and run a company, this could be the right approach.

2. Consider your idea’s feasibility before presenting it to investors. 

Your idea must translate to a feasible product, and investors must be on board with your vision. Aaron Vaccaro, CEO of Liquor Lab and vice president at WestRiver Group, provided unique insight into how investors identify a promising opportunity. 

“Generally, I like to see two things: First, it should be clear what is the unique innovation or insight that makes this idea worth investing in,” Vaccaro explained. “This could be a technical innovation, a business model innovation, or simply [an] uncovered market opportunity that isn’t being served. Second, I like to see some initial traction that proves you can sell your product or service at an attractive profit margin.”

If you want to prove to potential investors that your product idea is feasible, take the following steps and be prepared to share your progress:

1. Create a prototype. 
2. Define your target market. 
3. Conduct market research on your industry. 

Create a prototype

When developing a unique product, prototype creation and testing are crucial. A prototype can inform your traditional and digital marketing strategies, guide your licensing approach and help you determine if your idea works. 

To get started with your prototype, sketch a drawing of how you envision your product’s appearance. Next, create product mockups. You can create prototypes from objects around your house or use a third-party manufacturer or 3D printer.  

Ask yourself these questions: 

• Does the prototype work as expected? 
• Are the product’s components or raw materials affordable and easily accessible? 
• How easy is the product to produce? 
• Does it require any specialized equipment or expertise that is expensive or in short supply? 
• Are there any aspects of it that need to be reworked?
• Has this idea been implemented or invented already? If so, what was the outcome? 

Define and learn about your target market

Your product is only feasible if it has a market. Before meeting with investors, you should identify your target audience and thoroughly understand its members, including their demographics and psychographics. 

When you know your target audience, conduct beta testing or focus group research to get feedback from likely purchasers and improve your offering. The following questions are helpful: 

• Do they understand your idea’s features, benefits and value? 
• Is the product easy to use? 
• Can they afford your product? Is it a bargain, a splurge or somewhere in between?
• How much would they be willing to pay for it? 
• How will they use your product or idea? 
• How often are they likely to purchase it?
• How does it compare to available competing or substitute products?
• Do they envision themselves buying the product when it’s available? 
• Are there any other features they would like to see included? 

Research the industry

Detailed market research will reveal if your idea already exists in the market and help you understand potential sales channels and competitors. Your market research plan should help you project how many people are likely to purchase your invention, determine the overall market size and pinpoint what opportunities exist in the industry.

You must know and understand your industry competitors so you can differentiate your product. 

Research the competition’s strengths, weaknesses, strategies and price points. This information will help you fine-tune your target market and set the best possible selling price. 

3. Consider the quality of your presentation.

Your investor presentation must be captivating and include the information your investors need. Focus on the following criteria: 

• A strong value proposition
• A high-quality presentation deck
• A solid business plan

Strong value proposition

Your value proposition should clearly articulate the problem your product addresses, how it solves that problem and why people would buy your product instead of a competitor’s. It should address the following:

• Who are your customers?
• What need does your invention address?
• What’s your invention’s name?
• What’s the product category?
• Why will they buy your product?
• What is the current primary alternative to your product?
• What’s the primary differentiation?

Business plan

Investors want to see a solid business plan that summarizes your strategies and outlines how you plan to make the business succeed. The business plan shows you’re serious about the idea and understand the key performance criteria that impact a business. Although a business plan takes time to build, it can be crucial in today’s competitive business climate.

“To approach investors, the entrepreneur must have a detailed business plan that outlines market opportunities, the competitive landscape, and a well-thought-out five-year revenue forecast,” advised Sam Bakhshandehpour, CEO of José Andrés Group and managing partner at The Silverstone Companies. “This plan should also identify potential challenges and how to address them, along with strategies to grow the business. Once all of these elements are clear, the entrepreneur can then pitch the opportunity to investors.”

Your business plan should also include:

• An industry overview
• An evaluation of the market and competition
• Product and service descriptions
• Marketing and sales strategies
• A summary of the founder and executive team’s qualifications
• Financial projections (if available)
• Your funding requirements

Signs that you’re not ready to pitch investors

Consider the following to gauge whether you’re ready to pitch to investors or if you need more time to refine your idea. Approaching investors when you’re prepared will help you secure the funding you need and avoid a bad product launch. But meeting with them too soon can derail your dreams.

1. Your idea is not fully formed. 

When presenting to investors, you must be able to answer all their questions quickly and confidently. That means your idea must be extremely well thought out. You must be able to explain its features, benefits, how it works, your production plan and your market analysis.

If there’s anything you’re unsure about, research it thoroughly and be ready to explain the details, options, pros and cons.

2. Your team is not complete.

One of a new venture’s biggest selling points is its executive team. Investors want to have confidence that the business’s founder and C-suite executives have the knowledge, experience and drive to make the business successful. 

You don’t need to have every employee chosen and vetted. Still, at a minimum, you should have a chief marketing officer, someone with deep technical or operational experience and a vice president of sales to lead your sales team. If you and your co-founders already bring some of this expertise, you may only need one or two additional team members.

3. You don’t know how to scale your business.

Every investor will want to know your plans for scaling. Early investors are taking a big risk by investing in a startup, so they want to feel confident that there’s a big payoff ahead. For example, they’d rather work with an investor-ready franchise than a single-location local eatery without expansion plans.  

“When an entrepreneur is ready to approach investors, their vision should be large enough to make a significant impact on the market,” Bakhshandehpour said. “If the business idea is too local with limited growth potential, it will be difficult to capture investors’ interest. On the other hand, if the entrepreneur is launching something scalable with opportunities for expansion, it can attract more attention.”

To create a scalable business model, you must consider standardizing operations, using technology to aggregate tasks and lining up suppliers that can handle much larger orders as you grow. You should also consider protecting your intellectual property so copycat businesses don’t crop up.

4. Your product doesn’t have a clear competitive advantage.

If you’re entering a crowded market with a slightly different version of something that’s already out there, it will be very challenging to convince customers to switch from their current supplier to buy from you. The difference in your product must be meaningful and compelling.

If your only advantage is cost, you’re setting yourself up for better-funded competitors to compete on price, and that will probably end badly for you. Marketing alone is also not a strong differentiator because your marketing strategy can be easily copied.

5. You haven’t done any market research.

Effective market research is critical to your path to market and feasibility preparation. Customer and competitive research is essential to discovering whether there will be demand for your product in the first place. Market research will also help you identify trends and other forces that could affect demand, as well as the supply of talent or raw materials. 

By doing thorough research, you’ll know what to expect when you enter the market, and you’ll be better equipped to communicate this to investors, giving you a stronger chance of getting a “yes” when you ask for funding.

“Conducting a market analysis will reveal whether the market is large enough to support a new venture,” Bakhshandehpour explained. “If the market is growing and there are not many competitors evolving with it, the opportunity to capture market share is significant. For example, the Mediterranean food category is growing rapidly with little competition, while pizza, although a massive market, has stagnated.”

Bakhshandehpour also noted that a strong competitive advantage can come from the ability to scale effectively in a fragmented market where many smaller players exist. “However, businesses that are not scalable, such as Michelin-star restaurants, might seem appealing creatively but are not practical in terms of growth potential and profitability,” Bakhshandehpour added.

6. You haven’t run the numbers.

Investors are interested in ideas, but their real interest is in the bottom line. Bakhshandehpour cautioned that many first-time entrepreneurs don’t raise enough capital to execute their vision properly, while others may have an overly optimistic view of the business’s potential and overestimate revenue while underestimating costs.

“Entrepreneurs, being visionaries, sometimes fail to break down their ideas into realistic, actionable units and may not adequately address what could go wrong,” Bakhshandehpour explained. “Furthermore, they may not convey their understanding of potential challenges to investors.”

Many investors will ask: 

• Is this investment likely to make money for them or waste it? 
• How long will it take to give them a profit and allow them an exit? 
• How vulnerable is the company to changes that will affect its profit margin? 
• Will they invest now only to be asked for more money down the road when the company runs into a cash flow problem?

All these questions and more can be answered in pro forma financial statements, including:

• A pro forma income statement with sales projections and estimated expenses
• A pro forma balance sheet, where they can see the company’s projected assets and liabilities
• A pro forma cash flow projection that shows how much investment is needed and when

7. Your presentation isn’t tight.

A single investor presentation could secure the cash you need to grow your venture, so it’s critical to get it right. Your deck must be visually appealing, easy to follow and persuasive, and your in-person delivery needs to back it up.

Vaccaro emphasized the importance of being concise. “If you can’t explain concisely what your idea is, how you will make money, and why you believe it will be successful, then you are not ready to pitch investors,” Vaccaro warned. 

Vaccaro also noted that entrepreneurs often overload presentations with too much detail and end up muddying their message.

“One of the most common pitfalls is what I call the ‘entrepreneur spaghetti brain.’ As the founder, you have more information and insight about your business than anyone else ever will. To you, all those things are connected and provide critical context,” Vaccaro said. “The elevator pitch is a good tool for distilling your communication down to the key points and clearest possible message.”

Investors see countless presentations. To stand out, yours must be crisp, well-structured and memorable. Focus on these five essentials:

• A captivating introduction: A tight introduction is especially key to starting things off on the right foot. “A successful investor pitch deck starts with a very tight executive summary that captures the audience’s attention quickly,” Bakhshandehpour advised. “It should strike a balance between creative, visually engaging elements and solid quantitative analysis.” 
• A realistic forecast: Bakhshandehpour stressed the importance of providing detailed, grounded projections. “A strong pitch should also strike a balance between the ‘sizzle’ and the ‘steak,’ meaning that it should not only be visually appealing but also include thoughtful analysis on market sizing, customer acquisition, and a clear breakdown of expenses,” he explained. “A presentation that communicates these details concisely and effectively, without overwhelming the audience with unnecessary information, will be more likely to succeed.” 
• An organized presentation: Structure is critical to flow and comprehension. Follow the 5/5/5 rule to keep slides clean and effective:
  • No more than five words per line of text
  • No more than five lines of text per slide
  • No more than five text-heavy slides in a row
• Strong verbal delivery: Most of your message should come through what you say, not what’s on the screen. Use your slides to show visuals, data and supporting points — not walls of text. Rehearse until your delivery is smooth and confident. If design isn’t your strength, consider hiring a freelancer to help bring the deck to life.
• Confidence in the Q&A: Be ready for investor questions. Review your plan, brush up on the numbers and anticipate the tough stuff. Showing you’ve done your homework and can think on your feet helps build trust and shows you’re investor-ready.

Natalie Hamingson contributed to this article.