Only the most prepared opportunists will win the favor of investors. Here are the do's and don'ts when pitching to an investor.
Angel investors spent big bucks last year. In 2013, 21.6% of entrepreneurs seeking angel investment received capital, amassing $24.8 billion dollars in funding. The number of thrilled awardees increased 5.5% from 2012 and total backing was up 8.3%. And venture firms gave generously as well, investing almost $30 billion into startups in 2013, an increase of 7 percent from the year prior.
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Those are encouraging numbers. But before you sign up for Shark Tank with half-assed pitch in hand, pause and step away from the cheesy PowerPoint presentation. Obtaining startup aid is a competitive endeavor. Only the most prepared opportunists will win the favor of investors. We’ve perused the minds of pitching coaches and shareholders to give you an idea of what investors are looking for. When selling your grand idea, do and don’t do the following:
Do Make a Concise, Informative Deck
They say spontaneity is the spice of life. But “they” probably don’t own a financially-backed small business. You need to be prepared to answer any question thrown your way, and this starts with formulating your elevator pitch and accompanying pitch deck. Chance Barnett, CEO of Crowdfunder.com and angel investing guru, created “The Ultimate Pitch Deck” and recommends 11-13 slides to succinctly summarize the following:
- Get right to the 20-30 elevator pitch
- Illuminate key numbers that validate/support your idea
- Define your market opportunity in terms of size and customer base
- Identify the problem and need you fulfill, along with current solution
- YOUR SOLUTION
- Discuss your business model and key revenue streams
- Explain your marketing strategy and how you plan to expand business
- Introduce your team and key stakeholders
- Briefly defend your financials
- Recognize your potential competitors (tastefully)
- Ask for the money
Don’t Make False Assumptions
Make sure your assumptions are backed by substantial data. Nothing makes an ass out of you and me and all parties involved by claiming something silly and unverified. Spend time and money doing market research on your soon-to-be industry. You can also access free sites like www.census.gov and www.sba.gov for market insights.
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Don’t Waste Time on the Obvious
It’s important to clarify the problem you’re solving with your new product, but if the problem is apparent, don’t beat a dead horse. Bill Reichert, venture capitalist and founder of Garage Technology Ventures, sees this constantly. “It’s so easy for entrepreneurs to talk about ‘the problem’ [that] they spend too much time on it,” he says. Address the need swiftly, and then introduce the more-important solution.
Do Instill a Sense of Urgency
If other venture capitalist investors have expressed interest in your idea, inform your current panel. Martin Soorjoo, founder of the Pitch Clinic, believes its wise to subtly introduce a sense of urgency if other investors are genuinely interested “Let it be known. Human nature dictates that we become more interested in something or someone that others want.” But he warns about appearing manipulative. “How you do this is critical, as any blatant attempt to manipulate the investor will almost certainly kill the deal,” says Soorjoo “Putting it out there to contacts you know in the investor’s network is one way of creating awareness that you’re the subject of investor interest.”
Don’t Be Anxious in Your Body Language
Studies show 55% of communication is conveyed through body language. Vanessa Van Edwards, startup consultant and researcher, cautions against certain hand gestures that they convey nerves rather than confidence. To appear cool and self-assured, avoid the following soothing mannerisms:
- Wringing hands
- Rubbing the notch in your collar bone
- Cracking knuckles, pulling jewelry
- Rubbing arms
- Biting your lip
Do Be Prepared to Answer Questions
Don’t overwhelm the audience with financial and forecasting details, but expect to be asked about them- and have an answer ready. Expect questions like the following:
- How big will your company get?
- What percentage of the market will you obtain over x amount of time?
- Why is this team the most capable of success?
- What are your major milestones?
- Do you plan to add new features to your product?
- How do you compete in terms of quality, price, and performance?
- What is your marketing, social media, and PR strategy?
- What’s the typical sales cycle for a customer?
- What are your legal, market, and regulatory risks?
- Exit? IPO or M&A?
- What are your three-year projections?
- What are the key factors essential to your projections?
- How was the intellectual property developed and can employee’s claim rights to it?
Don’t Be Intimidated by the Data
Recently published data stemming from MIT studies suggest that venture capitalists, in short, favor attractive men. In a controlled experiment, men and women gave identical pitches and yet, the choosers chose the plans given by the men 68 percent of the time. Likewise, they found that physical attractiveness results in a 36 percent boost in pitch triumph. But we all know women entrepreneurs are gaining force in the startup community. There are over 9.1 women business owners, a hike from the 8.6 million in 2013. So no matter your looks or gender, be prepared for the task at hand and be confident with your figures and forecasts.
Do Craft a Spellbinding Story
Remember to bring your passion and imagination into the pitching room. “Venture capitalists do not invest with their brains," Reichert told a group of students from the Stanford Venture Studio. “They invest with their hearts.”