Getting Private Funding For Your Startup Is Not Luck
I have been helping to coach startup and early stage companies to get private equity funding and by the time they reach out to me they are frustrated that they have been getting the run around and they are ready to give up. When I ask them to share their pitch with me it is obvious within the first 2 minutes why they are getting passed up. Most pitches I hear are about the product or service they have to offer and not really about the business. Learning to pitch your company will dramatically change your results and the best way to develop a winning pitch is to understand what an investor is looking for.
One of the things an entrepreneur has to understand is that investors get hundreds of submissions for funding every month. So that they are able to weed out the ones that fit their criteria they look for certain up front clues that will help them determine if it is worth their time to read the entire submission. That is why it is so important to make sure you give them what they want. There are 8 things an investor is going to look for in your submission package and the more concise you can make that delivery the better your odds of getting a follow up call. The most important thing you can do to immediately get them interested is to open your pitch with traction and market size. I know this goes against the grain but you have to do this! Here is why; If you explain your product or service before you discuss traction and market, the investor is going to be trying to figure out your market and traction while you are making your pitch. Make it easy for them. Tell them you are in a big market and then tell them about your product and service. Your product or service can be the best thing on the planet, but if your market is too small, then they will not invest. So tell them you understand their investment criteria and that you are in the right space. That being said, here is the order you need to explain your 8 topics so that you can your potential investor interested:
- Traction and Market size: Investors want to invest in your rocket fuel not your rocket. You must have a product or service, that even at the most basic level, can generate revenue. Once you have this and you can show that you can attract customers or users, you become immediately interesting for an investor. The next thing you need to discuss is that you are only beginning to penetrate an existing market as a market disruptor, creating a new market where no others exist, or you are joining together markets as a market orchestrator. Just remember, these markets need to be large enough that your business can generate realistic revenue that fits their investment portfolio.
- What Is the Problem and Solution: Now and only now should you discuss your product or service. You have explained to the potential investor that you are in the right market space and now you can tell them what you have that will capture a portion of that space. Describe your product or service as simply as possible, give a quick story of how you were faced with a problem and why you thought of this solution. Stories are relatable so use a good story but keep it as short as you can. Also if you have any type of comparison that people would understand such as; “It is like Facebook Meets Yelp…but with a twist”) This puts immediate ideas into the mind of the audience that need no further explanation
- Describe Your Business Model and Current Status: How do you create and sustain revenue or users and what is your margin? Investors would like to know that there is enough margin in your product/service so that once other companies start to introduce a similar solution, your company has wiggle room to be competitive. Then discuss how far along are you in the development of your product or service? Do you have a company entity and is it in good standing in your domicile state? What stage are you in, development, pre-revenue, revenue generating, profitable? Do you have an office? Employees? Website? Also, discuss how much capital you and your FFF rounds have invested into the business this far. Here is where you have to give the investor a full picture of your business and what stage you are in. This will help them to understand what they will need to invest to get you to the next stage as well as where and how they will invest.
- Marketing Plan: What is your plan to reach the market you have targeted? Can you summarize your strategic and tactical marketing plan? What are you going to say and how are you going to reach your demographic? This can be as simple as describing your demographic and all media sources are you going to use. Also, remember to keep it SIMPLE and try to use numbers that you have researched. You need to discuss the best approach you think will work as your investor needs to know that you are the expert in your market place and how to reach them. Further, explain how you got your initial traction and that if you just expand on that you can realize a ###% increase in growth.
- Your Team: Investors invest in the team as much as they invest in the product or service. Identify your team and try to write at least 1 or 2 relevant points about who you and your executive staff are and how these people are qualified to bring your company to market. If you have an advisory board, you do not have to list everyone on your board or their qualifications, you just need to state that you have an advisory board. This will go a long way towards funding as it tells an investor that you have people helping you make the right decisions. If you do not have a full executive team or advisory board, just let the audience know you are looking for one. This lets investors know you are running lean and you recognize that you will need key people in place as you grow,
- What Is Your Barrier to Entry: Describe your market advantage and what will prevent a competitor from stealing your idea and undercutting you out of the market space. Do you have IP? Patent/Patent Pending? Is this just a time to market concept and how far ahead of the competition are you? Or do you have good traction, you are growing viral and your brand is becoming recognizable.
- Your Proforma Summary: You need to have your 5 year projections here. Keep it simple and try to show the “J” Curve in year 1-2. Also, here is where you have to back up your claim that you can generate enough revenue in the market you have identified. Also, you need to show on the summary what your need is for year 1, 2 and maybe 3. If you do not know these things just explain that you are in conceptual stages and will report when you have identified your need.
- What Is Your Ask and Exit Strategy: You need to be very clear on what you are asking for and ask for it. I know this is a difficult thing to do but investors need to know how much you are looking for and if you can’t tell them then you are making them guess. Do not make them guess as it makes you look like you do not understand what you are doing or what you need. After you ask you need to tell them how they are getting their money back. Knowing how investors invest means you know that they are giving you a chunk of money that they will not be able to take out of your company until you reach a large enough stage that you can pay them back. Typically this comes at the time when you are acquired, or get a large enough follow up series raise that pays back the original investors…or the holy grail…you go IPO. It is important that you talk about your exit as investors want to know that you are the type of person who wants to exit and reward them for their investment and they want to know that you have thought about making the company attractive to a bigger company that could benefit from an acquisition and they are going to get their investment back plus the reward for taking the risk in 5-7 years.
This information needs to be presented in 3-5 pages only. Anymore than that and you have too much information so go back and trim some of the “Fluff” out.
Once you learn how an investor invests, you will put yourself into the best possible situation to pitch your business and you will start to turn “Luck” into a strategy that will yield results. Please do not hesitate to reach out to us if you should have more questions.