How to pitch for investment and know what investors are looking for
I have pitched, and been pitched to, many times; and seen lots of pitch decks. The questions that always seem to recur when my colleagues and I speak with businesses that are looking for funding often revolve around how to work out what an investor is looking for in a pitch. So how do you pitch for investment?
There are some simple and practical things you might consider, and possibly the most important one is to practice the pitch time and time again, possibly with somebody that does not understand your business as your audience. You should create an impactful pitch deck that you don't have to read from; in fact, you should have practised it so many times that you don't even need to have many words on the slides to guide you. You want the audience to concentrate on you and what you are saying, not read from a slide that you are also reading from. So practice is key. This will enable you to have a visually impactful deck. Pictures do paint a thousand words, and images are more memorable than words.
Oh, and did I mention that practice thing? Practice so hard that you are bored by the words in your presentation. Only then can you make it really 'live' for others.
You should bring supporting documentation; investors will want you to back up your claims. A short-form business plan is useful, and then you can hit them with the longer version at a later date. And back this up by having clear and defined financial statements and sales forecasts that prove viability.
At Smorgasbord we have PLANiT which is a cloud-based business planning and pitch deck tool that can produce just such a thing.
So that's the simple version of how to pitch. Now, here's the information that is under the hood. We all know that if you are raising money for your business, having an impressive pitch deck is a key component in your fundraising toolkit. But what is the real purpose of a pitch deck?
The purpose of the pitch deck is not to get investment.
No, the purpose of your pitch deck is to get a meeting. You are in a long game. Like selling anything, you cannot close a deal at the wrong time, but you can move the prospect on to the next stage, which moves them towards your goal.
The fundamental goal of your pitch deck is to get the next meeting agreed upon. Your pitch deck is possibly the first thing that an investor will see about your company, and if you can get her interested to know more with a compelling pitch, that is a job well done.
How do I start?
The sad news for you is that, although you probably have a fascinating life story, no one in the room cares. I would caveat this by saying that it is acceptable to include one killer fact that validates you and demonstrates that you are capable.
People, including apparently very bright investors, are simple. So can you describe what big problem you are solving and the value your business brings to a specific type of customer in less than 300 characters?
If you are not sure, try it out on a child, your mother, or even your mother-in-law. If they can understand it, an intelligent investor might not only understand it but remember that she had heard it a few hours later. This value proposition is your opening.
Try this word game. Fill in the blanks:
For people with X problem, we provide Y solution, so they can do Z. Unlike competitor A, our B, does C that means the X customer does not have to do D.
And be careful to make sure of your referencing comparisons; do they make sense? It is not a crime to be similar to another business, and you might have a new angle. But are you really the Uber for pets, or the Netflix for furniture?
So that is your first slide covered. Slide two might tell your potential investors how much money you are looking for, then explain why you need the amount of money you are asking for, what does it buy and how much equity are you are offering? How do you plan on using the money? And in the UK, if you are SEIS and or EIS registered.
By slide three, you are into a bit of detail. It's about the problem you are solving. The audience will not remember accurate detail, do not expect them to, that is for later. Identify the problem you are tackling, identify who has the problem.
Remember, there are several types of problems and if you want to understand the kind of problem you are solving we have a programme you can look at on our website.
You might talk about the current solutions in the market, demonstrating that there is an excellent market already out there, but maybe you have a new twist. But the more the problem for your specific customer is real and urgent, the more your investors will understand your business and goals.
Slide four is about the target market and the opportunity. Expand on your ideal customer and how many of them there are. What is the total market size, and how do you position your company in the market? How much is currently spent in the market? This gives a sense of the total market size. And remember, markets are full of people with real problems needing to be solved; segment your market where possible, make it real, name the types of customers to give them personality and the potential to resonate with the investors.
The following slides need to cover your solution, but not in-depth; remember, they will not remember the detail. This point is where many presentations go wrong. Too many pitches go into too much detail. It is better for an investor to ask a question than for you to bore him with too much detail. If you want to know more about this, you might want to read our previous blog about sales pitching
The basic message is that you cannot cover everything. You need to know everything, but you also need to prioritise what is important to your audience at this moment. The important thing is whether they are interested enough to see this thing working and do they want to know more?
Many pitches miss out the very simple step of describing who exactly the customer is. And it is the revenue model slides that cover that. Be clear with your definitions as too many presentations talk about platforms, third parties, and users without being clear and consistent with their language. If you define a customer as someone who pays you money, that is clear.
So, how does your solution make money?
You might reference the competitive landscape, how your pricing fits into the larger market, and how you came to pricing decisions. Are you, for example, a premium, high-price offering, or a budget offering that undercuts existing solutions on the market?
Investors love evidence of sales nearly as much as they like thinking they have found a new potential unicorn. Do you have any sales or early adopters yet? Do you have any proof that validates that your solution works?
Next come the sales and marketing proposition. It is common for investment money to be spent on marketing, but it is also common for marketing to be tricky to justify and prove in terms of return on investment. It is a strange but true fact that many investors, and many business people, see sales and marketing as a cost, not an investment.
You will need to explain how you will get a customer if you have not got one already, why that customer is like many others in terms of their problem, and how your solution fits that problem. We do lots of work around identifying customer groups and where those customers might hang out online and offline, but you need to demonstrate this. If your marketing and sales process is different from your competitors, it's important to highlight it.
Why are you and your team the right people to build and grow this company?
If you are a typical start-up, you probably have a small team. That is fine. You possibly wouldn't be pitching if you had the team, the marketing, and everything else sorted out. But what experience does your team have that others don't?
Highlight the critical team members, their successes at other companies, and the critical expertise that they bring to the table. But do not hide your skills gaps. You will be found out. Consider who is best at doing what, now and in the future. A start-up stage team leader, for instance, may not be the guy to lead when the business is more significant. And here's a word about outside advisors and advisory boards; they can help in this at a relatively low cost. Members of the Smorgasbord team have filled these roles on a part-time, temporary basis many times before so do not assume that all outside advice is either free, or that you will be stuck with an advisor forever.
Sadly for many people pitching for money, and I can hear hearts sinking as I type this, investors will expect to see sales forecasts, profit and loss cash flow forecasts, and other critical data for at least three years. It would be best if you did not have in-depth spreadsheets in your pitch deck. Let's face it they are not exciting, so limit yourself to charts that show sales, total customers, total expenses, and profits. But should know your numbers and be prepared to discuss the underlying assumptions you've made to arrive at your sales goals and your main expense drivers.
Our Cloud-based PLANiT tool can help.
We have discussed customers already, but competitors can make your pitch deck sing a romantic song to investors. Don't shy away from competitor discussions as an investor will wonder if no competitors' equals' a bad idea, but you just haven't worked out why it is a bad idea yet. He may then make assumptions that he does not tell you about, so you cannot address them. Demonstrate how your solution compares and fits into the ecosystem, what key advantages you have over the competition or is there some 'secret sauce' that others don't have?
As a side note, there are very few unique selling propositions in the world. Still, there are many solutions that create value to the customer because they have either thought of something others have not or have a combination of things that make this business a good investment.
Someone once said:
Tell ‘em what you are going to tell ‘em, then tell ‘em, then tell ‘em what you have told ‘em.
Here's where you remind the investors of something they will have already forgotten. Namely, what the value proposition is and what the big idea is. Remind them who it serves, how much money you are looking for, what that money buys in terms of what you intend to do with it, and what equity or other return they will get.
And finally, what is the way out?
It is essential for you and the investors to understand where the exit is and the route to that door for you and them. Starting with the end in mind is never more important than when pitching to investors. But a seasoned investor knows that it is likely to take longer and probably cost more than you say. That is just the way it is in most cases.
There's lots more. Some businesses have key strategic partnerships critical to success, intellectual property, or Key distribution agreements. And something many people forget about when pitching is props. Do you have a prototype of your product or any other 'show and tell' items that can help describe what you do?
As a final word, I would recommend keeping your pitch deck as concise as possible. Remember, your goal is not to provide investors with all the information they need to make an investment decision; your goal is to get the next meeting. However, if a potential investor approaches you immediately after the presentation, you should have more detailed additional information that you can provide; maybe a typed executive summary, technical documentation, or more detailed financial information.
Along with your contact details, your very last slide should probably have your value proposition on it to remind the investors why they are there. Why is this a problem worth solving, and most importantly, why your team is capable of solving it?
The other objective of the pitch, which plays its part in getting that next meeting, is to build trust. For me, trust means the investor thinks you are reliable, capable, likeable, and realistic. The way you present will play a large part in building trust, and trust is a fundamental part of persuading someone that she might want to know more about you and your idea.
Then your job is to think about what the investor brings in addition to the money. Maybe the subject is for another day, but relationships need to be two-way, and the best investor relationships are not just financial transactions.
This blog may come over as directed at big pitches for big money; it is not. The same guidance is relevant for whatever you are pitching for. You have been pitched to many times, and pitched many times; just maybe not in a business environment. You were probably very good at it as a child, and I know my kids are great at it. They know their audience, my wife and me, they know what works, and they learn what pace to pitch at.
The better you prepare for your pitch, the more likely you are to succeed. And by having a fully fleshed-out pitch, you will be even more prepared to speak about your business when networking, over email, or anywhere else an opportunity arises. Best of luck pitching your business.
Oh, and I almost forgot one other very important aspect of pitching your business - have fun. And practice!
Patrick Burge is a specialist in business growth, having helped build online and offline businesses in many sectors, including tech start-ups, apparel, sport, fitness, health, printing, retail, coaching and consulting. Apart from specialising in the brand licensing and franchising sector, he has also advised numerous businesses on getting their strategy and funding in place as an advisor and Delivery Partner CEO on The UK Government Startup Loan Scheme. Contacted him at email@example.com