Must read before pitching to investors
What is important when it comes to pitching to investors and what do investors require to know before deciding to invest in your company?
As family, friends and crowdfunding are not an option for everyone, fundraisers often consider investors. There is a difference between interest fields of investors, the phases in which investors join and they often have their own technical language, so do your homework before pitching in order to be taken seriously.
Example: Is the investor even appropriate to your company? They often don’t do much more than writing cheques. Lots of investors feel very involved with the company which they invest in; not only to protect the investment, but also out of their personal interest.
Investors often know very little about your specific sector. Therefore, it is very important to pitch your company and your team. As a fundraiser, you often want to do this extensively. However, investors prefer this being done in a shorter period of time. Investors prefer a presentation providing the key points of the proposition, explained in 10-15 well organised slides. In these slides, you mention the problem you’re solving, how big the problem is, the solution and why the solution is and will stay original.
Apart from this, it is also important to mention the business model, how you are planning to sell the product, how the product will develop in the coming years and who is a part of the team. A simple one-pager or a short pitch deck is often sufficient to start the first conversation. In a later phase, you will be focusing on the height of the investment, on which the money is being spend and the ‘runway’ the company will then have.
One of the most important parts of a pitch is the team and its track record. Business plans are nice, but what is important is the execution (of the plans and/or actions) and whether the studio is capable of being creative with user acquisition, but also with networking. A quote from an investor: “You have to get near good people and provide them with a leader who they look up to and are able to learn from. If you are unable to do so, you will only have mediocre people, with whom you cannot win a war with.”
Make sure to profile the team at least just as well as you profile the concept. It is great if you are able to show that the team has come up with previous ideas and perfected them. It is inevitable that an idea or a product changes and a good team must be capable of coping with these changes. In technical terms, this is called a ‘pivot’.
Is it a match?
Don’t blindly send a pitch to every investor. It is important to do research on potential investors. Are they interested in your sector, the phase in which your company is, and is the behaviour you are looking for within their range? Most of the information can usually be found on the investor’s website(s). The math is important, as the relation with an investor is about more than just a business agreement. A good investor will help you grow as an entrepreneur. An investor is interested, but more objective than you are as an entrepreneur.
Get to know your investor’s business model
Be familiar with your investor’s business model before reaching out to them for money. Investments must be unsuccessful ten times in order to really be profitable, as the deals which work out must compensate for those which do not.
Create a balance between you and your investor
A short review of a start-up concerning working together with an investor: “We were able to concentrate (on the task) a lot more, as we did not have to worry about the money. You won’t have any debts, which limits the risks. However, you are limiting your freedom (of choice) too. Although we are allowed to decide everything ourselves, you still think about the investors when you’re making a decision. Decisions I take now will influence my future career, as investors wouldn’t invest in my next venture if we aren’t making profit with the current company. Suddenly, reporting becomes an obligation. Although this is very useful, as it provides more insight into your company (concerning business), it is also very time-consuming. Apart from that, you have to communicate well and in time if something does not happen as predicted. Don’t forget to manage expectations either, I learnt this the hard way, by damage and shame.”
1. Do your homework.
2. Prepare your pitch.
3. Present your team, investors invest in people, not just the business.
4. Carefully select the investors you pitch to, don’t just pitch to anyone.
5. Get to know the other side of the table.