Here are some common sense pitching tips I’ve gleaned over the years of helping businesses to raise capital from HNW (High Net Worth) Investors and VC Funds.
Hope you find these useful.
1. Obey the “Golden Rule”. The Golden Rule is real simple “he that has the gold makes the rules”. Don’t get hung up by what the Investor/Fund requires … just get on and do it. Remember they’ve had 100’s of opportunities shoved under their noses, and they probably took a major bath during 2008 and the first half of 2009 – so they have a right to want things to be on their terms at the moment.
2. Leave the jargon at the door. The people you’re pitching hear dozens of pitches a week. A buzzword that sounds hot to you, sounds obnoxious and stale to them. Keep it simple and just explain why your business model is great.
3. Listen to your Advisors. You hired them for a reason, and assuming they’re good at their job they know far more about what is required than you do (in much the same way as you know much more about your business than they do). Also, you’re paying them to do a job … let them do it, as they’re commercially aligned to your successful outcome in the majority of cases.
4. Ask everyone for advice, but DON’T take it all. When you are fleshing out your business, you should bounce it off of as many smart people as you can. Potential investors/mentors/peers/employees/co-founders. You just don’t know where you will gain the insight that makes a diference. Generally, you shouldn’t worry too much about someone stealing your idea. In the consumer-facing internet space, just about every company has at least 3 clones out there somewhere. (Obviously, in some sectors where IP is paramount, you should disregard this advice, e.g. Life Sciences, Cleantech, etc.). What will make you successful is your team and their ability to execute on the idea, iterate quickly and change direction when necessary. More feedback is better. But, don’t feel the need to incorporate everything everyone says. Show your founders intuition and filter the good from the bad. The only thing worse than a half-baked idea is a pitch deck suffering from feature bloat. Which leads to …
5. Keep your pitch short and sweet. Don’t let it get longer than 20 to 30 minutes and 10 to 15 slides. If you feel like you need more than that, then consider the likelihood that you need to learn more about the essence of your business and business model. Work on refining it.
6. Don’t make unrealistic projections. Everyone needs to do a TAM analysis of some kind or another. And it is incredibly tempting to find a $50billion market and say to yourself, hey, if we only get 3% market share we will be doing $1.5billion a year in revenues. How cool would that be !!!. Let’s be honest here — that just simply isn’t going to happen. And your potential investor knows this. It is much more impressive if you can do a bit of research and leg work to develop your market from the bottom up. You can still come up with some pretty wild projections, but at least you will have established the metrics against which you should be measured (and you will be if you get the $$$’s).
7. Don’t argue with the person you are pitching to. You aren’t going to convince them. They don’t like it. Really, no one wins here (but you lose more than then do !). If you disagree with a point someone is making, let them make it, respectfully disagree, maybe give a cogent counter example, and then agree to move on. You can still have a successful pitch – and, in fact, you can use the disagreement as a reason for an additional touch. In a few days, you can contact the person you disagreed with and supply them with strong evidence to support your position. Data and proof will overcome most doubts. Also, by following up you will show good qualities to the investor, like follow through, persistence and initiative. Whereas, arguing just irritates people.
8. Don’t get hung up on the pre-money valuation. Too many entrepreneurs meet their demise over valuation at the initial capital-raising round. Not only is this shortsighted with respect to future rounds, but it may very well cause the entrepreneur to miss other important issues in the current round. With respect to future raisings, keep in mind that you will suffer much more dilution in a down round if the current valuation cannot be sustained, than you will by doing a reasonable pricing now and a much higher pricing in 18 months when you are raising 5 to 10 times the capital. With respect to the current round, keep in mind that the base pre-money valuation is only one of several key factors. If you force an investor to raise the pre-Money to a higher level than they are comfortable with, they will just adjust other, more opaque, terms to get their pound of flesh elsewhere. For example, they could increase the size of the option pool, take a multiple liquidation preference, take participating preferred or take an accruing dividend. As a founder, you may very well be better off with a lower pre-money valuation, but with plain shares and a small option pool.
9. If you’re not yet profitable (ie: beyond-breakeven), don’t try to hide it. This is done far too often and just pisses off investors. Just be straight … “We’re not profitable yet, but by Q2-2010 revenues will be $$$ and the business will have positive earnings”. Focus on what you’re going to do with the $$$’s to get a greater return on invested $$$’s for ALL shareholoders.
10. I’m not here to fund your lifestyle. The funds you are seeking CANNOT go to paying your wages. Investors only care that you’ve got enough personal income so you can eat (and therefore don’t die of starvation !!). Be 100% clear about how the funds are being used, and how they’re going to drive value and revenues for the business.
11. Revenue is VANITY, Profit is SANITY. Says it all. If you have good revenues and are not profitable, then something is wrong with your business or the business model. Fix it first, and then pitch for funds.
Please feel free to contact me if you have any further questions, comments or would like assistance in getting a capital raising done.