Four points for a productive pitch to investorsDecember 21, 2012 by Guest Contributor
Founder Friday is a weekly guest post written by a founder who is based in or hails from the Silicon Prairie. Each month, a topic relevant to startups is presented and founders share lessons learned or best practices utilized on that topic. December’s topic is raising money.
Frequently, we are asked, “What should I present to you when I pitch my business?” I’ve heard and read a number of different ways to pitch and they all have merit. There isn’t one specific right answer. But there are some guidelines. From our standpoint, as capital providers and value add partners, we like to hear:
- What’s the problem?
- What’s your solution?
- How big is the market opportunity?
- Why will you win?
Format: Ten to twelve slides. Be brief and be blunt.
What’s the problem?
Some of the best ideas we have invested in so far stemmed from a founder identifying a problem that is personal to them. It often starts with “There has to be a better way…” When it becomes obvious that there is not a better way, they make a better way. A clear understanding of the problem is essential.
What’s the solution?
Once you have articulated the problem, lay out the solution. Explain it like you are talking to your grandmother. Once we hear acronyms and buzzwords we start to tune out. A clear solution to a problem leads to explaining the market opportunity. Be able to explain it in thirty seconds and practice it with friends and family.
How big is the market opportunity?
A friend of mine once said about going into the music industry, “There are hundreds of dollars to be made in this market.” The market might be massive but the idea might be too small. Make sure there is demand for your product or service and that the business can be large enough to merit an investment or your time. Beg and borrow your way to a minimum viable product. Don’t raise money until you have these answers. Get it out there. Test it. And test it some more. Get it 2/3 of the way there and don’t over think it.
Is there an unmet demand in the market? Detail how you will meet the demand. How will you sell it and what is the sale cycle? In the case of an enterprise solution, how many touches will you need before you close a sale? What’s the current funnel and conversion rate necessary to generate one sale? So many founders falter here and their projections are all up and to the right. But when asked to break it down to a weekly forecast they stumble. Also, is it scalable? Many startups can be nice lifestyle business but can they scale? Going from two to ten employees is a challenge for many. And moving from 10 customers to 10,000 even more difficult. What barriers are there for competitors? Can you grow rapidly and are there repeat sales/orders? What is the customer service model?
How will you know if you are succeeding? Having measurable mileposts along the way is important. We like to see that these have been thought through over the next 6-12 months not the next 5 years. The first 6 months are critical and having accurate daily cash position knowledge is very important. We give all of our founders a subtle reminder – a T-shirt with DROC on the front which stands for “Don’t Run Out of Cash”
Finally, why will you win?
What makes your team better than any other? Brief background on the founders and then what the founder’s strengths and strategy will be. Nimble? Grab massive amounts of beachhead quickly? Proprietary technology? Pricing strategy? Explain how you and your team will implement your plan.
Above all, what’s the ask…how much are you looking to raise and at what value? Be specific about what the funds are going to be used for and when.
These general guidelines lead to a productive pitch and meaningful discussion. Even if it is not a fit for us it makes it much easier for us to provide a warm introduction to someone we think might be interested.
Credits: Photo courtesy of Mark Hasebroock.
About the Author: Mark Hasebroock is the founder of Dundee Venture Capital, which invests in startup web service and e-commerce businesses. He is also a co-founder of Hayneedle and GiftCertificates.com. Mark previously served as managing director at McCarthy Capital, a regional investment bank.
Find Hasebroock on Twitter, @dundeevc.
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