Revised and up to date June 26, 2020
By Richard D. Harroch, Neel Lilani, and Kate O’Laughlin
Entrepreneurs should pitch buyers to lift financing. Many entrepreneurs from earlier stage firms make frequent errors that could possibly be prevented. Learn under for some recommendations on learn how to enhance investor curiosity and improve the probability for financing.
The errors are categorized as follows:
- Errors to keep away from when planning investor outreach
- Errors to keep away from within the investor pitch deck
- Errors to keep away from through the presentation of the pitch
Errors to keep away from when planning investor outreach
Mistake #1: Sending your govt abstract or marketing strategy unsolicited
Whereas some buyers are opening their course of to chilly outreach in response to leveling the racial and gender equality enjoying subject, the bulk nonetheless routinely don’t learn unsolicited emails. They get tons of, if not hundreds, of such emails, and don’t have the time to sift by means of them to search out that diamond within the tough.
However what they’ll take note of is a referral from somebody of their community: a lawyer, an entrepreneur from certainly one of their portfolio firms or a fellow enterprise capitalist. Ask your advisors that you simply work with (e.g., your board of administrators or regulation agency) to see if they’ve suggestions on investor referrals and might supply any direct introductions.
Mistake #2: Not doing all your homework on the investor—pitching your organization with out being clear that you’re in an area, stage, and geography the investor is excited about
Some buyers solely care about biotech or cellular apps; or the web and digital media. Different buyers have mandates concerning the stage and/or geographic location of an organization. Do your homework first earlier than pitching to ensure your organization is aligned with the buyers’ aims.
The primary place to look is buyers’ web sites, which usually state the precise stage, sector, and placement they put money into. Different assets embody PitchBook or CB Insights. In case you have been launched to the investor, discover out all the pieces you may concerning the agency and particular person from the one that made the referral.
Displaying some consciousness of an investor’s background and the businesses it has invested in will facilitate the dialog, and likewise reveals you’ve got accomplished some advance due diligence for the assembly.
Mistake #3: Pitching your tier 1 investor first
Each time you pitch, you’ll achieve priceless suggestions that may permit you to additional refine your deck and presentation. Begin with “warm” or “friendly” buyers first so you might be well-positioned by the point you pitch a extremely fascinating investor. It is advisable to be ready to offer crisp solutions to questions; and working towards will sharpen your responses and presentation.
Mistake #4: Asking to have an NDA signed earlier than sharing data
Most buyers have a coverage to not signal non-disclosure agreements. Why would you wish to put a hurdle in the best way of having the ability to join with an investor? When you have one thing extremely confidential, don’t share it. As quickly as you ship a pitch deck, you must assume that it will likely be shared extra broadly.
The aim of a pitch deck is to generate curiosity between an investor and an organization—to not present a deep dive, which might usually happen through the diligence course of. In your authorized safety, put a copyright discover on the backside of your pitch deck and add the phrase “Confidential and Private. All Rights Reserved.”
Mistake #5: Not having an efficient and concise e mail introduction
Create a considerate, quick 4 to 5 sentence e mail introduction that briefly summarizes the corporate and motivates somebody to open the pitch deck. The e-mail shouldn’t be overly technical, however moderately convey why that is an thrilling funding alternative.Your advisors and others might use this blurb to assist join you with related buyers.
Mistake #6: Not taking a look at different pitch decks and govt summaries
Reviewing different pitch decks and govt summaries might help you enhance your personal. You possibly can ask your lawyer, different entrepreneurs, or angel investor associates for samples. A lot are additionally obtainable on-line. See A Guide to Investor Pitch Decks for Startup Fundraising.
Errors to keep away from in your investor pitch deck
Mistake #7: Having greater than 15-20 slides in your deck and making it troublesome to view
You’ll have an hour at most to make your pitch. So overloading your deck with too many slides will lower into the crispness of the presentation, and also you gained’t have time to get to the slides on the finish of your deck. If an investor is , you may all the time present extra detailed data later.
The deck will in lots of instances be seen on a cellular system or pill. Having a file measurement of 5MB or smaller will be sure that any e mail filters or mobile download restrictions gained’t cease your deck from being seen. Additionally, don’t make buyers go to Google Docs, Dropbox, or another file sharing service to get the deck. Embrace it within the e mail as a PDF file.
Mistake #8: Not totally understanding and articulating aggressive panorama
A aggressive panorama evaluation ought to all the time be a part of your presentation. Telling a VC that you don’t have any competitors doubtless says you might be unrealistic or naive. In fact you’ve got competitors, whether or not direct, oblique, or somebody who gives a substitute answer. And your evaluation of your rivals will present an investor whether or not you’ve got an understanding of the market.
An investor will wish to know why your product or expertise is healthier than or completely different from what’s already on the market. You possibly can assume that they’ll find out about aggressive merchandise or expertise, so it’s essential to have a great response. For instance, “We are different from Instagram in three important ways: (1) we are easier to use; (2) we have better editing functions; and (3) we are monetizing earlier than Instagram was able to.”
Mistake #9: Not explaining traction or present clients
Some of the vital issues to relay are indicators of early traction or clients. When you have an app, buyers wish to know what number of downloads you’ve got and what number of further ones you might be you getting per week? Have you ever gotten any brand-name clients if you’re a software program firm? How can the early traction be accelerated? What has been the principal cause for the traction? Present how one can scale this early traction.
What betas/pilots/proof of ideas do you’ve got on the market? This may have nice signaling influence.
Don’t neglect to convey any early buzz or press you’ve got acquired, particularly from outstanding web sites or publications. Characteristic the headlines in a slide in your deck. Checklist the variety of articles and publications mentioning you.
Mistake #10: Failing to focus on your group’s expertise and credentials
Many buyers contemplate the group behind an early stage startup extra vital than the thought or the product, particularly if the group features a serial entrepreneur. The buyers will wish to know that the group has the suitable set of abilities, drive, expertise, and temperament to develop the enterprise. Traders wish to be proven all of this, along with a ardour to do one thing actually nice and distinctive. Anticipate these questions:
- Who’re the founders and key group members?
- What related area expertise does the group have?
- What key additions to the group are wanted within the quick time period?
- Why is the group uniquely succesful to execute the corporate’s marketing strategy?
- What number of workers do you’ve got?
- What motivates the founders?
- How do you intend to scale the group within the subsequent 12 months?
- Who’s in your board and why?
Errors to keep away from through the presentation of the pitch
Mistake #11: Not demonstrating why the market alternative is huge and might thrive within the present local weather
Most buyers are on the lookout for companies that may scale and turn into significant, particularly within the present COVID, political, and financial local weather. So be sure to tackle this difficulty proper up entrance as to why your small business can actually turn into huge. Don’t current any small concepts. If the market alternative in your preliminary product is just not massive, then maybe it’s essential to place the corporate as a “platform” enterprise, permitting for the longer term growth of a number of merchandise. Traders wish to know the precise addressable market and what number of the market you intend to recover from time.
Mistake #12: Displaying uninteresting or unrealistic projections and valuations
In case you present projections for the corporate to turn into $5 million in income in 5 years, there won’t be a lot curiosity. Traders wish to put money into an organization that may develop considerably and turn into an thrilling enterprise. Alternatively, for those who present projections the place you might be at $500 million in three years, that will likely be seen as unrealistic, particularly if you’re at zero revenues right this moment. Keep away from assumptions in your projections that will likely be troublesome to justify, corresponding to how you’re going to get to a 400% progress in income with solely a 20% progress in working and advertising prices.
The identical goes for valuations. Usually, it’s greatest to not talk about valuation in a primary assembly, aside from to say you count on to be affordable on valuation.
Mistake #13: Punting robust questions
It’s a must to anticipate troublesome questions. Telling an investor that you’re going to get again to them with a solution seldom leaves a great impression. If an investor is asking you questions, that’s a great signal that they’re engaged. Do your greatest to reply questions immediately. Don’t evade the arduous questions or say you’re going to get to them later within the presentation. Traders wish to see for those who can assume in your ft. Count on to get interrupted throughout your presentation.
Mistake #14: Not understanding buyer acquisition prices and long-term worth of the client
Traders will likely be excited about your understanding of buyer or consumer acquisition points. What prices will you incur to accumulate a buyer? What would be the doubtless lifetime worth of the client? What channels will you utilize to accumulate that consumer or buyer? What advertising prices will you incur? What’s the typical gross sales cycle between preliminary buyer contact and shutting of a sale? Not being ready for these kinds of questions will damage the notion of how properly you’ve got thought out your marketing strategy.
Mistake #15: Not having the ability to articulate a coherent advertising technique
Simply since you construct one thing nice doesn’t imply it’s going to promote or get consumer adoption. Clarify your plans to market your services or products. What shops are you going to make use of? How will you cost-effectively get to potential clients? How will you utilize social media, corresponding to Fb, Twitter, LinkedIn, Pinterest, and so forth.? Will you do content material advertising and put sponsored posts on websites like BusinessInsider.com, Forbes.com, and techworse.com? Will you do search engine advertising, and might you present it will likely be productive? What steps will you are taking to get some speedy gross sales or adoption of your providing?
Mistake #16: Not doing a demo
A demo is value a thousand phrases. Present a prototype or working demo of your product, app, or web site. This can give buyers a greater sense of what you are attempting to do. Be sure that it really works properly and isn’t “buggy.” Impress the investor with its appear and feel. When doable, contemplate together with a video/demo link in your deck.
Mistake #17: Not understanding the potential dangers to the enterprise
Traders will wish to take a look at what you see are the dangers to the enterprise. They wish to perceive your thought course of and the mitigating precautions you intend to take. Inevitably there are dangers in any marketing strategy, so be ready to reply these questions thoughtfully:
- What do you see are the principal dangers to the enterprise?
- What authorized dangers do you’ve got?
- What expertise dangers do you’ve got?
- Do you’ve got any regulatory dangers?
- Are there any product legal responsibility dangers?
- What steps do you anticipate to mitigate such dangers?
- How does COVID-19 have an effect on your small business going ahead?
Mistake #18: Not having the ability to clarify the important thing assumptions in your projections
To ensure that an investor to imagine your monetary projections, they’ll need you to articulate the important thing assumptions and persuade them they’re affordable. In case you can’t do this, they gained’t really feel you’ve got an actual deal with on the enterprise. Count on good buyers to push again on the numbers within the assumptions; they’ll need you to offer a cogent, considerate response.
Mistake #19: Not clearly articulating use of funds and runway
Traders will completely wish to know the way their capital will likely be invested and your proposed burn fee— (in order that they will perceive when you could want the following spherical of financing). It’ll additionally enable an investor to check whether or not your fundraising plans are affordable given your capital necessities. It’ll additionally enable them to see whether or not your estimate of prices (e.g., for engineering expertise, advertising prices, or workplace area) is affordable, given their experiences with different firms.
Mistake #20: Not promoting your mental property
For a lot of firms, their mental property will likely be a key to success. That is true in lots of cases, however much more so for early-stage firms. Traders pays specific consideration to your solutions to those questions:
- What key mental property does the corporate have (patents, patents pending, copyrights, commerce secrets and techniques, emblems, domains)?
- What consolation do you’ve got that the corporate’s mental property doesn’t violate the rights of a 3rd celebration?
- How was the corporate’s mental property developed?
- Would any prior employers of a group member have a possible declare to the corporate’s mental property?
- What actions are you taking to safeguard your mental property?
Mistake #21: Not explaining the services or products properly sufficient
You need to clearly articulate what your services or products consists of and why it’s distinctive, so count on to get the next questions:
- Why do customers care about your services or products?
- What are the most important product milestones?
- What are the important thing differentiated options of your services or products?
- What have you ever realized from early variations of the services or products?
- What are the 2 or three key options you intend so as to add?
- How usually do you envision enhancing or updating the services or products?
Mistake #22: Failing to ship a private thanks after the pitch assembly
Failure to ship a thank-you observe, or worse, sending a generic observe, is a mistake. At all times ship a real and customised thank-you observe to every of the buyers that you simply met.
Not all of those errors are deadly. As you apply and make extra shows to advisors and buyers, you’ll be taught what they care about and what doesn’t resonate with them. Be sure that to adapt your pitch deck and presentation from the following tips.
Learn all of Richard Harroch’s articles on techworse.com.
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Copyright (c) by Richard D. Harroch. All Rights Reserved
Concerning the Authors:
Richard D. Harroch is a Managing Director and International Head of M&A at VantagePoint Capital Companions, a enterprise capital fund within the San Francisco space. His focus is on Web, digital media and software program firms, and he was the founding father of a number of Web firms. His articles have appeared on-line in Forbes, Fortune, MSN, Yahoo, FoxBusiness and techworse.com. Richard is the creator of a number of books on start-ups and entrepreneurship in addition to the co-author of Poker for Dummies and a Wall Road Journal-bestselling guide on small enterprise. He’s the co-author of a 1,500-page guide by Bloomberg: Mergers and Acquisitions of Privately Held Companies: Analysis, Forms and Agreements. He was additionally a company and M&A accomplice on the regulation agency of Orrick, with expertise in start-ups, mergers and acquisitions and enterprise capital. He has been concerned in over 200 M&A transactions and 500 startups. He could be reached by means of LinkedIn.
Neel Lilani is Managing Director-Purchasers of Orrick’s world company growth efforts for expertise firms, Neel drives alternatives for shoppers all through the innovation sector. He has all the time been fascinated with expertise’s skill to form the best way we reside, work, assume and play. At Orrick, Neel is ready to assist expertise entrepreneurs and buyers capitalize on their imaginative and prescient by leveraging his world community of firms, buyers and entrepreneurs to create connections and advise on financing and enterprise technique. He’s additionally in a position to join shoppers with the exact authorized assist to satisfy their particular wants. Neel has served in senior technique roles at among the world’s main regulation companies and Fortune 500 firms. He could be reached by means of the Orrick website.
Kate O’Laughlin is Director, Tech and Funding at Orrick. Kate works with rising and high-growth expertise firms at every stage of the corporate’s lifecycle, from making impactful, focused introductions to strategic buyers to advising on key hires to figuring out core legal professionals with the exact subject material experience. Kate brings a macro perspective when strategizing with founders, CEOs, basic counsels and different executives on an organization’s quick, medium- and long-term wants, drawing on her market data and expertise as each an in-house and regulation agency lawyer. You will need to Kate that shoppers have the suitable connections and assets in place on the proper time. She focuses on figuring out and facilitating such connections by leveraging Orrick’s intensive, world community so shoppers can concentrate on working a profitable enterprise. Kate was beforehand an in-house lawyer at Atlassian and most just lately practiced with Orrick’s Know-how Transactions Group. She could be reached by means of the Orrick website.