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 corporations make frequent errors that might be averted. Learn beneath for some recommendations on how you can enhance investor curiosity and enhance the chance 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 throughout 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 discipline, the bulk nonetheless routinely don’t learn unsolicited emails. They get lots 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 may take note of is a referral from somebody of their community: a lawyer, an entrepreneur from one in all their portfolio corporations or a fellow enterprise capitalist. Ask your advisors that you simply work with (e.g., your board of administrators or legislation agency) to see if they’ve suggestions on investor referrals and might provide any direct introductions.
Mistake #2: Not doing all of 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 in regards to 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’ targets.
The primary place to look is buyers’ web sites, which usually state the precise stage, sector, and site they put money into. Different assets embrace PitchBook or CB Insights. For those who had been launched to the investor, discover out every thing you’ll be able to in regards to the agency and particular person from the one that made the referral.
Exhibiting some consciousness of an investor’s background and the businesses it has invested in will facilitate the dialog, and likewise exhibits you’ve got executed some advance due diligence for the assembly.
Mistake #3: Pitching your tier 1 investor first
Each time you pitch, you’ll acquire helpful suggestions that can permit you to additional refine your deck and presentation. Begin with “warm” or “friendly” buyers first so you’re well-positioned by the point you pitch a extremely fascinating investor. You have to be ready to offer crisp solutions to questions; and training will sharpen your responses and presentation.
Mistake #4: Asking to have an NDA signed earlier than sharing info
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’ve got one thing extremely confidential, don’t share it. As quickly as you ship a pitch deck, it is best to 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 throughout the diligence course of. On 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 quite 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 different pitch decks and govt summaries
Reviewing different pitch decks and govt summaries may also help you enhance your personal. You possibly can ask your lawyer, different entrepreneurs, or angel investor pals for samples. Lots 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 should have an hour at most to make your pitch. So overloading your deck with too many slides will reduce into the crispness of the presentation, and also you received’t have time to get to the slides on the finish of your deck. If an investor is , you’ll be able to all the time present extra detailed info later.
The deck will in lots of instances be seen on a cellular system or pill. Having a file dimension of 5MB or smaller will make sure that any e mail filters or mobile download restrictions received’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 absolutely 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’re 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 know-how is best than or totally different from what’s already on the market. You possibly can assume that they may learn about aggressive merchandise or know-how, so you have to have a very good 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 prospects
One of the necessary issues to relay are indicators of early traction or prospects. When you’ve got an app, buyers wish to know what number of downloads you’ve got and what number of further ones you’re you getting per week? Have you ever gotten any brand-name prospects in case you are 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 will have nice signaling influence.
Don’t overlook to convey any early buzz or press you’ve got obtained, 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 spotlight your workforce’s expertise and credentials
Many buyers think about the workforce behind an early stage startup extra necessary than the thought or the product, particularly if the workforce features a serial entrepreneur. The buyers will wish to know that the workforce has the correct set of expertise, drive, expertise, and temperament to develop the enterprise. Buyers 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 workforce members?
- What related area expertise does the workforce have?
- What key additions to the workforce are wanted within the quick time period?
- Why is the workforce uniquely succesful to execute the corporate’s marketing strategy?
- What number of staff do you’ve got?
- What motivates the founders?
- How do you propose to scale the workforce within the subsequent 12 months?
- Who’s in your board and why?
Errors to keep away from throughout the presentation of the pitch
Mistake #11: Not demonstrating why the market alternative is large and might thrive within the present local weather
Most buyers are searching for companies that may scale and grow to be significant, particularly within the present COVID, political, and financial local weather. So be sure to tackle this situation proper up entrance as to why your online business can actually grow to be large. Don’t current any small concepts. If the market alternative to your preliminary product just isn’t massive, then maybe you have to place the corporate as a “platform” enterprise, permitting for the long run improvement of a number of merchandise. Buyers wish to know the precise addressable market and what number of the market you propose to recover from time.
Mistake #12: Exhibiting uninteresting or unrealistic projections and valuations
For those who present projections for the corporate to grow to be $5 million in income in 5 years, there is not going to be a lot curiosity. Buyers wish to put money into an organization that may develop considerably and grow to be an thrilling enterprise. Alternatively, when you present projections the place you’re at $500 million in three years, that might be seen as unrealistic, particularly in case you are at zero revenues at the moment. Keep away from assumptions in your projections that might be troublesome to justify, reminiscent of how you’re going to get to a 400% development in income with solely a 20% development in working and advertising prices.
The identical goes for valuations. Usually, it’s greatest to not focus on valuation in a primary assembly, apart from to say you count on to be affordable on valuation.
Mistake #13: Punting powerful questions
It’s important to anticipate troublesome questions. Telling an investor that you’re going to get again to them with a solution seldom leaves a very good impression. If an investor is asking you questions, that’s a very good signal that they’re engaged. Do your greatest to reply questions instantly. Don’t evade the exhausting questions or say you’re going to get to them later within the presentation. Buyers wish to see when you 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 shopper
Buyers might be excited about your understanding of buyer or consumer acquisition points. What prices will you incur to amass a buyer? What would be the doubtless lifetime worth of the shopper? What channels will you utilize to amass 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 harm the notion of how nicely 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 are you going to cost-effectively get to potential prospects? How will you utilize social media, reminiscent of Fb, Twitter, LinkedIn, Pinterest, and so on.? 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 price a thousand phrases. Present a prototype or working demo of your product, app, or web site. This may give buyers a greater sense of what you are attempting to do. Be certain it really works nicely and isn’t “buggy.” Impress the investor with its feel and look. When potential, think about together with a video/demo link in your deck.
Mistake #17: Not understanding the potential dangers to the enterprise
Buyers will wish to check what you see are the dangers to the enterprise. They wish to perceive your thought course of and the mitigating precautions you propose 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 know-how 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 online 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 may need you to articulate the important thing assumptions and persuade them they’re affordable. For those who can’t try this, they received’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 may need you to offer a cogent, considerate response.
Mistake #19: Not clearly articulating use of funds and runway
Buyers will completely wish to understand how their capital might be invested and your proposed burn charge— (in order that they’ll perceive when you might want the following spherical of financing). It is going to additionally permit an investor to check whether or not your fundraising plans are affordable given your capital necessities. It is going to additionally permit them to see whether or not your estimate of prices (e.g., for engineering expertise, advertising prices, or workplace house) is cheap, given their experiences with different corporations.
Mistake #20: Not promoting your mental property
For a lot of corporations, their mental property might be a key to success. That is true in lots of cases, however much more so for early-stage corporations. Buyers 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 get together?
- How was the corporate’s mental property developed?
- Would any prior employers of a workforce 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 nicely sufficient
You could 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 main product milestones?
- What are the important thing differentiated options of your services or products?
- What have you ever discovered from early variations of the services or products?
- What are the 2 or three key options you propose so as to add?
- How typically 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 notice, or worse, sending a generic notice, is a mistake. All the time ship a real and customised thank-you notice to every of the buyers that you simply met.
Not all of those errors are deadly. As you follow and make extra displays to advisors and buyers, you’ll be taught what they care about and what doesn’t resonate with them. Be certain 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 World 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 corporations, and he was the founding father of a number of Web corporations. His articles have appeared on-line in Forbes, Fortune, MSN, Yahoo, FoxBusiness and techworse.com. Richard is the writer of a number of books on start-ups and entrepreneurship in addition to the co-author of Poker for Dummies and a Wall Avenue Journal-bestselling e-book on small enterprise. He’s the co-author of a 1,500-page e-book by Bloomberg: Mergers and Acquisitions of Privately Held Companies: Analysis, Forms and Agreements. He was additionally a company and M&A companion on the legislation 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 international company improvement efforts for know-how corporations, Neel drives alternatives for purchasers all through the innovation sector. He has all the time been fascinated with know-how’s potential to form the best way we dwell, work, assume and play. At Orrick, Neel is ready to assist know-how entrepreneurs and buyers capitalize on their imaginative and prescient by leveraging his international community of corporations, buyers and entrepreneurs to create connections and advise on financing and enterprise technique. He’s additionally capable of join purchasers with the exact authorized assist to fulfill their particular wants. Neel has served in senior technique roles at a few of the world’s main legislation corporations and Fortune 500 corporations. 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 know-how corporations 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, normal counsels and different executives on an organization’s fast, medium- and long-term wants, drawing on her market information and expertise as each an in-house and legislation agency lawyer. You will need to Kate that purchasers have the correct connections and assets in place on the proper time. She focuses on figuring out and facilitating such connections by leveraging Orrick’s intensive, international community so purchasers can deal with operating 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.