The majority of entrepreneurs have one thing in common: They're totally in love with their company and their product. They are passionate, enthusiastic and optimistic. They can’t wait to tell everyone how their idea or product is going to change the world. Before that can happen, though, entrepreneurs need to spend some time thinking about what motivates the people who will help fuel the jet engine.
During my decades of raising capital and running startups, I've learned a few things about preparing for investor meetings. If you're lining up appointments with people who have the potential to write big checks, I recommend you make your way down this full list. Following these guidelines will help you secure funding and build valuable partnerships.
1. Do your homework.
Create a target list of “smart money” investors, and do your homework on every prospect. Raising money for your startup is like any sales system. You gather leads, sort and prioritize those leads, and run through a process -- typically using a tool such as a sales funnel. Then you close business.
Faced with a fundraising challenge, however, most entrepreneurs will call on anyone and everyone with an "angel investor” or “venture capitalist” sign on the door. This is one process, I suppose. But it definitely doesn’t seem like a very efficient one. It's akin to knocking on doors in real-estate sales, or cold-calling from a phone book as a stockbroker. It's far more effective to apply a business-development mentality: Qualify leads first, then work to get warm introductions and finally work the sales process as you make your way down your list of warm leads.
I write a great deal about "smart money" investors on my blog. These individuals have domain expertise in your vertical markets or specialized technical knowledge and contacts in your product area. They also have a track record of investing successfully in your domain -- and the financial wherewithal to make additional investments.
Identifying "smart money" investors is a process, but you can accomplish it using publicly available information or intel from a subscription-based service (often at a relatively modest cost). With list in hand, you should rely first on potential investors with whom you have a personal relationship and a good deal of credibility. Convince one of them to invest, and he or she will become an advocate to persuade others.
If your list includes key prospects you don't already know, work your existing connections to see if any of your contacts could make an introduction. LinkedIn and Angel's List are two great resources for this type of professional networking.
Before you meet with any prospective investor, learn as much as you can about him or her -- background, style, most successful bet and biggest failure. What does each know that could be helpful in networking? "Smart money" investors bring a lot more to the table than fluid assets. They also can hold immense value as you build your company's influence and brand awareness.
2. Follow a strategic planning process.
I won’t belabor the point here, since a look at "Essential Elements of a Fundable Startup Business" sums it up nicely. You needn't adopt a full, six-month process of the type you'd apply in a big company. But you should have a clear understanding of some key components:
- target market
- market size and growth
- your unique value proposition
- customer profile
- competitive landscape
- your product roadmap
- your plan over the 12, 24 and 36 months
- your key milestones, especially over the next 18 months
You also should have a rough idea of how you will make money, which includes your gross margins, your customer acquisition costs, the total value of a customer and your operating expenses over time. Without this baseline knowledge, it's nearly impossible to raise outside money from angel investors or venture capitalists.
3. Develop a business plan and financial model.
The results of your strategic-planning process form the starting point for your business plan. The average strategic plan forecasts a quarterly financial model over the next three years. Consequently, it doesn't give a very detailed view of expenses for the upcoming 12 months.
But to truly understand how your business works on a level that allows you to describe it to a potential investor, it's essential to drill down to a monthly financial plan for the first 18 months. It's important you get your product right. It's no less important to understand the business aspect of the opportunities you offer clients and investors. You must be able to explain your money-making strategies clearly and crisply.
4. Draft a set of key milestones.
Key milestones are another output of your strategic-planning process. Investors need confidence in your ability to deliver results. If you don't identify measurable goals, how can they trust you'll execute bigger plans? Or even know when you've arrived where you want to go?
The typical process for raising venture capital in a Series A runs approximately six months. Raising a seed round with angel investors isn't much different. The best entrepreneurs establish some near-term key milestones to reach in the coming months. These small wins help build confidence among your pool of prospective donors. Each milestone should be real and relevant in terms of reducing risk. Know what your milestones really mean and how you'll track your progress against them.
5. Create a story that encapsulates the problem your company solves.
Dealing with venture capitalists (VCs) can feel a bit like producing a show for a short-attention-span theatre. The same usually applies to angel investors, too -- unless you find one who wants to "go deep" on your technology or product and you can geek out together. This can be an effective tactic to launch a highly technical product with target investors who already are entrenched in your niche of the tech sector. But it typically won't work with VCs. In any case, VCs are busy people who look at a lot of deals. If you want to grab their attention, you'd better show them something during the first five minutes of your meeting.
I've been in the entrepreneur role and played the investor's part. In both cases, a compelling story that resonates with the listener's experience and knowledge has proved the best opener. You want to create an almost visceral reaction when you share your target customer's pain point. As you describe how your solution alleviates that pain, you'll draw them in.
This is especially true if you're pitching only to "smart money" investors. They understand the context better than the average bear and also will realize the value of solving the particular problem your product or service revolves around.
6. Create an investor presentation and pitch deck.
There is both art and science in developing a good investor presentation and a solid pitch deck. I'm always careful to distinguish the two: The presentation is what you say and how you say it, while the pitch deck is the text and imagery on your slides. Both are critically important.
Your pitch deck should convey your story and go on to describe the key aspects of your business and product. You'll also want to include a few financial highlights on how you plan to make money -- based on a model that's been rigorously developed and heavily scrutinized. And you'll have to do it all in the space of about 20 questions, including time for questions.
My rule of thumb? Budget for two to three minutes per slide, not figuring in the title slide and call to action (CTA). A 20-minute pitch, then, shouldn't exceed 10 to 12 slides. I've seen hundreds of investor presentations, and I don't need both hands to count the times investors have held to this number.
Some entrepreneurs might ask, “Why would you schedule a meeting for an hour when you're presenting for only 20 minutes?” Assuming the meeting goes well, you want the rest of the time for discussion. With an engaged audience, Q&A will take 10 to 15 minutes on its own. You might also be fortunate enough to generate some dialogue during the presentation. This is generally a good sign, though there are some who take perverse pleasure in trying to derail a presentation. Unless the disrupter brings some special value that can move the needle in a big way, you might do well to consider whether you really want this person as an investor.
Let's take a look at the full timeline. For starters, assume everyone arrives five minutes late. You make introductions (another five minutes), present your interactive pitch deck (25 minutes), lead a spirited Q&A (15 minutes) and take action items for the next meeting (five minutes). Stick to that schedule, and you'll wrap up with five minutes to spare, showing you're highly organized and don't waste time.
Your presentation is you -- what you do to bring the slides to life. If you land a face-to-face meeting with your high-value target prospective investors, they'll be evaluating you every bit as thoroughly as they're judging your business. Can they trust you? Do you know your stuff? How do you respond under pressure and questioning? Do you have credibility? It's essential to practice your presentation in advance. Just don't send your pitch-deck slides ahead of the real presentation. That's what an executive summary is for.
7. Draft an executive summary.
Design your executive summary to give just enough information to garner interest and score a face-to-face meeting. Highlight the most relevant facts about your company, product and target market. "First Steps to Writing the Executive Summary for your Business Plan" can help you get started with a framework.
8. Craft and practice your elevator pitch.
Use your executive summary to pare down even further, to an elevator pitch. Imagine you're taking an elevator ride that could last between 30 seconds and two minutes. In that time, you need to clearly describe what your company does, how you’re going to win in your target market, some of your specific customers and the competitive advantage your product offers over the alternative players. Work on this elevator pitch until you're comfortable with the story. Don't recite the lines. Let your passion show every time.
9. Develop a set of FAQs and practice with a hostile audience.
This is one of the most overlooked components of investor-meeting preparation. And that's a shame, because it's also one of the most critically important elements of working with investors. I was the CEO at Entropic for more than 11 years, and we were a public company for the last seven of those years. Developing FAQs based on difficult questions from a “devil’s advocate” group of in-the-know people was one of the most valuable parts of my team’s preparation for earnings calls. It's just as valuable for raising a financing round, whether you're operating in a private or a public company environment.
10. Iterate. And again.
As you meet with prospective investors, capture their feedback. Incorporate their ideas into your pitch deck, executive summary, business model and FAQs. Try to learn from everyone. Even if you've done a tremendous job of preparing for your first investor session -- and believe me, few startups do everything on this list -- you can make your presentation stronger still by gaining input from every investor meeting.