How to Present Your Invention to Investors
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Polaris Communications Inc. is a rising star. The 2-year-old firm, founded by Stephen Stockdale and Ajit Benoit, has risen to prominence in Atlanta by offering low-cost wireless networking and Internet access to resorts, hotels and residential buildings. But no major investors were on board as Polaris broke through to a $1 million run rate recently.
Why weren't investors committed? Because Polaris failed to properly market the opportunity, says Stockdale, 33, president and CEO. "We went back to basics and self-funded," he says. But that means slow growth and forgoing opportunity in a rapidly expanding market.
Stockdale and Benoit learned from the mistake. They enrolled in investment classes, read books, and hired Michael Makropoulos, president and founder of High Impact Funding LLC, a business advisory firm in Atlanta, who reworked Polaris' approach to funding.
Whether you court banks, angels or VCs, your investment opportunity must be marketed in a powerful, professional way, says Makropoulos: "How will an investor believe you can market your product if you can't market the investment opportunity?"
Most investors-banks, angels and VCs included-review hundreds of pitches each year. Few will hold their attention for long, and fewer will receive capital. To select the best opportunities, an investor looks for any and every reason to say no. To avoid that no, Makropoulos suggests an emotional appeal. "Get them emotionally invested quickly," he says. "Build a [powerful] executive summary and business plan." Investors can be turned off by a boring plan or drawn into an exciting one. "If it reads like a novel, you compel them to move through the parts of the plan you need them to read," Makropoulos adds.
But don't confuse impact with imagination-a compelling story must be realistic. "If you write something unbelievable," warns Makropoulos, "then you give the investor another reason not to invest."
Breakfast of Champions
Moira Conlon, executive vice president and general manager at the Los Angeles and San Francisco offices of Financial Relations Board, an investor relations agency, compares investment opportunities to boxes of breakfast cereals. "You've got 500 different brands of cereal on the shelf. It's up to you to differentiate yourself," she says. She suggests that investment materials appeal to a broad audience. "If the VC has a lot of deals on his desk, he'll go to the one he can understand," she says. A solid plan needs a complete financial model and clear assumptions: how much money is needed, where investments will be made and where the money will get you.
Beauty, Brains and Brawn
There's no denying that a beautiful business plan will get you noticed. But properly marketing your business opportunity to investors is also about the product's strengths and the people behind the plan.
Makropoulos emphasizes the product. "A lot of the work I do with companies is understanding value, positioning, differentiation and branding," he says. Once a firm has differentiated its product and provided a clear value proposition, the investment opportunity's value is apparent.
Conlon, on the other hand, puts people first. "CEOs need to know this is about developing relationships with potential funders," she says. Trust builds respect and good relationships. Hype kills the deal.
If an awesome executive summary is the bait and a clear value proposition is the hook, then consistent communication will reel in a big investor. As with any sale, your customer-the investor-will have concerns, and the best marketers address them promptly and politely. "It's about showing them how you would be to work with on an ongoing basis," says Conlon.
One advantage is to know your audience. How do they invest? What's their style? A Web search will answer many questions; talking with other entrepreneurs and investors can answer the rest. When you know the audience well, you can customize marketing messages. Some investors look for short-term gains; others prefer a strategic fit within their portfolio. Each is unique, so search for those that fit your business needs and your style the best.
Investors have one thing in common: They want to make money. Be sure your pitch includes an explanation of how an investor's money will be returned with interest. If your opportunity is a bottomless pit, no amount of marketing will cover up that fact for long.
Ask for Help
Marketing an investment opportunity is easier when you know how. Since it's not an activity most businesses do often, consultants can be worth their weight in gold. The best ones combine marketing savvy with excellent writing skills, financial-forecasting ability, and connections in the investing world.
At Polaris Communications, Stockdale is better educated about investor needs and better armed for his next pitch. "It was phenomenal," he says of the assistance he received from Makropoulos. "When you get bigger, you've got to trust other people. And when you do, you can do amazing things."
1. Product: Your investment opportunity should stand out. That can mean the opportunity itself is unique, or that the company is highly differentiated from the competition.
2. Price: The price of an opportunity can be measured by the expected ROI and the relative valuation of the company compared to similar alternatives. Be reasonable on both accounts. Investors will expect above-market returns for small private companies, while looking for below-market valuations.
3. Promotion: How are you spreading the word? Are you using a great-looking business plan? Do you have a compelling pitch? Make sure investor materials are powerful and professional.
4. Place: Are you going to a bank when you should be looking for a VC? Taking your pitch to the right investors is crucial. Find the right kind, then learn as much as you can about each one.