7 Step Guide On Preparing Your Business Pitch Startup investor explains the seven things every small business should know before pitching their business to raise finance
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In a start-up world that is plagued with a detrimental 'raise, raise, raise' mentality, it can often be disheartening for small business struggling to raise capital from angel investors and venture capitalists. Unfortunately, for certain early stage start-ups there exists a chicken and egg dilemma whereby no one is willing to provide capital to a pre-revenue start-up, however to push the product into commercialization, a business requires a certain amount of funds.
Therefore, it is extremely important that the founders are able to eloquently present their business in a way that will get them attention and attraction, above and beyond the hundreds of other ideas investors are presented weekly.
As a 20 year old investment officer at Halkin Ventures, a venture build firm that focuses on investing in exciting tech start-ups while providing a hands on approach to management, I am on the receiving end of numerous pitches. I have been a judge at various start-up pitching competitions and therefore have developed some important mental criteria that I consider when listening to the founders deliver their ideas.
How do you stand out from the rest?
1. Know Your Ask!
Knowing a round figure is not enough. You must have prepared and understood when you need that funding and what it is going to be used for. You must ensure that if the business is somewhat established, you are able to show how injecting the extra capital is going to make a sizable difference and help grow your business. Ensure you are going to the right funding source for your business' needs. Certain venture capitalists will simply be looking for a return on their investments based on their belief in the idea, while others will want to ensure that they can provide strategic guidance based on their experience. Making it obvious what you are looking for from an investment partner is integral for both parties.
2. Capital Is A Tool, Not A Prize
The concept of bootstrapping is often overlooked in today's culture of consumerism. Flashy cars and expensive watches may indicate a potential for founders to misuse the capital injected into their business, which takes away from the initial goal of the investment, which was to make a return for both parties. Demonstrating that your business can stick below budget and keep operations running on a shoe-string budget will give confidence to investors that you are responsible with the liquidity that you have, therefore limiting their risk. When investing in a start-up, you are investing in the founders, therefore encouraging trust from the beginning is imperative.
3. Know What You Are Talking About… But Keep It Simple
An issue and misconception with the pitching process is that it is a marketing process, and thus the Chief Technology Officer is often missing from the room. A great pitch with well-rehearsed speeches and slides may do the trick if it is an investor's first rodeo. However 99 per cent of investors will see beyond the flashing lights and ask about the product.
The person presenting your product must know the product to a level that they can answer any question without hesitation. At the same time, the presenter must be able to simplify the idea to suit the lowest common denominator in the room. While I have grown up within a high-tech society and have an interest and understanding in various tech industries, most individuals within the industry have backgrounds in finance and accounting, not software engineering or computer science. Finding the fine line between overly technical and exceedingly basic is a necessity.
All professional venture firms have processes and rules to follow - this means that planning ahead so that you don't run out of money while pitching to them is key. Going into a pitch on your last cent, hoping for instant funding, is going to hinder your pitch and relationship with the investors, and here's why: When money is at stake, all organizations must have some level of bureaucracy. Whether that is passing the idea through various executive boards, or whether it is a prolonged due diligence. Trying to rush this process will put unwanted stress on investors and could raise a red flag regarding personality compatibility between founder and investor.
5. Inject Realism into Your Numbers
Even if you are no financial expert, putting together a basic forecast of your revenues and expenses with a basic cash flow is a great tool to demonstrate your understanding of the cost structures, how you plan to use the funding, and can act as a tool to stay on track once the funding is received. Ensuring the numbers make sense is vital. Randomly demonstrating inflated figures undermines the confidence in the entire business model, so keep them realistic.
6. The honesty-pride paradox
This is a term that I coined to describe the mixed messages conveyed by founders regarding their success. On the one hand, the zealous enthusiasm of entrepreneur describes the leaps and bounds the company has achieved. However, when wearing the banker hat, the founder also conveys the financial troubles ahead. This resulting dichotomy makes for an interesting paradigm when the founders present their business.
Every investor knows the trials and tribulations of the start up world, so being honest will result in a more truthful business plan and realistic requirements in terms of what capital injection is really needed. Which leads to the final point.
7. Business valuation
As I mentioned the 'raise, raise, raise' mentality can be extremely toxic for founders as it can lead to strange valuations upfront, which results in worrying value trends further down the track as pragmatic business minds struggle with the value proposed by excitable entrepreneurs. My golden tip is to hold onto the early capital for as long as possible, which should be raised at pragmatic value points. This funding should be geared towards getting the product to a stage of commercialization to ensure future rounds recognize and reflect the efforts and intellect of all parties involved.