8th August, 2022
If you need to secure working capital to start or grow your business, you might consider pitching the concept to investors. This guide shows you how.
As an entrepreneur – whether you’re in the startup phase, or looking to expand – finding potential investors can feel like an insurmountable mountain to climb.
But just when you’ve summited that peak (and got your meetings set) suddenly you realise that you’ve got another pinnacle to climb – the pitch itself.
Pitching to investors can be a daunting task. After all they may hear a thousand ideas a year. But they’ll certainly only invest in a few worthy businesses.
You need to make sure that your pitch is one that not only grabs the investor’s attention but also drives their investment.
In this article:
To pitch to investors well you need to think beyond just what you’ll say in the room. In fact it’s helpful to think of the pitch as three stages:
Before you ever set foot in an investor meeting you need to ensure that you’re well prepared. This includes understanding your investor, creating your collateral and prepping for your time in the room.
Before you can prepare for your pitch, you need to understand your audience. In this case, that means understanding your investor, both the type of investor they are and the individual themselves.
When it comes to the types of investors, there are generally two that most people consider – angel investors and venture capitalists – and how you pitch to each type will be different.
Angel investors tend to be high net worth individuals who are looking for a way to make an impact. They will, of course, be considering the potential ROI of their investment, but will also consider the social repercussions. They are big picture thinkers with an agenda.
On the other hand, venture capitalists (or VCs) are much more numbers driven with a strong, laser-like focus on metrics, potential ROI and possible risks. They generally represent a group of investors as well, so are strongly motivated to make strong investment decisions.
A third type of investor is explained by Drew Lambert of DL Communications is a leading PR expert for equity crowdfunding in Australia, managing three of the top ten raises in the past 12 months. He notes, “Equity crowdfunding is very different to angel investing and venture capitalism”.
“You’re looking for retail investors, mums and dads who want to invest in your startup for as little as $250,” he said.
Whichever route you take, once you understand the type of investor you’re pitching to, you’ll need to research the individuals themselves. Some investors may be easily researched online, while others may be more elusive.
If you’re looking at angel or venture investors, a great first step is to look to see if they’ve given any interviews and review these carefully. And if you can’t find anything out online, make a few phone calls. Generally you’ll be able to find someone with the information that you need.
For equity crowdfunding, Lambert advises that the approach is a little different,
“Rather than pitching to potential investors in a formal way, you reach equity crowdfunding investors best by making them loyal fans of your product, and PR is a huge part of creating the hype to invest,” he said.
It’s important to try to find out any investment patterns in your target investors as well so you know how to angle your pitch.
When approaching a face to face pitch, you should, at the very least, ensure that you know some information about each person in the room, including:
Knowing the information above helps you to tailor your pitch to your audience.
Mark Fazio, is one of the Founders of MATE, a 100 percent, Aussie-owned telco has grown from a backyard startup to be Australia’s largest privately owned telcos.
“In our pitch to investors, the key to success was understanding what they have funded in the past as it shows a clear view of what they are interested in.
“In our industry a lot of investors missed out on investing in businesses like ours and have seen them grow significantly in the past couple of years.
“We searched for these investors and tailored our pitch accordingly, adding in key phrases like, ‘you don’t want to miss out again’,”
Before you enter any room with your pitch, you need to have your numbers (data, metrics, forecasts) in place. This is solid data that demonstrates what you’ve accomplished in the past, and why this investment will make the investor a profit in the future.
Part of this process is determining a start-up value. Of course methods for determining a start-up value are fairly controversial and open for interpretation, namely because a start-up, by its very nature, have no real inherent value.
Whatever method you choose, however, investors will need to hear the reasoning behind your numbers.
Another important part of this data are the numbers that support you as the human behind the company.
Because your company doesn’t exist yet, the investor is really giving the money to you – not your company. They need to trust you and believe that you can accomplish what you say you can.
Using data such as market statistics, user information, potential profit margins and the like can hook investors and bring them onboard.
It’s important not to walk into the room empty handed if you want investors to take you seriously.
Prepare a business plan and a model, supported by your data. If you are creating a physical product or digital service, prepare a demo as well (and ensure that it works well). Then compile everything into an easy-to-use pitch deck that breaks down your business plan and backing data into different segments which can be presented easily in the investor meeting.
Having physical collateral that supports your idea gives weight and authority to the project. And it will show that you take the meeting seriously and have concrete plans supporting it.
Once you’re in the room, you’ll need to be ready to deliver your pitch. This starts with your elevator pitch.
Your elevator pitch needs to be sharp and to the point. It’s essentially a 30-second summary of the whole pitch in total and it should let your investors know what you’ll be covering throughout the meeting. This includes the problem, your solution and what makes you unique (your core value proposition).
A veteran of presenting the short, sharp pitch, Fazio says, “There should always be an opening statement that sets the scene for pitch”.
“There is a lot of information to talk through and setting the scene up front about what to expect instantly grabs the room and gets them focused on the story you are about to tell.
“Think of simply starting with a brief overview that includes the who, what, when, where, why and how.”
After you’ve introduced the investors to your opportunity with the elevator pitch, it’s your turn to tell your story.
Don’t be tempted to rush over this to get to the nuts and bolts (the numbers and metrics) because it’s brand stories that drive conversion. In fact, research shows that 55 percent of individuals are more likely to buy a product when they love the brand story.
So, even if you only have five minutes with an investor, spend four of those minutes telling your story, and one delivering facts, numbers and data.
Once you’ve told your story use your pitch deck to go through your business plan, your backing data, your future practices, your hiring strategies and even your succession plan. All of these elements demonstrate to the investor that you are a serious prospect and a good risk.
Be ready to answer tough questions from industry veterans. And when you don’t know the answer – or don’t feel that you’ve given the best answer possible – learn from it. Go away, find the answer and be prepared for the question next time.
Fazio notes that this feeling can be a tough one as the panic can set in.
“Always be open about not having the answer to a question,” he advised.
“It’s ok to not have all the answers and saying something you are not sure of is probably the worst thing you can do.”
Instead, he proposes you take the honest approach.
“The investors need to see trust in you from the moment they meet you.
“They need to trust you with their money, if they get the feeling you are not clear or truthful about what you are telling them, then your chances of investment go down hill.”
Remember that you matter. Take care with how you look and how you present yourself. Be respectful, thoughtful and responsive to questions and concerns. And be confident with your project. If you don’t demonstrate confidence, the investors certainly won’t feel confident to take a risk on you.
Once the meeting is over, your job isn’t done. It’s vital that you follow up. Good practice suggests that 24 hours is a good time to get in touch with a brief email or phone call to see if the investors have any additional questions or concerns, or might just like to chat some more.
And if you do get a ‘no’ (and remember, most pitches end up as a no), be sure to ask for some feedback. This could be valuable in helping you in your next pitch.
Pitching to investors can be confronting, but it’s an important part of being an entrepreneur. And investment can mean all the difference for your business, whether you’re a start-up or just a business looking to stay afloat or grow.
Treat each pitch as the most important thing and it might just be the last pitch you ever do.