Turn Ideas into Deals
I’m often pitched by entrepreneurs who have great ideas (and some that don’t) but are living in fantasy land when it comes to raising money because they haven’t articulated how they would turn their idea into a fundable deal. The key is to make it easy for the investor to say yes. Speak to the investor about things that are important to them. Don’t try to convince them that everything they know and have experienced with early stage companies is wrong and you know better.
Here is a list of do’s and don’ts when pitching an investor.
Why Me: Why did you select this particular investor to pitch? Do you have specific reasons you selected them or did you just stumble over them? You should show that you are focused on the right investors for your industry/business, not just to getting the money and the best valuation. Remember, the wealthier the Angel the more concerned they are about their protecting their time. They are “time impoverished” and you have to cram your way into their calendar so when you get to them be respectful of their time and make the right pitch.
Father of the Year: Are you into work/life balance? Are you going to be at every one of little Jimmy’s soccer games? That is great! Don’t ask for money. An investor wants to hear two things:
• WIT, I will do “whatever it takes” to make this business successful.
• NEM, “Nothing else matters” more than this business being a success.
An investor wants you to give all you have for 24 to 36 months. Once you cash out with your millions you can head to the islands and relax until then its full throttle.
What are you reading? Is you favorite book “Good to Great”? Are you interested in building a great, lasting company? Don’t ask for money. Investors want to see an end in sight and a path to an exit with a significant return. If you are a serial entrepreneur who has the desire to build multiple companies and create value for “all” involved you are on the right track for investment. Remember, investors don’t like recaps as an exit strategy so don’t even bring that up.
Is it more important to be CEO or for this company to be successful? The litmus test is do you have such a great passion that the idea succeed (because it is so important to the team and society) that you would be willing to step aside as CEO if needed. If it is more important for you to be the CEO don’t ask for money.
If you give me money and buy my common stock and I guarantee you will never be diluted. Unless your exit is tomorrow common stock insults professional investors so save that for the employee pool. Also, the last money in sets the rules so promising no dilution is not realistic. You will probably need more cash if you are truly building a significant opportunity and dilution is part of the deal. The key isn’t how big your piece is, it’s how big the pie will be at the end.
ROI vs. R”OF”I: ROI is a great number and you usually see it in presentations but it is really a mathematical calculation. When pitching focus on R”OF”I, return "of" investment. Discuss the exit. Work back from when the investor will get their money back. Often times during initial pitches the investor will assume that your product is the greatest innovation since fire. What you need to convince them is that there is somebody out there that will buy your product and that the company will be a big score. Once you get investors interested you can get into the tech-speak on the product.
The money is needed to create an iron clad patent: Patents are nice to have but in reality a patent is only as good as your ability to defend it. I’d rather hear how you are going to out-execute your competition instead of how you are setting yourself up to spend more money on the defending the IP. Remember, IP is the lawyer’s best friend.
While some of the suggestions might sound like 1999 .com speak, they aren’t. You still must create value for the customer and execute like any other business but there are special rules for investable businesses. If you are seeking investment it is your job as the entrepreneur is to show that your opportunity will create a great deal for the investor. Show them your product is an aspirin not a vitamin. Vitamins are nice and make you healthier but you don’t need them. Aspirins really relieve pain. It’s the same in business. Are you improving a process that is working OK now or are you truly curing a pain for your customer? If you follow these few simple rules you will improve your chances of successfully landing investment.