01 Jul How to Pitch a Seed-Round Investor
It seems as though the entire world has some valuable advice for entrepreneurs on how to pitch their business to investors. Some of it is good, but most of it is redundant. At the risk of adding to that heap, here are my two cents…
It’s a beginning, not an end
The honest to God truth is that your 60 second pitch will not determine whether or not you succeed in raising money, much like raising money will not determine whether or not you will succeed in building a business. A quick simply gives you a way to test the waters and see who likes you.
Let’s not forget why we call it a pitch. It’s your attempt to grab someone’s attention and hopefully draw them into your vision so that they can dig deeper into your legitimacy. I can count on one hand how many times someone has heard a pitch and written a check in the same day. By the way, that has never happened to anyone raising his/her first dollar, it only happens if you have have a track record of converting for investors.
Check your language for overstatement
This past week I went to two different pitch contests and observed a disturbing pattern: a rise in hyperbole. I have been an entrepreneur since I was in my early twenties and I have seen a lot of things, but I have never seen such grandiosity in the language of startups as I see today. Don’t get me wrong, I think there are many recent companies that have made huge, disruptive impacts. And the enthusiasm among entrepreneurs is very exciting and I don’t mean to diminish that in any way.
But the reality is that it’s easy to get a little carried away with your vision as a founder, especially when everyone else is getting carried away with theirs. Even if you have a game-changing, industry-disrupting idea on your hands, claims that your business will make investors richer than Bill Gates or change the world more likely hurts your credibility than impresses your audience. It feels like over the span of an average week, I’ll meet 25 entrepreneurs that have the next “billion dollar company.” It’s sometimes hard to tell if it’s sales-speak, boasting, or plain delusion.
Consider the odds if you were an investor
Be humble enough to acknowledge that 99 out of a 100 good startups, especially in the seed stage, are nothing more than experiments. You must be able to clearly convey whether or not your experiment is worth funding, with a small amount of cash.
Someone recently gave me a good analogy for this. Think of the founder of a startup as a stockbroker selling a security (like a stock) to his/her client an asset manager, the early stage investor. Asset managers are experts in their markets, which are sometimes broad or sometimes very narrow. Good asset managers don’t run around looking for good ideas outside their market, so realize right up front how well you really fit their market profile. But even if you do fit, recognize that they also allocate risk by considering their entire portfolio. To them you are likely viewed at first as maximum risk right off the bat. Perhaps you offer such a huge potential opportunity that they’re still intrigued. You’re moving down their decision chain. At that point it is their job is to poke holes in your great ideas and look for potential risk factors in your plan, from the team you have assembled to the competition you’re facing, and everything in between.
As a founder it is crucial to be mindful of this process and try to define the ways in which you plan to reduce risks in their investment, not the ways you plan to make them rich. Explaining your concept, product and team is important. But exposing your weaknesses and having plans to counteract them is priceless.
Collect evidence to support your case
In the end, nothing says, “invest in me” like good solid data. Stats on the momentum of your business or market info direct from the source speaks louder than any half-cocked Shark Tank episode ever will. Remember, investors are more often business people than product junkies or dreamers, and they want to know how your business will make money and that you will do exactly that with, or without them.
I write this because I have already made every mistake in the book and I want to help. I am not a hot-shot Silicon Valley fundraising wiz-kid with Google in my pocket. But nor am I just a blogger without any real-world perspective. I have found that the best way to make someone like you is to tell the truth, be humble about what you know and mindful of what you don’t know, and always be open to advice. Be proactive in addressing potential issues. And of course, remember that it is everything after the pitch that truly matters.