UNDERSTANDING YOUR INVESTORS AND PREPARING TO PITCH

Contrary to what many first-time entrepreneurs might believe, investors aren’t perfect, and they make most of their judgements and investments intuitively. Therefore, their assessments of an investment proposal can sometimes be wrong and misjudged. There are countless instances of investors admitting they were wrong about not investing in a particular venture because of ‘x’ reason (Balachandra, L. et al. 2014). There are, however, a few sets of rules and criteria investors are looking for when determining to invest in a startup or not. In various studies, the most prominent feature to stand out in a presentation is product creativity. The early-stage screening process is incredibly competitive, and when investors start evaluating investment proposals, entrepreneurs will want to place greater emphasis on the feature sets of their product offering, rather than the qualities of themselves. This stems from early-stage ventures having a small number of unproven feature sets in their minimum viable product or prototype. There is usually a lack of market data and success behind their offering and therefore an investor must be reliant on the creativity of the entrepreneur’s product solution (Davis, C. et al. 2017). Does a proposal portray whether or not the founders can creatively solve a problem, and does the product stand out amongst its competitors? Can their product solve the addressable problem quickly and scale fast? Does the entrepreneur have an understanding of their market landscape, and their financial projections and assumptions? Furthermore, investors will be looking for whether the founder’s deck illustrates the product’s economic viability, and if there is a proper show of budget allocation (Davis, C. et al. 2017). But product creativity seems to be the element that investors will be looking for. It’s this creativity that rises above the rest and differentiates entrepreneurs from the competition. It’s rare that an investor would make an investment without having to see the entrepreneur pitch them face to face. The job of the proposal at the screening phase is to get the entrepreneur to the next meeting with the investor(s). This adds a new dimension to your presentation, and can influence the investor affect (Davis, C. et al. 2017). Authenticity and understanding your audience as an entrepreneur are crucial to an investor and will determine whether they like the entrepreneur personally and whether or not they would enjoy spending a good amount of time with that founder (Balachandra, L. et al. 2014). Getting to the face to face, however, is the first step — and that requires a compelling proposal with a creative product solution (Balachandra, L. et al. 2014).

The meaning of a pitch is to seek agreement. In most cases, the entrepreneur is seeking agreement for money (Kawasaki, G. 2004) — “I pitch, therefore I am.” Simplicity is key. The most successful proposals don’t need to use 15 + slides with elaborate jargon to tell the story. The purpose of the proposal is not to make the founder sound intelligent, but rather to seek a financial agreement to fund their business. The point then, is to present and illustrate your business to investors like you would to a 5-year-old. What type of metrics are you using, do you have graphs? Do you have solid numbers (Lee, A.)? Does it grab their attention? The notable venture capital firm Sequoia put forth their ideal criteria for a winning investment proposal. For founders, the first step in the investment process is to get to the next step, so what is in your proposal, matters. There is no one particular formula for success, and from personal pitching experience, the simpler your proposal, the better. For Sequoia, the “why” and timing are ostensibly high priority talking points. Both points are important, but the “why” should be articulated in person during a face-to-face pitch. The problem with the Sequoia model, is running the risk of putting too much information in the proposal to pass the “flick test” (Jarvis, A.). Institutional investors are looking at a myriad of proposals a year. In other words, investors really don’t have the time to read every proposal they come across. According to Alexander Jarvis, investors have “two minutes for the deck as a whole, 10 seconds or less per slide” (Jarvis, A.). It is possible to put too much information in an investment proposal and if investors want more information, they will usually request it in the form of a business plan, which is typically a good sign for the entrepreneur in lead up to due diligence. When putting together your investment proposal, you’ll need to cover the essentials with specificity, clarity, precision, and simplicity; i.e. problem, solution, product, market size, team, financials. You should be able to do this with 10–12 slides (Kawasaki, G 2004). Entrepreneurs are marketing themselves, not presenting a book report (Sage, S. 2016). For this reason, I chose to follow the Guy Kawasaki model. Entrepreneurs are always pitching, and investors are always thumbing through proposals. The Kawasaki 10/20/30 rule is simple yet allows enough compelling information to persuade an investor. Adhering to 10 slides with the right information can very well lead to due diligence. The purpose of the proposal and pitch is to always get to the next phase, not to close. A 20-minute presentation is digestible, memorable and allows time for mistakes and mishaps. Lastly, the 30-point font forces your audience to stay in sync with you and your pitch (Kawasaki, G 2004). Let your presentation skills do the talking and leave time and room for questioning. From further personal experience, some investors just aren’t able to read smaller font and become either disruptive to your presentation flow or completely disinterested. My choice to follow the Kawasaki model was based on multiple iterations of previous proposals and presentations. It is simple and forces the entrepreneur to articulate their product solutions simply. This helps to convey to the investor that you fully understand your market and solutions.

References:

Balachandra, L., Sapienza, H. and Kim, D. (2014) ‘How Critical Cues Influence Angels’ Investment Preferences’. Frontiers of Entrepreneurship Research 34, Issue 1. Davis, B.C., Hmieleski, K.M.,Webb, J.W. and Coombsa, J.E. (2017) ‘Funders’ positive affective reactions to entrepreneurs’ crowdfunding pitches: The influence of perceived product creativity and entrepreneurial passion’. Journal of Business Venturing Volume 32, Issue 1, January 2017, Pages 90–106. Jarvis, A. (Date Unknown): The Flick Test. Is your deck read? https://www.alexanderjarvis.com/pitch-deck-flick-test-the-test-to-know-if-venture-capitalists-will-respond-to-you/ Kawasaki, Guy (2004): The Art of the Start. Penguin Publishing Group Lee, Aaron (Date Unknown): 30 Legendary Startup Pitch Decks And What You Can Learn From Them. https://piktochart.com/blog/startup-pitch-decks-what-you-can-learn/ (Sage, S. 2016). Fundraising? Why you shouldn’t just copy Sequoia’s Pitch Deck Template https://medium.com/crane-taking-flight/fundraising-why-you-shouldnt-just-copy-sequoia-s-pitch-deck-template-4b32ac60d93a