Archive of articles classified as "Investment"

How to Pitch to Investors

14/01/2009

Tim DavisI have always loved Guy Kawasaki’s 10‐20‐30 Rule ever since I heard about it. If you have never read this post – click on the link now and have a good read over it. Guy basically highlights some of the main areas you need to consider when pitching to potential investors and he outlines a very simple methodology to follow when using PowerPoint to get your revolutionary product or service  across. The 10/20/30 Rule is simple and it makes perfect sense: 

  • No more than 10 slides
  • No longer than 20 minutes
  • No font size less than 30

When I heard about this a few years back I really did think this was a great way to formulate a pitch strategy. Before this I came up with my own strategy for pitching investments – and this was the “3-Dot Rule” – basically, no more than 3 dot points per page with as little info as possible. “Speak to the dots” was effectively my strategy so your audience isn’t focusing its attention on the mass of text on the slide – but rather on you – the person they are listening too and potentially investing in. Of course, we could always merge the two together and get a hybrid “3/10/20/30” rule which combines all the elements and gives you even more food for thought. 

I also like to throw in the “walk a mile in their shoes” thought process – that being, if I was an investor and had worked extremely hard to generate enough wealth to invest in emerging businesses – what would my investment profile be ? What sort of questions would I ask ? What sort of risks would I take ? How easily would I hand dollars across the table and at what valuation ? Of course, all these questions are highly dependant on the individual person and their net wealth – but it’s useful to throw this process into your thought train when you are considering your pitch. Obviously you have to get your idea across quickly, easily and with a certain “wow-factor” – I would suggest this must be a given and it only comes from ‘practice, practice, practice’ – but perhaps something just as equally important is considering what if you were on the other side of the investment table. What you would say if someone was asking for your investment dollars ? If you consider this aspect seriously – and don’t take the strategy of “well of course I would invest” – then you can really carve out, and sharpen up, your presentation substantially. 

Be excited and passionate – but also be realistic. The optimists best friend is the realist – one dreams big, and the other realises dreams.

– Tim Davis, 2009

Be passionate in the delivery but be realistic in the figures. Guy suggests that the best way to structure your presentation is to follow this format:

  1. Problem
  2. Your solution
  3. Business model
  4. Underlying magic/technology
  5. Marketing and sales
  6. Competition
  7. Team
  8. Projections and milestones
  9. Status and timeline
  10. Summary and call to action

It’s a fairly good structure, but you can chop and change it as much as you like. Many other people use different strategies. I thought I would put down some general thoughts on what I believe are important when pitching a new product or service. This is by no means a complete list, and nor should you include any of these items in great detail – or all of them for that matter as some may/may not be relevant to you company – but you should try and address most of them and make your answers as realistic as possible. Remember to “TIC” them off. (Please bear in mind I am thinking these up now as I go – so feel free to comment if I have missed something and I’ll add it in.)

The Investment Considerations (TIC)

Company Product or Service

  • What is the Growth Opportunity ?
  • What is your Competitive Advantage ?
  • What can you offer that others cannot ?
  • What are the Customer Benefits ? (both performance and psychological benefits?)
  • Why would ‘you’ use your service ? Why would others ?
  • Why would ‘you’ pay for your service ? Why would others ?
  • What stage of development are you in ?
  • Is the product and service ready ? Demo ? If not, timeline ?

Services Strategy

  • What is the “value equation” ? That is, Customer Value = (Seriousness of Current State + Benefits of Proposed Future State) – Cost of Solution
  • What is the product or service ‘really and simply’ – one statement or word?
  • How will you improve your product or service ?
  • How will these improvements allow your company to expand into other markets ?
  • What is your “dream vision” of the product or service ? That is, if I gave you a bottomless pit of money – what would you do? Why?
  • Is there any ‘uniqueness’ in terms of IP etc ?

Market

  • What is your target market ?
  • What is the “bottom up” market view ? (i.e. entry level, segments, industry, country, global etc)
  • What is the “top down” market view ? (i.e. above in reverse)
  • What is the current market state ?
  • What is the market size and opportunity ?
  • How much of the market are you wanting to penetrate ?
  • How are you taking share off existing players in this market ?
  • What are you “expansion axises” ? i.e. what markets do you want to expand into ?
  • What are the barriers to market entry ? What are some mitigating factors ?
  • How are you going to “increase” market share ?

Risks

  • What are the risks ? Now, what are the real risks ?
  • What are future and/or potential risks ?
  • Operational Risks ?
  • Human Capital and Retention Risks ?
  • Financial Risks ?
  • Legal Risks ?
  • Political Risks ?
  • FX Risks ? etc
  • Which are Systematic (undiversifiable) and which are Unsystematic (diversifiable) ?
  • What are your ‘personal risks’ in the business ? Are you taking risks ? If not, why should investors invest ! ?
  • What are your teams ‘personal risks’ ?

Management

  • What is your level of experience ? 
  • If it’s limited, what are you doing about it to reduce investor risk ?
  • What are your qualifications ?
  • What is your previous business or operational experience ?
  • Who is in the team ? What are there levels of experience/qualifications/operational experience etc ?
  • Is the team well diversified ? 
  • Does your team cover off a broad range of business disciplines ? (i.e. financial, legal, marketing, sales etc)
  • What are your projected salaries ? Why ? Are they too high/low ? Are they realistic?
  • Do you have any previous start-up experience ?
  • If so, what was this business ? Did you sell it ? Was the product/market/etc ?

Sales & Financials

  • What is your marketing strategy?
  • What is the forecasted marketing spend ?
  • The ‘what, where, why, how, who’ of your branding and promotion ?
  • What is your sales strategy ?
  • Direct sales vs. channel sales ?
  • How will pricing fluctuate and is it market sensitive ? What factors make it so ? How to mitigate ?
  • What is your project growth ?
  • What are your financials (real and/or projected) ? i.e. Burn Rates, Gross Margins, Earnings, Cash Flow, Debts

Investment

  • What is your investment ? Financial, sweat equity, etc
  • What is the valuation of the business ? Be realistic.
  • What is the Capital & Legal structure of the business ?
  • Why do you need investment ?
  • What will you use the investment for ?
  • Why should investors choose ‘you’ over ‘another’ ?
  • What % equity are you offering ?
  • What is your ‘forecasted’ ROI (return on investment) ? 
  • How long will you take to pay ithe investment back ?
  • Is your Risk vs. Return fair ?
  • How can the investors help without injecting money ?

Random Questions

  • What is the problem you are solving ? I know of other services in the same space. What’s the differentiator ?
  • Competitor ABC is the market leader in this field by X% margin. How are you going to compete against them ?
  • Is your market size really reasonable ?
  • Where did you pull the data for your projected growth and revenue streams ? Sales etc ?
  • Are your direct sales vs. channel sales strategies sound ? Why not focus on just direct or just channel ?
  • I want to know more about how you are going to market ? What are some of your other strategies ?
  • Is there any defensible IP ? What stage is this at ?
  • How will people associate your product with the industry segment ?
  • I want to know more about you and your team ? Tell me.
  • I have had 2 other people pitch me a similar idea – why ‘you’ and not ‘them’ ?
  • Do you think the amount you are asking for is reasonable ? Can you do more with less ? Can you do less with more ?
  • What are the largest obstacles you foresee in order to secure a greater market share ?
  • You investment terms aren’t really reasonable ? X% for %X million at % revenue – is this realistic ?

So there you have it. Feel free to drop a comment and let me know about anything you think I should add!

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