Life's a Pitch

How to Become an Investor Magnet

This is the true story of ‘Ryan’ (not his real name). A serial entrepreneur with no qualifications and a very limited understanding of financials or launching a startup. Ryan, however, is an entrepreneur with a deep understanding of people, who consistently and easily raises hundreds of thousands of dollars from very savvy, experienced investors.

I first came across Ryan six years ago when he approached me to help him create some pitch materials. He explained that he had persuaded 2 investors (both bankers) to invest $500K in his IDEA (no prototype, company or team) but that one of the investors had asked to see details of his business model and financial projections.

Initially, I was sceptical as to whether the potential investors had, in fact, actually committed or had simply expressed an interest in learning more about Ryan’s idea.

Sensing my scepticism, Ryan called one of the bankers on his cell phone, explained I was helping him put together the information that had been requested and asked him to confirm to me that he was investing. Sure enough, banker X confirmed that both he and banker Y were investing but would appreciate understanding a bit more detail. About a month later, Ryan received the investment.

I subsequently helped Ryan raise nearly 2 million dollars over the next two years, though it’s fair to say that my role seemed limited and that all I was doing was effectively confirming, in writing, deals that Ryan had already successfully pitched and negotiated.

Over time, through observation and discussion, I came to understand that although Ryan is a very disorganized, creative entrepreneur, he does use a highly effective ‘system’ for securing investors. This is how Ryan does it.

1. Research – Ryan goes out of his way to identify potential angel investors. Typically these are people who have some capital and are involved in business or finance. Ryan’s research method is real world as opposed to virtual. He is a ‘social butterfly’ continually making new connections and expressing a deep interest in these people and their friends.

 Slowly but surely, Ryan builds up a picture of those people who are likely to be potential investors.

2. Target Early – Once Ryan identifies his prey (potential investors), he puts himself into situations where he will meet them.  This can be anything from the opening of an art gallery to a mutual acquaintances party. Ryan is very determined and resourceful and always seems to find a way to cross the path of his targets.

 Ryan doesn’t wait until he is desperate funding. He describes himself as being in ‘perpetual funding mode’. By lining investors up in advance, he effectively ensures that he is able to access investment as and when he needs it.

3. Seduce – Applying the same principles that most of us use to persuade someone to come on a date, Ryan presents his best side to his target. In addition to being upbeat, witty and charming, Ryan expresses deep interest in the potential investor. He makes the encounter about them and makes every effort to ensure they enjoy the experience of meeting him. Far better than pitching an investor at a urinal!

 Though Ryan has the same worries and stresses that every entrepreneur does, he never reveals these to his target. He also never talks about his latest venture unless specifically asked. Social protocol means that he is always asked about what he does. 

4. Convey Success – Ryan is a master at making dry toast sound mouth- watering. When asked what he does by his targets, he always makes it sound as though he is already successful. While being careful never to mislead, Ryan focuses on the positive and any successes that he has already achieved as well as others who are interested in his venture. Even when talking of potential challenges, Ryan focuses on the solutions.

5. Engage – Having already worked out what makes his potential investor tick, Ryan focuses on those points that are most likely to appeal to them. He always asks for their opinion and lets them know he values it. Importantly, however, Ryan never mentions that he is looking for investment unless pressed by his target.
 
6. Enchant – In his latest book ‘Enchantment’ Guy Kawasaki discusses the importance of enchantment to business success. Ryan understands this principle well and makes his ‘investor encounters’ magical, mesmerising experiences using the power of story and likeability, while focussing on how his venture will make a difference to the lives of others. If you want to enchant others, I strongly recommend you read Guy’s book.

7. Hook and Leave – Though somewhat counter intuitive, Ryan usually leaves the encounter at the point he is certain his target’s interest is at its high point. This seems to be a variation on ‘playing hard to get’ which tends to have the desired effect with the target making contact a few days later with a request that Ryan let them invest.

Conclusion

Ryan’s way may not be for every entrepreneur. But Ryan has proved time and time again that it works. Even during today’s tough economic climate. Many of the techniques and strategies Ryan’s uses are the very same advocated by Angels and VC’s in their blog posts and elsewhere.

At the end of the day, Ryan is focussing on building relationships. People and relationships are the most critical factors in investment. This is why investors consistently say that the team is the most important factor in a deal. It is also why when talking about an investment, investors will often start out by saying that the founder is a great person with lots of integrity

Free Startup Coaching Videos: Bootstrapping - Pitching - Marketing

 

Why Most Startups Shouldn’t Seek Investment

 client said to me last week that if I was so against startups raising capital from investors, why did I always blog and tweet about pitching investors. Fair point, made in response to my attempt to encourage him to bootstrap rather than pursue Angel Funding.

The current bubbling market and spate of tech IPO’s seems to have increased the desirability of getting funded by Angel Investors or Venture Capitalists. While investor funding may be the right option for some startups, these instances are by far the minority of cases.

Why You Don't Want Investment

There are several compelling reasons not to seek investment from Angel’s and VC’s:

1. You lose control of your startups destiny. This is your life and your startup. While you should welcome the advice of seasoned investors, you always want to retain the option of rejecting it.

2. Fundraising is time and energy consuming and often demoralizing. No matter how good your business or investor pitch, securing investment takes months, sometimes years. For the vast majority, they will be unsuccessful. No matter how determined an entrepreneur you are, frequent rejections are demoralizing. Far better to spend that time and energy growing your startup.

3. Far better to receive 100% of the profits. The old adage that 50% of something is better than 100% of nothing only holds true if it is impossible to launch and grow without investment. Investment taken when it isn’t really needed, is simply a short term booster  that is ultimately replaced by long term pain.

A Better Well-Trodden Path to Success

There are many startups all over the world who have successfully bootstrapped their way to millions. As you may have seen this week, the team at CSN Stores bootstrapped their way to $380 million in sales in 2010, before deciding to take $165 million in Venture Capital.

37 Signals have an inspirational series on their website ‘Bootstrapped, Profitable and Proud’ which profiles companies that 1) have $1MM+ in revenues, 2) didn’t take VC, and 3) are profitable.

And lastly, Dileep Rao, in ‘Bootstrap to Billions’ documents in some detail the journeys of entrepreneurs who have built their goliath companies from scratch.

Embed Bootstrapping in Your DNA

For bootstrapping to have any meaningful impact, entrepreneurs must adopt and implement bootstrapping tactics and strategies across the whole of their business. Bootstrapping will not work where only one or two strategies are employed on an ad hoc basis.

Startups who have bootstrapped their way to millions or even billions, regard their bootstrap plan with the same importance as their business plan. Without a proper bootstrap plan that you execute, your business plan may end simply end up as a record of your aspirations.

So, to the entrepreneur who inspired this post; ‘thank you’. Putting our money where our mouths are, we’ve created two free comprehensive bootstrapping videos and a detailed Mindmap which can be accessed here ‘The Bootstrap Blueprint’. Here’s to your investor free success!

Three Ways to Kill Your Investor Pitch

It sometimes happens that there is a point during an investor pitch when something is said by the entrepreneur which instantly kills their chances of securing funding. It is the point at which there is no return and nothing can be said to repair the damage. You know it’s happened because the investor(s) stops listening, changes their tone of voice and hurries you on.

I took the opportunity the other night at a dinner with several angel investors to ask them what were the three things that would destroy the chances of an otherwise decent investor presentation. I asked the Angels to focus on substance rather than style i.e. the investment proposition fundamentals rather than pitch technique.  The top three were as follows:

Lack of clarity on the numbers

This evil covers a range of sins including:

1.   Not being clear as to precisely how much investment is required.

2.   Not being clear as to what milestones will be achieved by different stages of funding.

3.   Not being on top of revenue projections. Even though the Angels agreed that projections rarely bear any resemblance to reality, it is essential that the CEO / Founder is on top of the numbers and should not hide behind the CFO.

Not Having a Clear Go to Market Strategy

For reasons that I’m convinced are rooted in human nature, entrepreneurs will often  spend enormous amounts of time, energy and creativity on the development of their product or service but not give sufficient attention to the development of a well thought out route to market.

Without sales, the best designed product in the world, is of no interest to an investor. An entrepreneur’s pitch deck will often identify potential customers but not deal with key issues such as:

1.   What channels of distribution will be used and how will they be established.

2.   Who within the company has the experience and expertise to execute the sales strategy.

3.   How will potential customers awareness of the product / service be created.

Linked to the issue of a lack of go to market strategy, is a confusing of the market size with the addressable market. The addressable market is limited to the company’s industry focus in contrast to high-level market size numbers relating to that sector of the economy.

Maintaining There is No Competition

Competition is a good thing as it implies there is money to be made and provides an opportunity to learn from the competition’s mistakes and triumphs. It is very rare to find a situation where there is no competition, whether they be startups or established companies.

At a minimum, an entrepreneur pitching Angel Investors or Venture Capitalists for funding, needs to be able to:

1.   Identify the competition

2.   Compare the products / services.

3.   Explain what their product/ service has that the competition doesn’t.

It seemed only fair that I buy dinner in return for this free market research…

Why Your Investor Presentation Should Focus on the Past and Future

There used to be a time, not so long ago, when an entrepreneur could secure funding on the basis of an investor presentation that focused on what would be achieved, rather than what had been achieved. Times have changed and investors are far more cautious and skeptical. This means investor pitches must be refocused to include achievements as well as statements of intent and projections.

When creating investor presentation documents e.g. Executive Summary or Deck, think about what you have already achieved and include it. Plainly in the case of a startup seeking seed funding, there may be little that has occurred.

Nevertheless a presentation that outlines some achievements will have greater impact. Obviously sales and customers are persuasive.  It may, however, that the achievements are the recruitment of a strong management team or the creation of a strong brand identity which should be included.

When you start to talk in terms of what you have achieved, it lends credibility to your assertions as to what you will do. You begin to cast yourself as someone who ‘does’ rather than someone who ‘says’, ‘hopes’ or ‘intends’. The ‘doers’ and ‘achievers’ are plainly far more investable in today’s brave new world, so make sure you cast yourself as one.

MAKE IT EASY FOR AN ANGEL INVESTOR TO FUND YOU

I was talking with an experienced Angel Investor recently who tends to mostly invest in tech startups. He had invested in a Silicon Valley startup (B), 2 years ago and was beaming at the fact that it was clear to him that the startup was finally on the verge of generating some ‘serious revenues’.

What interested me was his comment that he had almost invested in another startup (A), with a similar but stronger model, 6 months prior to coming across startup B. I asked him why he hadn’t and he said ‘they were making me work too hard in order to invest in them’.

The Angel elaborated. He said that like most investors he received several pitches and contacts a day from entrepreneurs with the next big thing.   He still runs his own company and has a family, so his time was precious. He went onto to say that he really liked Startup A’s CEO and the people he bought to the pitch. He described them as being ‘committed’, ‘focused’ and ‘resourceful’. The sort of people he could work with.

So far so good. Great idea, great team. ‘The problem was’, the Angel continued, ‘it was more a meeting where I asked them lots of basic questions, rather than them present me with the answers to questions I would have asked’.

This is not uncommon. Sometimes, when you have lived and breathed your business and know the detail inside out, you forget what it is like for someone who is hearing about it for the first time.  This is one reason why it’s so valuable for you to have a dry run of your pitch with an appropriate trusted third party.

Lawyers know that they must anticipated as many of the questions and issues a  judge and jury is like to raise or be troubled by and deal with them at the outset. And salespeople are trained to ‘inoculate’ against a customer’s potential objections.

It doesn’t matter whether you go to your investor pitch knowing all the answers. If the investor doesn’t ask you the question or you get sidetracked, you have lost the opportunity to put across crucial information. It’s critical that you answer the fundamental questions investors are concerned with, in your investor presentation materials and pitch, before they ask them. When you do that, you not only convey competence and professionalism. You also demonstrate and understanding of what is important to an investor and your ability to sell.

Of course any good investor will still drill down on the detail and ask you a range of penetrating questions. That’s to be expected. But you must make sure that you have covered the first layer of detail that any business investor will be interested in.

I asked the Angel whether he knew what happened to Startup A. Never heard of them again he said. The  equation is clear – the easier you make it for an Angel Investor or Venture Capitalist to fully understand all aspects of your investment proposition, the more likely they are to fund you.

   

Why One Slide Thats Says It All Can Save Your Investor Pitch

As we all know Venture Capitalists and Angel Investors and very busy people. Some of them have very short attention spans and pitch meetings can be very chaotic and unstructured. This can be a real problem when you are in the middle of an investor pitch, just about to get to the most compelling slide and either you are told ‘time is up’ or you realize they have stopped listening as they type away on their Blackberry / iphone.

Right back when I was an attorney, I learned early on that it is really helpful for the audience if you can give them an overview at the outset as to the main elements of argument. It gives the listener a context within which to frame the information you subsequently provide them with.

The same principle applies to pitching. In addition to being helpful for the investor to understand at the outset the key essentials of what you are about to pitch; it also ensures you don’t leave the room before having got to your best slides. Tell them where you are going, and then go there.

Adhering to good presentation principles, adopt a 4 word by 4 or 6 line format.  Use language that drives your points home in an impactful way and gets your investor(s) salivating for more information.  Include the most important topics which are likely to be along the lines of

· Value proposition / problem you solve

· Market size

· Competition

· Achievements (so often overlooked in presentations)

· Team

Getting this slide right can take considerable time but the benefits are worth it. When you create a single slide along the lines suggested above, not only do you ensure that your investors get the key points you want them to know at the earliest opportunity, you also ensure that they are more likely to be interested for the whole of your presentation and allow you to complete your pitch. Which of course is why you were there in the first place.

New Standards for Entrepreneurs, Venture Capitalists and Angel Investors

Being an entrepreneur launching a startup was never an easy thing. But nowadays it is considerably harder. Entrepreneurs seeking funding are told they have to demonstrate traction whilst bootstrapping. They need to secure introductions in order to access Angels and VC’s whilst working day and night in their garages.  And they need to make sure they protect their intellectual property whilst at the same time meet a number of investors in order to get an offer on the best terms with an investor they can work with. But don’t send an investor an NDA as at best they will think the entrepreneur naïve and at worst it will offend them.

These challenges and requirements existed two years ago. But in this new economic era, there is less capital available and investors, understandably, are more cautious.  Entrepreneurs seeking funding can no longer raise investment on the basis of a plan on the back of a napkin over a meal (and yes that really did happen for some). No, there is a new standard in town. If entrepreneurs don’t meet that standard, they won’t get the funding they need.

Society doesn’t benefit when entrepreneurs fail to launch high potential startups solely because they couldn’t navigate their way through the pitching process.  There will be some that say ‘well if they weren’t able to raise investment, then there was no real chance of them launching a successful business’. Sounds convincing perhaps at first blush, but the realities of being a hardworking entrepreneur sometimes mean that every ounce of energy and thought power goes into building a promising business at the expense of developing an investor connected network or perfect pitch.

The solution? Well firstly, entrepreneurs must work on developing their pitch skills and ensure that their executive summaries, decks and business plans are specific and investor focused. The consequences of not doing so were highlighted in this recent article by one entrepreneur who hadn't done the necessary preparation.

Secondly, do the research. There are some really good VC’s and Angels out there who make it crystal clear what they require from entrepreneurs approaching them for funding. They know the challenges and make it easy for entrepreneurs to understand what’s required. This information is available on their websites and some of them write great, informative blogs. They set a standard that other investors should follow. This is only a partial solution but it’s something.

Great sources of advice and information include 'Both Sides of the Table' by entrepreneur turned VC, Mark Suster @msuster , Chris Dixon's blog and Fred Wilson's 'Musings of a VC in NYC'.