Life's a Pitch

The Different Objectives of an Executive Summary and Investor Deck

A common area of confusion on the part of entrepreneurs seeking to raise capital is the different objectives of an Executive Summary and an Investor Deck (usually a PowerPoint).

Typically an Executive Summary will be sent to an investor before any meeting. The  objective is to engage the investor and often to secure the first meeting. The fact that you will not be present to speak to, elaborate up and clarify the Executive Summary means you must make sure that it is a document that provides an investor with sufficient information to answer the key questions and issues they will focus on.

 It is for this reason that Executive Summary documents are primarily text based and will contain paragraphs of information rather than short sentences. You can read more about the proper content and format of an Executive Summary in my post ‘The Complete Guide to Creating an Investor Focussed Executive Summary’.

In contrast, an Investor Deck is usually presented by an entrepreneur at a first meeting with an investor. The objective at this point is to get the investor to take things to the next stage. As you are present, the Deck should be supporting your investor presentation, not replacing you. You will be outlining the elements of your investor proposition while referring to your Deck to illustrate, demonstrate or reinforce your key points.

The Deck will usually contain a number of graphics, diagrams and charts and should use a bullet point format for information. See my recent post ‘The Investor Pitch Deck and Why Less is More’ for advice on format.

I should add that there are some investors who will request a Deck before meeting you, rather than an Executive Summary. If this occurs, you will need to tweek your Deck to ensure that the information presented is clear enough for the investor to understand without assistance from you.

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 'How' is Critical to Your Investor Pitch

An entrepreneur’s investor presentation documents and pitch will typically focus on the product or service, numbers, competition, sales strategy and team. What is often missing, however, is ‘how’ key stages and milestones will achieved. In other words ‘how’ the entrepreneur and his team will execute.

An entrepreneur can have an exciting idea with significant revenue potential, but if they fail to reassure the investor that they have the ability to execute, they will not get funded. I spent a couple of years working alongside a very experienced Chief Operating Officer who frequently managed projects worth over $100 million. Whenever a member of the team would state what they intended to do or what needed to be done, she would say ‘by who, by when’ and ‘how’. She even planned her vacations with a Gantt Chart!

When I first encountered Angel Investors and Venture Capitalists seven years years ago, I noticed that they asked the very same questions time and time again of entrepreneurs pitching them. The most common terms used in every meeting seemed to be ‘how’. How will you bring on board your first strategic partner? How will acquire customers? How will you find the CTO you urgently need?  

Reassuring an investor that you have the ability to execute can be achieved in two ways. Firstly, by proving that you have previously launched other startups that are successful. A good track record counts for a lot. Secondly, by having thought through how you will execute all key stages / tasks and being able clearly explain this to investors.

It is not necessary for you to spell out the detail of ‘how’ in your Executive Summary or Deck, as that is not the purpose of these documents. You must, however, deal with ‘how’ at a high level in your documents and be prepared to give detailed answers to the ‘how’ questions that investors will inevitably fire at you.

Why Great Substance + Great Form = A Winning Investor Pitch

It is often said that ‘it’s not what you say but how you say it that matters’. When it comes to investor presentation documents, substance will always triumph over style. If, however, your documents are unprofessional or unclear you run a very real risk of not getting funded.

An investor may pass on the opportunity of funding you if your executive summary, deck or business plan aren’t up to scratch because:

·     You have missed out key information;

·     It is not clear to them how your business will generate revenue;

·     They believe that your inability to prepare professional looking documentation will mean you will do the same for a prospective customer or client; or

·     You simply couldn’t bothered to create investor focused documents.

So while an investor will always primarily focus on numbers, team, execution, sales strategy etc, remember that the key to a successful pitch is great substance and great form.

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.

   

The Investor Pitch: Optimism and Dealing with Risk

Optimism is a quality that is present in almost every successful entrepreneur. Without optimism, entrepreneurs would not take the huge risks they do to bring their dreams to life. Without optimism, entrepreneurs would find it impossible to raise funding from Angel Investors and Venture Capitalists. After all, what investor would want to back an entrepreneur who does not believe in their own venture?

 

There can, however, be a serious downside to ‘optimism’ that can fatally undermine an otherwise strong investor pitch. That downside occurs when optimism clouds an entrepreneur’s ability to see the reasons why their venture may fail. This characteristic sometimes develops as a consequence of the tunnel vision that’s present when striving to achieve a goal.  

Human nature steps in and protects us from seeing the terrible things that may distract us or undermine our confidence. The result, as most investors will have experienced, is that many entrepreneurs either fail to identify or downplay the risk.

A failure on the part of an entrepreneur to identify and credibly deal with the issue of risk in their deck, business plan or pitch will be identified by investors as either naivety, stupidity or dishonesty and will kill any chance of a deal.

Investors have an uncanny ability to see a risk a mile away and expect entrepreneurs to show a high degree of awareness. The earlier in its development the startup, the greater the number and size of risks. If you can’t see the risks, you can’t mitigate them.

When pitching investors, it’s important to deal with the risks, however slight they may appear to you. As an attorney, I learned very quickly there were always at least two sides to any argument. I therefore developed the discipline of always trying to put myself in the shoes of the other side, the judge and jury and asking myself ‘what were the possible reasons they could disagree with my arguments?’.

Once I had identified the risks I would then refine my approach and arguments to make sure I fully addressed them. I used the same approach when pitching investors and Fortune 500 companies. Nowadays, when advising entrepreneurs how to pitch investors, I play Devil’s Advocate during Mock Pitch sessions and drill down on risk.

The benefits of properly dealing with risk are at least threefold. Firstly, analyzing risk is critical to your business succeeding. Secondly, your investors will have greater confidence in you. And thirdly, a true understand of the risks attached to your venture is empowering and will give you genuine rather than misplaced confidence. Failing to deal risk is simply a risk not worth taking.

 

Why You Should Pitch With Passion

The importance for an entrepreneur to convey passion during an investor pitch is sometimes overlooked and can undermine an otherwise strong pitch. Angel Investors and Venture Capitalists like to see passion from someone pitching them, because passion is the characteristic that enables the entrepreneur to defy the odds and succeed. Passion will keep you going when you are down to you last dollar,  when your family, friends and dog have left you and you have been turned down for investment 53 times.

I see that passion in so many of my clients when they discuss their business and vision with me. I was reminded of it recently when an entrepreneur I was talking to, who has launched a great venture, told me he hadn’t has a single day off in 3 years! Now I am not recommending that as a way of life, but it was clear that it was his passion for his venture that had enabled him to achieve the success he had so far and would no doubt enable him to achieve further milestones.

Now when I say it’s important for an entrepreneur to convey passion, I do not mean that they should come over as emotional, irrational, naive or immature. By passion, I am referring to measured confidence, belief and enthusiasm. Enthusiasm can be very infectious and something you definitely want to infect your investors with.

A word of caution. It is not uncommon for passion to vanish and fear to take over when delivering an investor pitch. Do not allow this to happen. There are many effective techniques for overcoming ‘Pitch Fear’.  Make sure you test whether you are likely to be passionate or fearful when pitching by running through a mock pitch with a third party, ideally someone not to close to you. And video record your mock pitch but be prepared to be surprised.

Pitch with Passion!

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'.