Samir Ghosh
To Get Your Startup Funded Answer These Investor Questions

Everything you need to know to make a compelling investor pitch

Understand investors’ motivations to win them over

Original Photo by Марьян Блан | @marjanblan (edited by Samir Ghosh)

There’s certainly no shortage of advice for startups wanting to pitch investors for funding. So why would I offer more?

Much of the existing advice I’ve seen is very prescriptive — telling you what to say, what slides to include, even what size typeface to use….without necessarily explaining WHY.

For virtually any presentation, the better you understand your audience, the more effective your presentation will be. That’s certainly true for investor pitches too. But this does not mean “telling them what they want to hear.” In fact, remaining honest and ethical will create the best long-term win/win situations.

The following are the three key perspectives you must understand about investors if you want them to invest in your venture.

  • Investor: By “investor”, I’m referring primarily to economic investors — those investors who are seeking the best economic returns from their investments (as opposed to say philanthropic investors who may have other priority objectives).
  • Presentation: I’ll focus primarily on giving a slide presentation, but really these points can be applied to almost any means of communicating your pitch. I often only half-jokingly say that if you have your story down (logical convincing story + concise compelling language), you should be able to pitch effectively literally on the back of a napkin.
  • Teaser: This is assumed to be your first pitch to select prospective investors. So, the goal is to get them interested enough to have another meeting. Think of it as a “teaser,” or “hooking the fish.” Don’t try to convey everything. You usually do not need financial projections or a demo (even during most “demo day” pitches). You want to communicate as much as needed, but as little as possible to remain concise. Understanding investors’ key objectives will help a lot here.
  • Duration: 4–5 minutes is about as much as you can expect a prospective investor to spend initially to determine if they might be interested. This is similar to the time you would have when presenting at a typical accelerator’s demo day.

In academic-speak, economic investors want a combination of two fundamental things:

  1. Highest Expected Value (EV), and
  2. Highest Net Present Value (NPV)

The expected value is the value of an outcome multiplied by the probability of that outcome. For example, a 10% probability of making $1,000 has an EV of $100. A 1% chance of making $10,000 has the same EV of $100. The point here is that investors want to maximize both numbers. The greater the potential outcome and the greater the probability (i.e., lower the risk), the greater the return on their investment.

But there’s also a time factor or a “time value of money.” A gain returned in 1 year is more valuable than the same gain returned in 2 years because there is an opportunity cost (and additional risk) of that second year — i.e., the money returned after year 1 could be invested (somewhere) for an additional return during the second year. For example, if you could receive $100 return after 1 year, and use say 5% as the opportunity cost (the high probability return you can safely get investing elsewhere), then you should expect to receive $105 return after 2 years to be equivalent to receiving $100 a year earlier (excluding additional risk).

Founders often make the mistake of intentionally or accidentally over-estimating their opportunity or total addressable market (TAM). As a simplistic example, if you’re selling a new artificial coffee sweetener, your TAM is not all coffee sales; and it may not be all coffee sweetener sales (e.g., if you’re unlikely to convert many natural sugar users). Top-down estimates like this also tend to come across as academic with too much handwaving to be credible.

Bottom-up estimates may simplistically start with price per unit and multiply by the number of potential unit sales. However, this assumes the price per unit is valid and can be maintained over time. For example, if you’re selling facial-recognition software at say $100/year for 10M existing video cameras to show a $1B TAM, you’d better show proof you can get $100/year (e.g., existing sales, and/or very clear ROI that’s greater than $100/year).

Investors, as should you, prefer to see you tackle a targeted niche. This improves your chances for success because you can focus on satisfying the unique needs of that niche, you have to beat fewer competitors, and your GTM (go-to-market) can be very targeted. Ironically, however, investors want to see a large opportunity.

How do you satisfy both? See my “TAM Onion” blog post for how to address this.

The context for the details in the rest of your presentation should focus on your spearhead market.

a) Why hasn’t this problem been solved before?

b) Why is a solution to this problem inevitable?

c) Why will this happen quickly?

The more you lower these risks, the greater the expected value, or potential return for investors. Thus, “traction” is usually the best proxy for demonstrating you’ve reduced these risks. However, traction does not just mean revenue. Ideally, your traction should demonstrate as many key areas (assumptions, risks) of your business as you can. For example, maybe you can brag about customers; but how did you get those customers? Did you acquire them by validating the go-to-market channels your business plan (hypothesis) is relying on to scale?

The harsh reality is that investors do not care about you or your company UNTIL they care about the investment opportunity…the business.

Thus, I strongly suggest you consider thinking about your presentation in 3 sections: Business Hypothesis, It’s Real, and The Future. Following is my proposed presentation slide outline, grouped by these sections. The order of some slides may change depending on your situation. For example, if your GTM is a unique strength, then you may want to move it closer to or combine with your Differentiation slide.

Slide 1. Title

I would suggest a format something like “[What it is] provides [Benefit] to [Whom].” And I would suggest addressing the larger TAM rather than just the spearhead since you’re pitching the big opportunity — e.g., “Mobile App That Reduces Restaurant Cancellations by 50%”.

If you truly envision a larger disruption opportunity, describe it in your title. Reference points are helpful, but caution — “The Uber of abc” and “the AirBNB of xyz” have been overused. If you do use a reference point, use it correctly. E.g., Don’t call yourself the “LinkedIn of xyz” just because you’re a professional directory but your business model is completely different.

Slide 2. Opportunity

Opening with a story can be engaging, but remember, the prospective investor audience does not care about you…yet. However,r illustrating your market’s pain can be great fodder for an opening story.

Qualify the severity of this problem for one theoretical customer. For B2B (business-to-business) markets, convey this as costs or opportunity costs (e.g., potential new revenue). See my Business Value QuadArrow for a comprehensive way to think about all the value your solution may provide to one customer. The QuadArrow is focused on B2B but can also be applied to B2C (business-to-consumer) market businesses. In B2C, besides monetary savings, consider other benefits, especially emotional benefits to customers.

Slide 3. Solution

Quantify the benefit to your customer (this could also be done in the following Business Model slide to clearly justify your price). Founders often make the mistake of thinking any improvement is worth it to customers. That’s not true. Change, even for the better, comes with cost and risk. Customers may have to learn something new or spend time setting up your solution. Potentially worse, if your solution fails them in some way, they may lose their job (B2B) or damage an important relationship (B2C). Thus, your solution better provides significant (e.g., 100%+, not 10%) improvement over at least their status quo, and ideally, all alternatives.

Slide 4. Business Model

Who specifically pays? Don’t confuse the buyer with the user or an influencer.

For enterprise startups: Be very specific about which business unit, whose budget, even down to which line item within the budget. This is important to understand. If your typical customer has no clear line-item budget, then every sale may require getting a budget added, which is difficult and could easily require waiting for a new budget cycle (e.g., a year). If there is a line item budget, then you will be taking the budget away from something else — i.e., your customer will not be able to purchase what the budget was intended to purchase. You’ve got a problem if that “something else” is more critical to the customer than your product.

Slide 5. Opportunity Size

Slide 6. Timing

  • Why Inevitably?
  • Why Quickly?

(see above)

Slide 7. Differentiation

Unless your competitors are obvious to the audience, there’s no need to list actual competitors. Instead, group them into categories and plot one point for each category (not competitor).

Be sure to include the status quo. How are they solving the problem today? For example, if you’re introducing the first motor scooter to a market that only rides bikes, don’t show only scooter competitors; include where the bike fits in your matrix.

Slide 8. GTM

Use the TAM Onion to sequence your target segments. Then, your GTM tactics can be specific and cost-effective. However, for a teaser deck, you only need to convey your GTM strategy for your spearhead market. Save details about subsequent markets for future meetings.

Slide 9. Traction

Slide 10. Team

Highlight notably past employers and universities. Logos work well but include versions with text in case someone does not recognize the logo. Include advisors but be clear to distinguish them from company team members. Don’t include anyone without their permission or who may not give positive feedback. You never know who in your audience may know an advisor you list. And with permission, include notable investors; they can add credibility.

a) Build Your Story First

The temptation is to get your presentation done quickly, and pretty designs help make anything look better. But really, your story needs to stand on its own. It needs to be compelling in its rawest, black & white text form. Once you get too invested in building slides, graphics, etc., it becomes harder to make the substantive changes that are really needed.

Along those same lines, start with a word-stingy outline first. When satisfactorily revised, use it to derive all your pitch deliverables from elevator pitch to investor leave-behind to live pitch deck.

An outline also makes collaborating with others on the story far more effective. If you start with slides, then the reader has to reverse-engineer the intended story, and then they can never be sure if you wrote something that does not convey what you intended vs you intended the wrong thing.

b) Minimize Text

c) Branding

d) Hypotheses

e) Web-hosted

f) Multiple Decks

g) Delivery

I used to train new triathletes as a triathlon coach for the Leukemia & Lymphoma Society’s “Team in Training” program. Triathlon is a complicated sport involving 3 sports, various rules, equipment, and strategies. All of that can be overwhelming, so I instilled focus in 3 things to complete a race that worked quite well (for another post).

Similarly, a focus on the three key investor objectives (Opportunity, Timing, and Risk) helps guide founders when pitching their startup while fundraising. I put together a PowerPoint template to help you get started.

Please let me know if any of this advice helps you get funding.

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