Make The Most Of Your Vital First Pitch To An Investor

After 20 years of early-stage investing, I’m often asked for help with investor presentations. It’s a tough challenge: there is so much you could say in a first pitch, and a limited amount of investor time and attention to work with. If it goes badly, there’s seldom a second chance with that investor.

Start with the fundamentals in mind. Investment decisions are driven by the balance between greed and fear. In a first meeting, you need to accomplish two things. You need to get the investor excited about your opportunity. And you need to make the investor believe you have a good chance of success. The rest can wait.

The investor is mostly trying to decide: “Am I interested?” S/he probably knows the market space fairly well but knows very little about the company. S/he will not be making an investment decision that day. The meeting is about deciding whether or not to put in more time and resources to understand the business better and get to know the principals.

You need to get the investor excited about your opportunity. For venture investors, these factors create excitement:

  • Your market is huge and accessible,
  • Your value proposition dramatically satisfies a painful, high-priority need for a buyer with money and decision authority,
  • Credible third parties judge your product to be much better than alternatives [respected industry leaders are more credible experts than research houses],
  • You can create strong and sustainable competitive advantage,
  • You have a way to reach buyers quickly and economically.

Putting this all together: investors look for big value creation opportunities. Most VCs think that at least $1 billion of U.S. market opportunity is needed to move the needle for their fund and justify the risk of early-stage investment. And, they want to see an A-list team signed up to execute and deliver this promise.

You can create excitement and momentum by showing that your business has all or most of these factors working for it. If there are a few gaps, talk briefly about how you will fill them.

Now you need to demonstrate that the risk is less than investors may fear. You do this by showing that:

  • The business model is working: lighthouse customers on-board, a rising revenue curve, demonstration of value-in-use for buyers, and data that says buyers are using the product, expanding their use, buying again, and recommending it to their friends.
  • The founders know the market deeply and have valuable relationships: they understand what customers want and how to sell to them, and they have access to key strategic relationships.
  • The founding team has all the key skill sets.
  • The founders have a track record of success as entrepreneurs.
  • The founders are deeply committed and have personal skin in the game.
  • And, last and most, the founders are very smart, creative, and tenacious business people. Usually it takes a face to face meeting to communicate this.

It can help if there is a successful analog to your business to which you can point. But, VCs know that the greatest innovations have no analogs: before Intel there were no microprocessors; before Facebook no social network …

A couple of “don’ts”: excessive detail in the first pitch (or sent in advance) interferes with creating excitement. Professional VCs and many individuals will not make a decision to invest at the first meeting, but they could make a decision to be excited and start talking up the opportunity, however. A big data dump puts investors in analytical mode, reserving judgment until they process the information. This reduces potential excitement.

It’s usually better to avoid putting valuation and terms on the table. This starts a nerdy negotiation that does not build enthusiasm. And you benefit from hearing what several investors think (i.e., what the market bid price is) before you stake out a position.

And don’t have a weak core team which you try to bolster with long list of part-time executives and advisors, even if their resumes look great. Investors care mainly about the core team and are skeptical that part-timers and advisors will really put shoulders to the wheel.

There are some other bases you need to touch: how your product works, its development status, how much money you want to raise, what major milestones you can reach with that money, how fast you expect to grow and reach break-even and how much total financing you need to launch the business. But keep it brief and stay focused on developing investor enthusiasm and rapport.

Success looks like this. The investor goes back to his/her partners or fellow angels and reports: I’ve found this very interesting opportunity. Here’s why I really like it … [elevator speech]. The entrepreneurs are really impressive, and I’d like you all to meet them: I’ll get that on the calendar ASAP. Meanwhile, I’m going to spend some time and dig into this. We should be prepared to move fast because I suspect that XYZ is talking with these people too …

In the follow up call when the investor asks for a second meeting, listen carefully to learn what objections his/her partners raised, where the investor wants to learn more and where s/he needs more proof. Focus the follow up meetings on these areas. As you do so, you also need to re-enforce the key selling points, fill any gaps so your story works as a whole, and build your relationship with the investor by listening and finding what you have in common.

These observations are drawn from venture capital, but the fundamentals of investment decisions are universal. My fund-raising credo is: energize the greed, calm the fear, and build trust.” Steering by these stars, and with some luck [always needed], you will soon have a new investor and the capital to show the world what you can do.

First posted @ on April 23, 2018.