Amid constantly changing markets and shifting investor preferences, some principles endure. There is excellent value to startup founders who can identify the benefit of understanding how Institutional investors invest. Especially if you are pitching a B2B business model. They for one, strive to challenge assumptions and raise awareness on diverse aspects of investing and portfolio management. Collaborating with progressive founders, the institution provides a forum for investment insights and their practical application.
Moving beyond the small network of angel investors and venture capital firms and into institutions can be somewhat challenging for founders. However, it may be a better option so as to avoid the already saturated sea of investment prospecting. When choosing this option, you will want to keep in mind that there are usually a number of prerequisites that a startup company needs to meet before courting financial institutions.
Institutions prefer full-time founders. The founder(s) of the startup, must be building the foundation of the business full-time. There are countless aspiring entrepreneurs who convey that they will start working on their business ideas full-time as soon as they receive funding. This is just the wrong path to take. It is understandable for founders to be apprehensive about relinquishing a full-time salary and job stability, particularly if they have a family to support.
However, dedication and devotion speak volumes to investors. If you have not gone all in, you are communicating the message that you lack confidence in your company’s prospects, are not comfortable with unpredictable situations, and are not fully committed to your business. None of this bodes well when pitching an investor. If you are not taking the necessary risks, you cannot expect an investor to be willing to take a risk with you.
The best thing you can do for yourself is to build a working prototype or some sort of demonstration of your product or service. Preferably, a minimum viable product (MVP) should be developed before any institutional investor pitches commence. The prototype has to be well beyond the concept phase for a founder.
Many investors will pass on a startup that is still in the primary stages of developing its business model because there is a significant amount of more risk that comes with a company that does not have a prototype. Investors usually want to see an actual demonstration of the product during the pitch session. Having a finished product, or at least a finished beta product, not only demonstrates how your product functions and why it is valuable, but it also establishes that you are resourceful and can be productive with limited or no funding, are serious about your endeavour and have already made progress in getting your business launched.
Showing the investor that you understand your market and that your product or service can respond to a deficit in the marketplace is vital! Another value to your investors is being prepared to show them that your working prototype and business model is appealing to customers versus just showing them market research. Customer testimonials and revenue are highly influential in prompting investors to fund your company.
For B2B startups, the next best alternative to paying customers is potential clients who are showing substantial interest by signing an LOI, participating in beta product/service trials then giving detailed feedback, and being willing to speak to investors about what motivates them to use your service or buy your product. For B2C startups, you can demonstrate traction if you have a considerable number of non-paying subscribers who could potentially convert to paying customers. You have an even stronger case if you have continuous user engagement, a low rate of user attrition, and a very low user acquisition cost.
Pitching to institutional investors can seem intimidating. However, keep in mind that institutions are made up of individuals. And those individuals will be influenced based on your excellent presentation, the value of your business that you can prove, and by you as a founder.