How to Hook Investors and Raise Money
Raising funds for your startup is like a second full-time job on top of developing your startup. It usually is stressful, nerve-wracking, and often confusing. How do you know what investors want to hear? How do you know what to include in your pitch and what to lead out? And, most importantly, how do you know what will catch investors’ attentions?
When I was preparing for the F50 Investor Demo Day back in 2014, I was not only eager to hook the 200+ attending investors, but I was also looking to find a way on how to grab the audience attention and be remarkable — rather than become another startup pitch. It took me over 10 days to prepare the keynote including its structure, design and to practice the pitch. In order to get to 120 seconds speech — I wrote first a story of a couple pages, reduced it than to the core message I wanted to convey per slide and transformed it then into a story to make the audience navigate through the business case. On the night before getting on stage — basically ready to rock — I was having dinner with my family when I still had the feeling that the pitch could be more unique, when I turned to my older son David (13 back than) and asked if he’d be open to jumping on stage with me and make a short entertaining intro to grab the audience’s attention. The product I was pitching back then was an app for teens — so it would come across amazingly well for David to make an opening.
Because David loves acting — it was an easy one for him to learn the “story on how the idea come up — and why this became the reason for me (his Dad) to solve this problem”. It was an amazing experience and the audience was not only excited during the presentation but had huge responses also after the pitch.
Before you get onto the Deck
Honey Your Core Value Proposition
Your pitch isn’t just what you’ll share on demo day. Your startup’s pitch embodies the core message that you’ve honeyed with peers, family, friends, mentors, and employees over and over again. It’s the first impression of how your idea will make the world a better place. Your potential investors will decide in the first minute whether or not they are interested, so show them you are credible and tell them what problem you are solving and why they should care right off of the bat. Preparing a pitch that’s to-the-point and easy to understand will be useful every time you need to explain your startup and its purpose.
Less is More
The quickest way to turn off an investor is to drag your presentation on and on, give lengthy explanations, and have too much information on your slides. Don’t save the “good stuff” for the end. Hook the audience within the first couple of seconds and be succinct and thorough in your presentation. You need to craft an elevator pitch to catch investors’ attentions and impress them. Keep everything short, sweet, and to the point, so investors can see that you will be able to attract and keep customers.
Follow the K.I.S.S. Method
Albert Einstein once said that if you can’t explain something simply, you don’t understand it well enough. The same goes for your startup. You should know it better than anyone, since it is your creation, but if you are unable to simply describe your startup, then you don’t know it well enough. Go back and reevaluate what exactly your purpose is. This guideline goes hand-in-hand with the less is more idea. If your investors can’t grasp your concept quickly, they will assume that potential customers won’t understand it, either. It will be hard to get funding if investors don’t know what they are giving their money to.
Practice, Practice, Practice
You only have one shot to get it right, so practice your pitch multiple times before meeting with investors. Practice in the bathroom in front of the mirror, give your pitch to family and friends or a mentor who will give you honest feedback, practice when you’re driving in the car. Feeling comfortable with your pitch will help you relax and seem more natural during the presentation. Investors are typically good judges of character, so they will be able to see through you if you aren’t being natural or aren’t comfortable with what you are pitching.
Investors are more likely to give money to a sure thing, not a startup who has no data to back up their projections. Show that you are a low-risk investment by showing some traction and real-world experience in your pitch, and you’ll be much more likely to raise money than if you were just to forecast returns. If you don’t have the ability to do a full launch, find a way to test your startup’s viability and product on a tight budget. Show that your idea is needed before pitching it to investors.
Investors will compare your pitch to others that they have heard, so it is important to make your presentation stand out from the crowd. Ask yourself these two questions:
- What elements are unique to your business?
- How can you best display those elements?
Incorporating a little bit of humor, an interesting story, or just overwhelming proof of the viability of your startup will help to set you apart, as well. There are many little ways to be appropriately different and catch an investor’s attention.
Be Credible and Confident
It’s important to be honest with yourself and realistic about what you need from investors. Take a hard look at how much money you actually need so you don’t scare away investors with a huge number, and don’t bite off more than you can chew. Demonstrate that your startup can crawl before it can walk. Perfect your tactics for a single product before you try to launch 50. Read your pitch and ask yourself what it says about your business. Rewrite it until it says what you want to convey.
The 12 Points Rule for the Investor Deck
The first minute of your pitch is critical. Either investors are going to pay attention or tune out. How do you hook them? Having a compelling deck that touches on the 12 points below is important to success when raising funds.
Slide One: The Hook
This slide is your hook, and it will vary based on the entrepreneur type and business stage. Start with statements that compel the investor to listen. The goal of slide one is to catch their attention and have them say, “This sounds interesting.”
Beyond your elevator pitch follows the strongest argument that makes the investor keep on listening. Investors hear pitch after pitch, so the sooner the “wow” moment appears, the better. To get that attention-grabbing moment, answer one of the following questions right away. Select the one that best supports your startup and makes the strongest case for you. The list is in priority order.
1. What have you already achieved? (Traction)
Answer this question with traction numbers or money raised.
2. What have you done in the past that makes you an impressive founder or team member? (People)
3. Why are you pitching your product today? (Purpose)
Tell the story what happened / motivates you / why you are doing what you are doing.
Slide Two: 50,000 Foot View of Your Company
Give investors the big picture view of what you are doing, and get them excited about the potential. Make sure you convey your passion behind the scene using a punchline. Focus on the value proposition.
Slide Three: Unmet Need
Your investors are going to wonder what problem your startup is going to solve. You will need to make clear that there is a need only your startup can meet. Or, if the need is already being met, explain how you can meet it faster, easier, and better. Show how it’s done today — and explain why it’s broken. The best way to do so is to tell a story.
Slide Four: The Solution
Now it’s time to present how you solve the customer’s pain! Showing your product is essential to a pitch. If it is not complete, then show a mock-up. If it is a service, show how it works. Investors are more likely to fund you if they see and understand how your product solves the need you described. A visual representation of your product can have a big positive impact on the overall effectiveness of your pitch. Transition into a product demo or user story by saying something like, “Let me show you how this works.”
Slide Five: Market Sizing
Now that you’ve got investors excited with your solution to a need, and they’ve seen how it works, it’s time to tell them how big it can get. It’s important to put some effort into researching the answer to this question. One way to do it is through bottom-up market sizing. You take the number of potential customers and the price of the product sold. So, if you have 100 potential customers for a $20 product, the market is $2000.
There are some market sizing pitfalls to avoid:
- Using a large number a small market share to make your startup seem like a sure thing.
- Giving “conservative estimates” that are unlikely to be met.
- Using a loosely-defined industry that won’t give you reasonable estimates.
Slide Six: Go-To-Market
How do you take your product to market? What are the main traction channels, partnerships that leverage you into your target audience? Describe how you’ll reach your first 10–100–1000 users/customers.
Slide Seven: Competition
Never say that you don’t have any competition. Even if it is indirect, it is still competition. Worst case — the way that it’s done today (behavioral) is your competitor. Address your competition and what differentiates use using a matrix format so it is easy to see in what areas you outdo the competitors.
Slide Eight: Traction & Customer Adoption
The key performance indicator (KPI) that you are measured on will define what your product stands for. Don’t choose something too general like downloads or revenue. Instead, show an AARRR funnel perspective to give investors a clear idea of how your product is gaining traction throughout the funnel.
Slide Nine: Financial Projections
Keep your projections realistic and avoid hockey stick projections. Investors won’t take you seriously if you show an unrealistic growth over a short amount of time. Show them that you are realistic in your projections.
Slide Ten: Team
Investors want to know that you have a strong team to back you up. Bios will need to be relevant to someone who will be given you money. Don’t focus too much on the team’s accomplishments, but keep it relevant and include photos. Let investors know that they are experienced and have the expertise.
Slide Eleven: Roadmap / Timeline
Show investors that you will be smart in investing the money you raise, and give them your investment plans. Show a graph which reflects how much Dollars you need to get to what milestone. Include quarterly dates and eventually how your team will grow.
Slide Twelve: The Ask
End with what do you need to keep your company going. This includes but is not limited to Investment money, Customers, Partnerships, Advice. In the case of fundraising, let investors know when you are closing the round.
Appendix: Backup Slides
Murphy’s law states that anything that can go wrong will, so you should always have a backup plan for your slides. This is especially true for tech startups. Keep a backup on a thumb drive, bring an AC adaptor and extension cord for your laptop, and have an extra laptop on hand just in case.
Every pitch is different. Are you having a 1:1 or a 1:many. Is it a 2-minute pitch or an investment firm partner meeting! Develop a custom template touching the twelve POINTS above (NOT twelve slides) you can adjust accordingly. Emphasis your strength and you passion and never beg. Telling a story will make the problem and it’s solution much more tangible. Build a “story arc”: start with a bang — and end with sympathy and agreement!
(!!) And, the most genuine way of showing virtual appreciation for a writer is to share & tweet. In case you haven’t done it yet … I’m looking forward to it! Thank you for reading/watching this and stay tuned for next week’s post.
Originally published at whatittak.es.