At some point, growth businesses need to raise capital. Funding from cash flow and the owners' bank accounts are the best sources but are inherently limited, especially if you have a business that is scaling rapidly. Growth businesses often need to seek outside funding from corporate investment boards, angel investor groups, or VC firms. These investment pitches, or "shark tanks," tend to be short, pressure-filled scenarios, where the best companies rise to the top and the worst companies sink.
We recently attended an investment meeting of a prominent Midwestern angel group where we observed three companies make their investment pitches. Each company knew that a successful pitch would bring much needed capital and connections to seasoned investors and business builders. Each management team was extremely professional and had a proven, growing, early-stage business, which now needed capital to continue its growth. Winning in this forum, however, was much more about how the companies performed in front of the investors, rather than the relative quality of the business.
Differentiating the winners from the losers was easy when they presented back to back. Given what we observed, here are five things to remember when you end up in front of the shark tank:
You need to tell a compelling story about your market, the customer need, and how you fill an unfilled gap. This is not about the numbers, it's about the concept. You need to paint the picture in a way that allows the investor to resonate with the concept and believe in the growth story.
As much as investors may call themselves early stage or venture-focused, when they evaluate multiple investment alternatives they naturally gravitate toward the safer investment. This means companies generating positive revenue are better than pre-revenue companies. Your role as an entrepreneur is to prove the model, while theirs, as an outside funding source, is to facilitate scaling of the model. Revenue proves that customers are willing to pay for your offerings, and simple logic would tell you there are likely more customers where those came from. There's also safety in numbers, so if you already have funding, that's a big plus. Investors are more willing to part with their cash when they know that other investors are already in. Investors also need a clear path to exit.
Recognize that your business is risky, even if it is successful. Show that you understand the challenges and are taking action to address them. Don't be afraid to admit when you don't have the answer, and that you are open to advice on ways to address the challenges.
Most investors invest in the person as much as the idea, so make sure you show who you are as a leader. Talk about your qualifications and the team that you've built. This will ensure you stand apart from a good business.
Investors are not checkbooks; they are human beings with checkbooks. If you can relate to them on a personal level, you will build trust and confidence, and hopefully get them to write a check.
Entering the shark tank is inevitable for many growth businesses. If you are prepared, you won't get eaten alive.
Send us your questions and experiences with investor pitches. We can be reached at email@example.com.