Make no mistake: Every time you go in front of a venture capitalist or angel investor, your funding fate is driven not by your company’s true potential, but by how well you communicate that business potential. A great business pitch is a great performance.
Your top priority: What do I need to say to get my investor’s juices flowing?
A great business often is buried behind a bad pitch to investors. I’ve worked with hundreds of CEOs over many years, and I’ve seen the best and the worst. If you don’t have that rich uncle to give you $200,000, and you have to dive into the investor pool, there are several mistakes you need to avoid. Here are the five that I see most often--and how to fix them.
Mistake #1: You didn’t do your homework on the investor.
Understand your investor. Money never comes if they have no interest in your market. If you are launching a direct-to-consumer health care comparison platform and are looking for $500,000 seed investment, it makes no sense to pitch the investor who only does B2B technology platforms with an average $2 million “A” round venture investment.
Mistake #2: You saved the “investment ask” for last.
Your writing teacher wanted you to go for the big finish with Chapter 14 of your book. This is backwards for the investor. Before the presentation, you should have written a script. Build a summary deck without screen shots. The business fundamentals are the same; it’s just how much color you add to each business point that enables you to expand and contract the pitch. Stick to the script and rehearse (out loud). Imagine a politician running for office with key talking points. They repeat them over and over but continue to make them sound fresh. That’s exactly what you have to do.
Now you’re ready. You start your business conversation with a business point: “I am here to raise $500,000 to grow my business. Let me tell you about it.” (Don’t give a range: If you say $400,000 to $600,000 the investor hears $400,000. You started a negotiation at the wrong place.)
Next, review an agenda for the meeting and provide a road map of where this presentation is going and what they will hear. (This is Speech 101: tell ’em what you're going to tell ’em; tell’ em; then tell ’em what you told ‘em.)
With the agenda you’ve accomplished several little content victories in the first 30 seconds: You’ve signaled that you’re going to talk business (not show pictures of your baby), established presentation milestones, defined the key business points they are usually listening for, and qualified that the investment amount is realistic.
Mistake #3: You, the CEO, rambled on about what you’ve done and what you're doing.
A rambling presentation is the kiss of death. Investors get bored and start thinking, “when are you going to get to what I want to know?" You might be given a reprieve because the investor will take over and start asking questions. That’s not a good thing. If that happens, you have lost control of your pitch and your allotted 20 minutes will be exhausted. If you made the investor dig through your ramblings to find the business opportunity, you’ve probably failed the CEO audition.
Mistake #4: You tried to solve a problem in your opening line.
Too many entrepreneurs begin their pitch with, “ The problem I am solving is…. “ I can understand why entrepreneurs think this approach should work. But they’re wrong. Consulting firms solve problems; entrepreneurs identify business opportunities. If you present your company as a solution, rather than a business, the investor will have no choice but to sit back, fold their arms and decide if they can see a business. Most can’t. You’ve quit your day job (or dropped out of school or gotten laid off) and will be working 18 hours a day for the next three years to deliver solid business results. They are just investors. If they have to spend a lot of time digging through your idea, it goes into the “too hard” pile and they pass.
Mistake #5: You thought a demo would help.
Don’t present a demo as a way to sell the idea. Investors are interested in understanding how they will make money, not in seeing a demo (just yet). Demos are best shown after you’ve passed the business audition and you’re going down the due diligence path. Because you set the presentation agenda at the beginning, you will more times than not will be given this flexibility. They know where you’re headed in the pitch.
If a demo is requested, ask the investors to wait until they understand the business opportunity. When GE talks to their global investors about jet engines, the investors want to know how many engines GE sold last quarter, last year, and how many they expect to sell next year. They aren’t asking to see how to install the blades on the engine fan. Investors just want to have confidence you will make them money.
But I did all this, and they still didn’t get it.
Many really bright CEOs leave a failed meeting with an attitude. If you, the CEO, perceive that the investor is not interested, or doesn’t understand the business, you blame the investor. Understand that the failure to communicate is yours, not theirs! Your job as the CEO is to present the idea so clearly that it’s a no brainer for the investor to see how you would make them money. Milestones accomplished simply illustrate hard work--don’t expect a pat on the back for that. And, don’t be arrogant. Investors need to know you will listen when they offer advice.