Here’s a riddle: What takes a tenth of a second to occur and can make or break your startup? No, it’s not the computation performed by your tech product’s proprietary algorithm. It’s a ‘first impression’, something that won’t change much after getting to know somebody for longer. If making a good first impression is your primary need in order to get past the proverbial front gate to investors, then the suggestions below may be of assistance to you.
Banks and African Fintechs may be on opposing sides of the technology invention scale however; they both share one aspect in common, i.e. the need to pitch for funding.
Within banks, senior management pitch to executive committees to gain added capital investment, normally in the format of a business case. The premise behind the approach is to give traction to opportunities that may disrupt the market. Interestingly, these committees spend the most amount of time reviewing the financials whereas core criteria like impact to product/channel strategy, market overview, customer research; competitive overview, investment risks or dependencies are rarely looked at.
From a Fintech point of view, the requirement to pitch for funding is necessary however; the format of preparation and delivery is so much more different.
Herewith some points to consider:
Audience: angel investor or venture capitalist
Source: Fast Company (original article written by T. McEvoy)
The front page sets the tone for the entire presentation. Be sure to include your logo, slogan and a visual showing your product or service in action.
This slide sets the tone for the rest of your presentation. At best, the slide should contain no more than two sentences, essentially your elevator pitch to a potential investor.
What problem is your idea solving in the world? A company only exists by serving customers for whom they are fulfilling a need.
This slide should directly relate how you plan to solve the problem.
The market size is the number of potential buyers who will benefit from your solution. This is the slide to include interesting facts around the growth of the industry, statistics around buyers and findings of similar products or services. The information presented on this slide validates what you are offering and proves you have spent time studying your target audience.
This is the ‘wow factor’ moment where you present your product or service. If you are still in the idea phase, you may show a prototype, drawing or minimum viable product. It best to display your product/service in action, to keep it real and engaging to the audience. A great way to showcase your product/service is through a customer journey of using your product/service. Always remember, more visuals than text.
This is an important aspect in that it presents how your business intends to make a profit, the costs to execute and your growth projections for the future. You will need to prove that your business has the ability to scale by providing a 3-5-year revenue and profit forecast.
How are you going to reach your customers? This is your go-to-market strategy and any unique tactics you intend to use to market your business.
It is good to talk about your competitors; it shows there is a need in the market. There is no need to be afraid of competitors, it is important to learn from them and build off their foundation. You may choose to list your competitors and present what they are doing right and wrong. Your aim is to keep this slide simple.
What is your competitive advantage that sets you apart from your competitors? This slide should wow the audience before they view your financial standing and investment requirement.
If your business is operating, list your revenue to date and your estimated company valuation. Once you understand how much your company is worth, you can then work out how much of equity you are willing to part with and for how much. You will need to indicate how you will be using the investment to meet your business model forecasts.
Your biggest asset is your team and the skills you bring to the table to grow a successful business. Be clear to highlight your team’s strengths, experience and their roles in making the company a success.
Timelines and Forecasts
You may conclude by showing you have a plan. You know what you need to do, when you need to do it and where you want to get to. Essentially, the gun’s loaded; you just need the investment capital to pull the trigger.
Thank the audience for taking the time to partake in your pitch and provide your contact details for any further queries. You may also open up for questions however; there is no need to be hard on yourself if you don’t have all the answers. This is also the opportunity to gain valuable feedback.
Your initial deck should be a snapshot of your idea and should leave the audience eager for more. You also can’t give too much away without knowing whether your audience is serious about taking a stake in your business.
It is also important to be mindful that investors assess more than just your pitch. Most Fintech entrepreneurs believe that the investment decision will hinge primarily on the substance of their pitch, the information and logic presented in the deck. In most cases, investors review pitch decks beforehand; the face to face encounter is more about asking questions, gaining clarity, and sizing up personalities.
After years of research and investor feedback, the following broad conclusions should be taken into account,
Passion is overrated
For most investors and entrepreneurs, conventional wisdom holds that ‘passion’ is a positive attribute, connoting high energy, persistence, and commitment. There’s this mythology that they want to see that you’re dying to do this business and work hard whereas investors prefer a calm demeanor. Studies have shown that people equate calmness with leadership strength hence temper the enthusiasm and project stone-cold preparedness instead.
Wipe ‘better’ from your lexicon
‘Better’ doesn’t mean very much when an investor would rather you talk to him/her in terms of making things cheaper, faster, or less risky. Those things are more tangible and usually measurable. Investors need the facts, not opinions hence if you’re pitching something that’s been done before, there has to be some kind of crucial change that distinguishes it substantively and, yes, for the betterfrom whatever there was in the past. ‘Me too’ products don’t usually fare that well.
Trust beats competence
Research results have shown that interest in a Fintech start-up was driven less by judgments that the founder was competent than by perceptions about character and trustworthiness. Investors often work closely for several years with entrepreneurs on high-risk ventures hence they seek evidence that their new partners will behave in honest, straightforward ways that don’t heighten the risks. Interestingly, research showed that entrepreneurs who projected trustworthiness increased their odds of being funded by 10%.
Tell me exactly how you will invest my money
Many great ideas die when the spending details are too murky. You might be surprised how many pitches don’t have this thought out in advance. The investor wants to see a simple slide that shows exactly what you will do with the money and why. Preferably, don’t tell the investor that the investment will be used to pay you and your fellow cofounders because you’ve all been working on this project in your garage for two years without drawing a salary. Investors aren’t here to get you out of a tough situation. The investor wants to get a sense of how quickly you plan to spend the investment, which milestones you’re planning to hit, and why you’ve picked the specific priorities you’re showing. You need to portray some confidence that the investor is not putting money into a black hole. Always note, ‘Trust me’ isn’t a phrase any pitch should contain.
Explain how you will build your team
Ideas are great, but companies succeed or die based on execution. Like most investors, most will invest in a B idea with an A team, rather than an A idea with a B team. Almost no business plan is static; unexpected things happen, and you need to be as ready as you possibly can to handle them. The key ingredient for doing that is a solid team hence talk to the investor about the people who are already on board and what makes them great at what they do. Advise how many people will work together as a team, not just as individuals.
Be ready to pivot if your pitch time gets cut in half
Yes, investors sometimes promise you an hour, but something came up and whilst it’s unfortunate, it does happen all the time. So plan ahead to adjust your pitch to half or even a quarter of the time you expected. It is wise to prepare and reschedule this way because investors often like to see entrepreneurs who can improvise and show that they’re well-prepared for contingencies. The only absolute certainty in any business is that some things will go wrong. We like to see that you can change course on the fly and still get the job done.
Investment decisions aren’t driven only by potential returns; they are driven by ego as well. Most investors are experienced entrepreneurs who want to be hands-on mentors, so they prefer investments where they can add value. For that to happen, a founder must be receptive to feedback and have the potential to be a good protégé.
Gender stereotypes play a role
The research revealed that although gender alone didn’t influence success, people with a high degree of stereotypically female behavior were less likely than others to succeed at pitching. ‘The research study shows that investors (notably venture capitalists) are biased against femininity.’ They don’t want to see particular behaviors, so if you’re overly emotional or expressive, you should consider practicing to avoid those things.
The most important takeaway for entrepreneurs: you should approach the pitching process less as a formal presentation and more as an improvisational conversation in which attitude and mindset matter more than business fundamentals. It is important to listen hard to the questions you’re asked, and be thoughtful in your responses. If you don’t know something, offer to find out or ask the investor what he or she thinks. More importantly, don’t react defensively to critical questions.
With linguistic software program and manual coding research performed at the TechCrunch Disrupt New York, an annual startup funding competition, the following gender questioning pattern was also identified.
According to the psychological theory of regulatory focus, investors adopted what’s called a ‘promotion’ orientation when quizzing male entrepreneurs, which means they focused on hopes, achievements, advancement, and ideals. Conversely, when questioning female entrepreneurs, they embraced a ‘prevention’ orientation, which is concerned with safety, responsibility, security, and vigilance. Research found that 67% of the questions posed to male entrepreneurs were promotion-oriented, while 66% of those posed to female entrepreneurs were prevention-oriented.
Don’t forget what funding decisions are really about
Always remember, not everyone is going to be polite or cordial. Investors can sometimes be downright rude however, it’s important to take account that it’s not personal.
Don’t be too different
Without overdoing it, after all, being ‘too’ different adds risk to an investors investment. There is no need to bend over backward to tell the investor how wildly original and game-changing your business will be; you can actually kill a solid idea by overselling its novelty. It is received better if you talk about balancing newness with the realities of the market today. Pitch on how you can use existing sales channels to sell your new product or service. This shows that your new service can be used by the current players who are out there already. Even if you’re onto something brilliant, an investor can’t fund distribution, marketing, a brand new factory, and a supply-chain system all in one go.
Don’t be afraid to be selective
Do plenty of research on investors before deciding which ones to reach out to. It’s important to find investors who aren’t ‘rule followers’ especially when you’re fundraising for a product/service aimed at a relatively new market. You have to be selfish with your time because fundraising can be a full-time job.
Make pitches 5 – 10 the ones that really count
No matter how much rehearsal and prep you do; you’ll never be as good in your first pitch meeting as your fifth. You need the rounds of feedback from high-stakes pitching to get the gaping holes in your story pointed out and to fill them in. With every refinement, you’ll be fixing smaller and smaller problems. This way, you’ll be sandpapering the small scratches out, and once that’s finished you’re ready for the big show. Remember, you only get ‘one shot’.
Put your punchline first
Skip the wind-up. Many entrepreneurs will use time to tell a story but never get to the punchline. Investors want the punchline upfront and then the story behind it. You’re going to have three minutes to pitch someone, ‘so what are the three most compelling points you can share?’
You need to be able to verbalise your pitch in 60 seconds or less. Don’t be afraid to get straight to the point.
Stick to a formula
As with many things, figuring out your three points in 60 seconds formula is the hard part but do that, and you won’t have to reinvent the wheel each time. Once you’ve nailed down an approach you like, following it should be easy. To help you find the formula that works for you, start by answering these questions as truthfully as you can:
- What’s the big problem I’m solving for?
- What’s my solution, and what makes it special and compelling?
- Do I have customer validation?
- What do I think the unit economics would be?
- How much cash would I need to hit profitability?
- Over the next 12 months with X amount of cash, what are the three things that I could tell the investor at the end of the 12 months that say, “You successfully invested your money”?
If you can’t answer those fundamental questions, then most investors will have a hard time pulling the trigger.
To have an understanding on how to prepare for an investment pitch is only one aspect of preparedness, it is also important to consider the ways in which founders can botch their pitch.
Never pitch without practice
Entrepreneurs can get stuck in the weeds where presenters can spend 40 minutes on just one piece of a pitch and never tell the whole story. You can usually avoid pitfalls like this just through practice, but that doesn’t mean rehearsing in your boardroom, you need real-world practice.
Using names of investors who are ‘almost certainly in the deal’ is a big red flag, this kind of information is very easily verifiable and if untrue, the deal is off the table. If the use of a name is entirely accurate, name-dropping can start things off on the wrong foot. It also says a lot about the founder’s confidence in their business where relying on outside confirmation as opposed to their own conviction is a dangerous strategy, never played by the winning teams.
Market size misses
A huge turnoff is when founder’s come to us with a totally overblown estimate that doesn’t reflect their corner of the universe. Investors are especially attuned to identifying off-base estimates like these. Ideally, when determining market potential, founders should be 100% focused on their specific product whereas lumping in everything else from a particular industry will only raise questions and distract potential investors from what’s really relevant to their business. A founder should also consider showing a bottom-up analysis based on sales projections. This is more realistic than only providing a top-down claim where you say you will get X percent of the total market size, which is always huge in every pitch. Your total addressable market should be arrived at by estimating both carefully.
Subtle signs of character flaws
If there is one validating factor, assuming we already like the business in the pitch, of course, it is the level of ethics/conduct we get from the entrepreneur at the very first meeting. If the investor gets a whiff from the first meeting that the founder is not on the level, is being cagey, fudging too many important details or playing power games, these are all quick no-go’s. From an investor point of view, character cannot be taught and these tendencies are apt to show up again and again if we work with that entrepreneur.
A final note about pitching: You need to make sure you have the right team. In rounds one, two, and three, most investors will tell you that they’re investing in the team. You can have an idea that knocks it out of the park, but if the investors don’t think that the team can pull it off, they aren’t going to invest. Founders must consider that immense talent, experience, chemistry, and a history of success aren’t bad qualities to look for when you’re building the team that can pull off your vision, after all, that’s what investors are looking for, too.
The need to connect these elements are tough, no doubt about it. Investors aren’t trying to make it easy for you to get our money seeing as they review literally hundreds of ideas a year and may only invest in five or six annually. If you prepare well and take heed of the points above, you may just be in a better position than you were yesterday.
Balachandra, L. (2017, June). How venture capitalists really assess a pitch. Harvard Business Review. Retrieved from https://hbr.org/2017/05/how-venture-capitalists-really-assess-a-pitch
Bamberger, B. (2017, July 25). 5 VCs share the worst ways founders botch their pitches. Fast Company. Retrieved from https://www.fastcompany.com/40443464/5-vcs-share-the-worst-ways-founders-botch-their-pitches
Dishman, L. (2017, September 20). Four fundraising lessons from a startup founder VCs kept turning away. Fast Company. Retrieved from https://www.fastcompany.com/40469004/four-fundraising-lessons-from-a-startup-founder-vcs-kept-turning-away
Kanze, D., Huang, L., Higgins, M. A. C., & Tory, E. (2017, June 27). Male and female entrepreneurs get asked different questions by VCs and it affects how much funding they get! Harvard Business Review. Retrieved from https://hbr.org/2017/06/male-and-female-entrepreneurs-get-asked-different-questions-by-vcs-and-it-affects-how-much-funding-they-get
Raizada, A. (2017, July 20). This VC explains how to avoid pitching good ideas badly. Fast Company. Retrieved from https://www.fastcompany.com/40442339/this-vc-explains-how-to-avoid-pitching-good-ideas-badly
Suh, J. (2017, June 29). I’ve raised a billion in VC funding, let me help you with that pitch. Fast Company. Retrieved from https://www.fastcompany.com/40433716/ive-raised-a-billion-in-vc-funding-let-me-help-you-with-that-pitch