Wednesday, August 20, 2008

The art of pitching your idea to a VC

No matter how many times you do it, pitching your idea to a potential investor will almost always be a nervy experience simply due to the fact for those few minutes your future seems to be in the hands of another. The truth is that there is really very little reason for your angst as investors need you in the same way that you need them.

Ian Shields from UK based company, Gateway to investment explains how to do it:

Get your business plan perfect
Remember that the business plan is really a window into the business opportunity you are presenting. The investors do not know what you know and relies on your business planning to reflect the opportunity accurately and effectively.

Be prepared
The old adage "be prepared" applies - preparation is essential. You know your company, you know your product. You MUST know your competitors (there is always a competitor, maybe not directly, but there is always another option). You should know what problem you are solving for your customers and why they need your product, process or service.

Do the numbers
Commit to memory the top line financial projections - projected turnover for at least three years, costs, profit, loss etc. Have sound financial forecasts and present them as simple metrics that support simple revenue projections. Investors will drill down into the detail during due diligence.

Know your audience
Do your homework on the people you are going to meet. Be aware of what they could bring to your business in terms of business experience. You should also be aware of the previous investments that the organisation has made to highlight any synergies that your business would have within their existing portfolio.

Don't waffle
Always keep to your allotted time. If you have five minutes make sure you can get your whole pitch across in that time, better still do it in less time. Practice before you pitch - use your management team, partner and friends. Listen to their feedback while getting your timing right.

Investors invest in people. If you are a start-up or early stage business you need to be clear, articulate and confident. Stress previous career and business experience that is relevant. You need to inspire confidence in investors that when things go wrong, as they will, you and your management team are able to deal with it, come up with a solution and take another path. Remember to be passionate about your business too!

Don't be boring
Keep the presentation compelling, clear and simple. If using Power Point do not use too many slides (one per minute, or a maximum of eight) - there is nothing worse than death by Power Point. Make sure slides contain clear visual information and keep text to a minimum.

If your company has a product - bring it along as it will bring the business idea to life - but beware of lengthy software demos! And make sure that you have tested it works before you go into the room. If you have started the process of protecting your technology (patents, etc.) let the investors know.

Do not go on about the million and one additional applications for your technology. Focus on your market entry, then briefly on successive markets you intend to target and justify (succinctly) why.

Do not dwell on the technology - that is what due diligence is for.

Real customers
Show that you have a clearly identified customer base, and provide evidence of that. It is no good saying that because there are three billion mobile phones globally, that is the size of your target market! If you are targeting the mass consumer market show what market research you have done, e.g. customer trials and feedback – do not rely on statistics from industry analysts. If you have them, refer to Letters of Intent from potential customers as these provide evidence of market opportunities.

Why you're different
What is your sustainable unique selling point (USP)? What is the problem you are solving? Why will customers purchase your solution over a competitor's? Acknowledge your competitors and demonstrate why you are different and better.

Ask questions
Think about intelligent questions that you would like to ask the potential investors, such as, if they were to invest what level of board participation would be involved? Do they have any comments or feedback on the company's strategy? We are looking to strengthen our management and/or board team, are they aware of anyone who would be suitable?

Having sat in on numerous investment meetings, investors are looking for high-growth businesses, with strong management teams, armed with a proposition which will bring them a timely return on their investment. If you can present all of these elements to them confidently and succinctly then you have made steps in the right direction to securing the investment you seek.

Ian Shields is manager of gateway2investment


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