A Guide to Early Fundraising for New Businesses

fundraising early stage business

A telling success factor for new businesses looking to make an impact in their industries is whether they can attract investment at an early stage of development. 

Whether you’re a private company looking for venture capitalist funding or a growth-stage company looking to be listed on a public exchange, early investment has proven critical for inspiring further funding in later rounds. 

This is true even in Canada, where the so-called Canadian advantage allows companies to reach profitability sooner. It’s still critical to attract upfront capital.

Engaging investors early on gives companies greater access to the capital funds they need for hiring key staff, developing new technologies, expanding internationally, and accelerating the business plan. 

For instance, the 2019 TSX Venture 50 companies—which are all growth-stage companies accessing investors on TSX Venture Exchange—reported increasing their employee count by roughly 2,200 people in 2018, representing an average hiring growth of 307 percent. This would not have been possible without the support of their investors.

More specifically, companies are able to see notable success when they allow investors to engage early on. Well Health Technologies, for instance, was able to continue expanding through a scalable acquisition model. And for Drone Delivery Canada and Siyata Mobile, having the support of investors led to partnerships with Air Canada and AT&T, respectively. 

Attracting investors in the early stages helps bring in new partners that are committed to your business. They can expand your network by introducing you to other investors, customers, or partners, helping you to continue accelerating your business plan.

However, new businesses often find the idea of securing investments a daunting task with a lot of moving parts. If you know it is time to bring in investors but don’t know how to get their attention, start by making sure you secure the help you need to attract your investor audience quickly and effectively.

Before even reaching out to investors, it is important that you understand the market you’re trying to tackle—market research.  A lack of market need is the number one reason startups fail, suggesting that companies need a better way of evaluating the state of the market before launching their business within it.

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Savvy investors will be looking for this understanding so they can ensure a profitable return on their investment. As such, your first round of investment will act as a proof of concept for the stickiness of the business concept itself.

Early investors will also be looking for insight into the growth potential of your business. Be sure to demonstrate its potential by clearly documenting key performance indicators, highlighting key customers, and demonstrating realistic revenue projections. Finally, they’ll see the value in a team that hosts key personnel and advisors with proven track records in your industry.

As you prepare to engage your first group of investors, consider incorporating these six steps into your approach.

1. Communicate often

For publicly-listed companies, there are clear obligations for disclosing information to investors—but that is not quite enough. Investors can’t rely on just International Financial Reporting Standards statements to get insight into how a company is doing. These reports can be difficult to digest and often don’t offer real-time representations.

To help investors get an insider view on company growth, it’s important to share meaningful metrics consistently. Communicate early and often to maintain an active interest from your investors.

This also goes for private companies that don’t have the same reporting regulations—investors will always appreciate that level of transparency.

2. Think long term

Look for investors who are buying into the vision that you established at the outset of your business and who will want to participate for the long-term. And when you find them, keep them on board by letting them buy in early so they can see success alongside you.

People love to “average up” by doubling down on winners. If you take less money at a lower valuation, you can then prove the execution of your business and raise additional rounds at sequentially higher valuations.

3. Start early

Start early not by asking for money right away, but by engaging the help you need to structure the next round of financing. This will give you the chance to prove to your investors that you can execute on your plans.

And if you’re looking to the public markets, consider listing early as well. This will give investors a chance to follow your execution.

4. Do not be greedy

Ask for what you need in order to prove that your business model works. Then, structure further financing after that.

Investors will want to continue investing if they see positive results. To start, it’s better to have a little piece of a big pie than a whole lot of nothing, so don’t be greedy. Leave money on the table for other people to win with you, and they’ll be incentivized to contribute to the win.

5. Always be transparent

There’s no straight line to success. Everyone fails and pivots, even big enterprises. If you make a mistake, it is always best to be upfront instead of trying to hide it. Breaking investor trust can have dire consequences.

If you are open about your mistakes and failures, investors who have been with you from the beginning are likely to forgive you—as long as you have clear, actionable steps to correct the course moving forward.

6. Build your profile

Distribution is key in any business, so use branding, partnerships, and marketing to build a profile that represents your company. Social media, content marketing, guest editorials, and other channels can position your company as an industry leader and influencer that investors want to associate with.

If you want to leave your mark on an industry, engaged and active investors will be a major factor in your success. To navigate the public investment landscape and get them on board, start early, communicate often and transparently, and keep them interested in participating in the long-term growth of your story.

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Ask Yourself These 5 Things Before You Seek Angel Investment

angel investment

Are you thinking about seeking angel investment for your small business or startup? The first step should always be looking at whether or not your business is a good candidate. Many really good businesses are not attractive to angel investors. It’s not as simple as growth or profits. 

The truth is that the vast majority of potentially successful small businesses and startups are not going to get angel investment no matter how good their pitch or plan. Simply having a good business that can grow and prosper isn’t enough.

So what is? How do you catch an angel’s eye? 

Here are five questions that will help you figure out whether your business is likely to be interesting to angel investors. 

1. Does your business have major growth potential?

Angel investors look for businesses that can increase sales tenfold or more over the next three years. They don’t want to share in your profits; they want your company to go public or sell to a larger company. It’s how they make their money. 

That takes major growth. So you need a big market. That means not just numbers in spreadsheets, but a market that the investors themselves will believe in. Angel investors want businesses that solve real problems for lots of people.

2. Is your company scalable?

Scalable means the business can sustain major growth without the need for too many more services or employees. Can you easily handle growth without losing quality? Does it take doubling headcount to double sales? This might hamper the bottom line. 

Be sure to keep the future in mind. Angel investors like product businesses, or productized services, not service businesses. They want businesses that can increase sales overnight without increasing fixed costs

A classic example of productized services is Intuit’s Quickbooks, which decades ago replaced bookkeeping services with software. Bookkeeping is a service that requires more hours or work in direct proportion to sales revenue; software scales up because it can be used by many people at the same time, without requiring personal attention. More recently, Moz took a search engine optimization consulting business and built from that to a software-as-a-service (SaaS) platform. The search engine consulting was people intensive, but the SaaS platform scales. 

3. Is your business defensible?

Angel investors want businesses that can’t be easily duplicated by competitors. They look for something proprietary, like trade secrets, copyright, trademarks, and patents.

Even specific market knowledge can be important. First-mover advantage helps, but it is rarely enough on its own. You have to be able to maintain the advantage into the future.  Is there a secret sauce? Are there barriers to entry? All this makes a business defensible.
View our Angel Investment Guide today!

4. Does your team have management and startup experience?

Risk is always a big concern with startups, especially for investors. In fact, if you haven’t been involved in a startup or had some form of management experience, it could be close to impossible to find someone to take a chance on you. When you have people on board with startup and management experience, you are creating a team of strong leaders likely to build a healthy, marketable company. 

Don’t hesitate to reveal a failed attempt at a startup because it demonstrates that you have experience and perhaps have gained some important insight.

It’s frustrating for first-timers in startups that they need investment to get experience, but they can’t get experience without investment—it’s sad but true. Angel investors are extremely wary of people without actual startup experience. 

5. Do you have a believable exit strategy?

Angel investors may be willing to help you start your business, but what they get for their money is a share in your company. The only way they make money with that is when they can sell that share of ownership for money; which is what they call the exit. They don’t want to invest in the ordinary healthy company that pays its founders and grows but never sells out. You’ll need a good exit strategy

Don’t kid yourself: If you can’t answer “yes” to these five essential questions, you should not waste your time thinking about angel investment.

If your business doesn’t have what angel investors want, that doesn’t mean it isn’t a good business. It just means you need to change your funding strategy. Look to friends and family investors instead of angels, or commercial business lending, or scale your plan down so you need less startup funding.

Here’s some good follow-up reading:

This article is part of our Business Funding Guide: Fund your business today, with Bplans. 

Editor’s note: This article originally published in 2014. It was updated in 2019. 

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Bootstrapping: Is Startup Funding Oxymoronic?

bootstrapping a startup

Startup experts call it bootstrapping when an entrepreneur starts a new business without outside investment. This is the norm, not the exception.

But, you wouldn’t get that idea from the relative abundance of online startup information focused on getting outside investment, and seeming scarcity of information about starting without the investment. Statistics are spotty, but I’m pretty sure that more than 90 percent of business startups are bootstrapped.

Bootstrapping definition

What is bootstrapping?

Entrepreneur defines bootstrapping as “to finance your company’s startup and growth with the assistance of or input from others.” Investopedia says it means “to build a company from personal finances or from the operating revenues of the new company.”

Some experts say it’s still bootstrapping when somebody uses borrowed money (loans) backed by their own personal assets, so they keep the entire risk and the entire ownership.

The bootstrapping founder takes all the risk

If you’re self-funding your business, you take all the risk. If your business goes under, you lose your personal investments in the business. But, if you succeed, you also take all the reward.

In contrast, when you take investment from venture capitalists or angel investors, you’re reducing some of your personal risk, because you’re financing your business growth with someone else’s cash. But you’re also usually giving up some equity in your company.

Giving up equity or some percentage of ownership generally means that someone else shares the payout if your business scales successfully and is then acquired. Keep in mind that venture capitalists and angel investors are usually only looking to invest in businesses that have built in an exit strategy—they get paid when you sell your high-valuation business. So do you, but not as much as if you owned 100 percent of your company.

That’s one of the things that makes the personal risk of bootstrapping so appealing. You retain complete ownership and decision-making power within your business. If you want to own and run a healthy business for the next 50 years—you can do that.

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Most startups don’t actually receive outside funding

In the real world, the vast majority of U.S. new businesses are bootstrapped.

Statistics are sketchy, but experts generally agree that about 6 million new businesses start up in the U.S. in an average year. Of those, only about 70,000 startups get angel investment, and fewer than 5,000 get venture capital. And banks lend SBA-guaranteed loans to fewer than 100,000 startups per year, often requiring things like your house as collateral.

These relatively low numbers support the general idea that in reality, most startups and small businesses don’t get outside funding—the vast majority are bootstrapped. Some would say that the common phrase “startup funding” is an oxymoron, since so few startups actually get outside funding.  

So, where does the money come from?

Bootstrapping doesn’t necessarily mean starting from nothingwith no money whatsoever. Although definitions vary, most people call it bootstrapping when a founder uses credit cards, or mortgages a home, or pledges some other personal assets as collateral to borrow the money.

That was my case, in the early years of Palo Alto Software. As we grew to revenues greater than $5 million in the early days, we had no outside investment, but my wife and I had three mortgages along the way and $65,000 in credit card debt at one point. I call that bootstrapping because the risk was all on us (and do as I say, not as we did—see the final point below).

How to make bootstrapping work for your business

The best way to bootstrap is to lever up from early sales, or even promises of early sales. Kickstarter is a mecca for bootstrappers because they can use it to get pledges or promises to buy, with pre-orders, before they finish the product.

Many consulting businesses start with a big engagement from a first client, which is essentially a promise to pay. We did one product at Palo Alto Software that was funded by a letter of intent from a big distributor, promising to buy 1,000 copies as soon as we finished.

And I know people who have funded a startup with prepayments from enterprise clients for a service business. It happens. Actually, it happens way more often than you’d think if you guessed from reading all the blog posts about getting investors.

While we’re on that subject, consider this: Read my post on 10 Good Reasons Not to Seek Investors for Your Startup. Not that I’m against angel investors—I’ve done more than a dozen angel investments as a member of a local angel group—but there are a lot of good reasons to bootstrap.

How much money does it take?

The bootstrapper is spending her or his own money. So, we tend to spend less than when we’re funded by investors. We tend to add value through work, often for free, instead of paying salaries.

We also tend to spend less—and spend what we do more carefully—when we’re bootstrapping.

Here are some points from my article 10 Lessons Learned in 22 Years of Bootstrapping (without the explanations that followed):

  • We spent our own money. We never spent money we didn’t have.
  • We used service revenues to invest in products.
  • We minded cash flow first, before growth.
  • We put growth ahead of profits.
  • We hired people slowly and carefully.

And that’s pretty much how it goes.

The bootstrapper gets all the reward

It’s only fair, after all. The bootstrapper takes all the risk, so she or he gets all the reward, too.

If you manage to build a company without outside investors, you end up owning it all yourself. You don’t have investors as bosses (you do have customers, but that’s a different article). You can make your own decisions. You may or may not have a board of directors, but if you do, it’s not a threat to your continued employment. You eat what you kill, so to speak. You control your own destiny.

That’s a good feeling, when it works. It can be hell when it doesn’t. I can speak from experience. I’ve had both the hell of multiple mortgages and the taste of impending doom, and the satisfaction of building a company that remains family-owned.

However, I don’t want you to underestimate what it means to take all the risk. Bootstrapping can ruin your life if it goes bad. Please do what I say here, not what I did.

Plan more carefully. Don’t get yourself into a deep hole. Don’t bet money you can’t lose. Don’t bet relationships you can’t afford to lose. In my case, my wife was with me in all the key moments and shared the risk. If I hadn’t had her on board, I wouldn’t have done it.

Do you have experience bootstrapping, or did you receive outside funding for your business? Let us know about it on Twitter @Bplans.

Editor’s note: This article was originally published in 2015. It was updated in 2019.

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5 Reasons You Might Not Qualify for an SBA Loan

SBA loan rejected

If you’re looking for funding to finance starting or growing your small business, you’ve probably heard about SBA loans. Loans that are backed by the U.S. Small Business Administration (SBA) are attractive for small business owners because they offer a range of loan sizes, long repayment terms, and most importantly, low-interest rates. While some alternative business lenders charge as high as 80 percent APR, you can get an SBA-backed bank loan for around seven percent APR, depending on the amount you’re looking to borrow and for how long.

So what’s not to like about SBA loans? Unfortunately, it can be difficult to get approved. Many businesses that want SBA loans get turned away by banks for one reason or another. Here are the five main reasons that SBA loan applicants get rejected, and a look at your alternatives.

1. Your business is brand new or hasn’t launched yet

Most banks will not issue SBA loans to brand new businesses. They often require you have a couple of years in business, or, when do they lend to new companies or startups, they generally expect the owners to have experience in the industry.

As a new business, it can be hard to raise funding. The news makes it seem like every startup has access to millions in dollars of funding by venture capitalists or angel investors.

Many startups are small, local businesses with hopes of eventually rapidly scaling—but they’re still establishing a track record. Both banks and investors are going to want some evidence that you’re going to be able to repay them. If your business—whether it’s a startup or a small business—is brand new, you will likely get rejected for an SBA loan, but you do have options.

Solution: Borrow from other lenders that loan to early-stage businesses

You can borrow from a nonprofit such as Accion, a popular nationwide loan provider that specializes in lending to brand new businesses. You won’t be able to borrow too much money from such sources however—Accion lends a maximum of $30,000 to new businesses and startups.

Alternatively, you can borrow based on cash flow. For instance, if you have a lot of online sales and have just three months of sales history, you could borrow from PayPal Working CapitalIf you have a lot of credit or debit card sales, you could get a merchant cash advance from a provider like CAN Capital.

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2. You have a low credit score

To qualify for an SBA loan, you must have a strong credit score—at least 600 for most banks. If you fall just short—or far short—of that, that’s ok. If you don’t have great credit, you will probably be rejected for an SBA loan, but you may have better luck with lenders that care less about credit score and have a more holistic evaluation process.

Solution: Seek a lender that doesn’t check credit or requires only decent credit

Approach short-term business lenders with caution. They often approve loans to individuals with lower credit scores, but you want to be confident you can repay on time—otherwise you’ll probably find your loan subject to unusually high-interest rates. Then there are lenders that don’t check credit score at all—FundboxBehalfand PayPal Working Capital are examples. Those companies emphasize other criteria.

For instance, Fundbox lends money based on unpaid invoices and will look at how likely it is that someone who owes you money will actually pay you. Behalf does purchase financing and mines the internet for social media and other data about your business to assess your creditworthiness. PayPal, mentioned above, looks at your PayPal sales history and volume in deciding whether to lend you money.

3. You don’t have enough collateral for a loan

Since the economic downturn, banks are especially risk-averse and want to protect themselves in the event that a business owner cannot pay back a loan. They’re looking for you to put up some collateral as assurance that they can recover their money, even if your business folds. Even though the SBA backs up to 75 percent of SBA loans, the bank is still on the hook for the other 25 percent.

Moreover, the collateral that you provide is split between the SBA and the bank. So if you cannot collateralize a large part of the loan amount, there’s a good chance that your application will be rejected.

Solution: Go with a lender that doesn’t require collateral

There is good news and bad news in response to this problem. Some short-term lenders like don’t require a specific amount of collateral for a loan. It’s O.K. if you don’t have expensive equipment or real estate to collateralize the loan.

The bad news is that they will place a lien on your general business assets, whether your assets add up to the value of the loan or not. This means that they can sell off your business assets if you don’t pay back the loan. Plus, if you’re looking at high-interest rates and penalties if you can’t pay your loan back according to the schedule you agree to.

But some lenders that loan smaller amounts of money don’t require collateral or a lien. They usually base their lending decisions on your business’s cash flow and they don’t care much about the assets that you own. Examples include Accion, PayPal Working Capital, Fundbox, and Behalf.

4. You don’t want to personally guarantee the loan

When you personally guarantee a loan, you are personally responsible for paying the loan back, even if the business doesn’t do well or closes down. If you don’t pay back the loan, a personal guarantee allows the lender to sell off your personal assets (e.g. your home and car) to satisfy the loan.

Banks will require personal guarantees for SBA loans, but even sincere borrowers may not want a personal guarantee hanging over their head. If you don’t want to personally guarantee an SBA loan, then you won’t qualify.

Solution: Choose a lender that doesn’t require personal guarantees

Some alternative lenders such as PayPal Working Capital, Fundbox, and Behalf don’t require a personal guarantee.

If you choose a lender that doesn’t require a personal guarantee, however, you will have to make some sacrifices. Primary among these are size and cost. If you’re not willing or able to personally guarantee a loan, you cannot borrow a lot of money, and you should be prepared to pay a higher interest rate.

5. You’re in an excluded industry

You might look like the picture perfect applicant: high credit score, several years in business, and enough collateral. Even if you have all that, you will still get rejected if you’re in an industry that is ineligible for SBA loans.

Excluded business types include life insurance companies, lobbying organizations, certain types of franchises, cannabis-based businesses, certain types of health businesses, and more.

Solution: Look for another lender or funding option

If you’re in an excluded industry, there are lenders that are more liberal in the types of businesses they lend to than the SBA. Look into other lending options, but don’t be afraid to seek other forms of funding too.

SBA loans are great low-interest rate loans for your business. But if a bank rejects your application for one of the reasons above, there are other lenders that may be willing to work with you. You might find that seeking funding from venture capitalists or angel investors makes more sense. Or maybe you’ll have better luck accessing the resources you need through crowdfunding or even keeping your day job for a while to finance your businesses’s growth in the short term.

We encourage business owners to learn about all their options and choose the best one that is open to them. Check out the Bplans guide to finding funding your business for more ideas.

This article is part of our Small Business Loan Guide, check out this page for expert tips and advice on loans.

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Marc Prosser
Marc Prosser

Marc Prosser is the publisher and co-founder of Fit Small Business, a “how to” publication for small business owners. Prior to starting Fit Small Business, Marc Prosser served as the Chief Marketing Officer of FXCM (NYSE:FXCM). During his eleven year tenure as CMO, the company grew from under 10 people to over 500 employees located throughout the globe.



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How to Ask Family and Friends to Fund Your Business

asking friends and family for money

This article is part of our Business Startup Guide, a curated list of our articles that will get you up and running in no time!

Asking for help is one thing; asking for financial help is another beast all its own. Yet many small businesses and startups turn to family and friends to help fund their company.

Many entrepreneurs bootstrap or self-finance their business. But that doesn’t mean every founder saves up their own money, opens a line of credit, or seeks a bank loan. For some, it makes sense to ask friends and family for financial support.

Tom Scarda, a business consultant who helps prospective entrepreneurs find the right franchise through FranChoice, says a lot of entrepreneurs hit up friends and family for capital.

“Most friends and family say yes to a person asking to finance a business,” he says. That is, “until it comes time to write a check.”

If you want your loved ones to buy into the business, you need to get over the awkward feelings of asking for help and convince them that you’re serious about this business and have a plan to make it successful, Scarda says.

To do so, you’ll want to follow these tips to ask friends and family for startup cash.

1. Have a solid business plan

Whether you’re asking your best friend or going to the Bank of Mom and Dad, you need to treat the discussion like you would with a banker. You wouldn’t get a bank loan without a business plan, and you shouldn’t expect your family and friends to invest in your company without one either. Your business plan should include your financials, milestones, and metrics that make it clear how you plan to make your venture profitable.

Need a little help creating a solid business plan? No problem. Check out these business plan samples, or try LivePlan, our business planning software.

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2. Ask for enough money

When you’re asking friends and family to part with their hard-earned cash, your instinct is probably to ask for as little as possible, but Scarda says this is the wrong approach. If you don’t have enough money to start the business, it won’t succeed. Scarda says you need to consider three pools of money:

  • Initial investment: Money needed to get the business ready for customers, also called startup costs.
  • Working capital: Money needed to keep the business going until you hit your break-even point.
  • Home capital: Money needed to personally survive while the business is launched. You need money to pay your own bills—don’t forget this piece! A six-month reserve is a good rule of thumb, Scarda says.

3. Make a payment plan

How do you plan to repay your family of investors? If you’re not planning to offer equity in your company in exchange for cash (a typical scenario with angel investors and venture capitalists), you’ll need to figure out a plan to pay everyone back, with interest, just like a business loan. Scarda suggests scheduling the first payment six months after the business opens.

The plan should also include “what ifs”: What if you can’t make a payment one month? What’s the plan then? By having these issues worked out ahead of time, you’ll save problems down the road. Put it all in writing, too. A legal document is best.

4. Expect investors to take an active role

The friends members and family that invest in your business may want a say in how things are done. It’s something you should discuss before raising money from people you’re close to. Investors, even if they are your parents, will want to protect their investment. Expect them to check in, ask questions about the business, and give you unsolicited advice. Don’t take it personally, Scarda says—it’s a business relationship, and you should treat it as such.

Above all else, you want to show your family that you are professional and prepared. Show them you’re ready for the big time by having all the necessary documents and by answering any questions they have. Practice your pitch beforehand, and think through your answers to any potential objections.

All that said, there are all kinds of reasons to avoid mixing business and family as you consider your business funding options. There are plenty of pitfalls—the Young Entrepreneurs Council shared a few considerations in this article.

Tim Berry, founder of Palo Alto Software (makers of Bplans) cautions that it can be hard to get out when it’s time to walk away from a business if you’ve involved family and friends in your funding plan.

Susan Solvic says it’s important to remember that challenging personal relationships won’t magically become less complicated when you add on a new type of business relationship. However you decide to fund your business, just think through the long term consequences—both of your success, and of the potential of slower growth than you hoped.

This article is part of our Business Funding Guide: Fund your business today, with Bplans.

Need help finding a loan? Check out the Bplans Loan Finder.

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Lisa Furgison
Lisa Furgison

Lisa Furgison is a journalist with a decade of experience in all facets of media.

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5 Things Startups Can Learn From Angel Investors

what startups can learn from angel investors

Startups and high-growth businesses can learn a lot from angel investors, regardless of whether you’re seeking funding to grow your business or not. And if you pitch and get turned down, their feedback can be really valuable in helping you think about what you need to do next to meet your funding goals.

I’ve seen this over and over in my dealings, both as an angel investor on my own and as a member of a local angel investment group. Most angel investors don’t just reject startups—we explain why. And we don’t just say yes either; we explain what else is needed.

What we did at the Willamette Angel Conference (from 2009 to 2017) was the rule, not the exception. We took a $100 fee for submissions, and what we offered in return was real feedback. To see what I mean, take a look at the blog posts and videos available at Gust and do a web search for AngelList.

Angel investors are individuals willing to invest their own money to fund new startups. Most of them have made money with startups; they’ve been through the wringer, they’ve succeeded, and they are in a position to share. They can teach you a lot. So if you’re a startup, always focus on listening first.

angel investment not all businesses are good investments

Lesson 1: Not all good businesses are good investments

One of the most common misunderstandings is the assumption that angel investors invest in startups that will become strong, independent businesses.

However, the angel investors don’t make money from their investment until they can sell their ownership for actual real money—that is, until an exit, such as the business being acquired by a larger business, or registering for public stock sales. So, somewhat paradoxically, investing in a startup that becomes a healthy small business, generating its own cash and profits, can be a loss for investors. If that business never gives the investors a way to sell their ownership for actual money, then there is no return. No matter how good your business is, if it doesn’t offer investors cash out at some point, it’s a bad investment.

If the investors end up with a minority share in a healthy business, one that never sells out, then they never get their money back.

I think of it like the diagram here below—many really good businesses are not good investments:

This explains one very important point for your startup: If it has the potential to start, grow, and be healthy without needing outside investment, you could be better off without investors.

Keep in mind that when you take investment, you’re giving the investor a part of your business. When they have a stake in your company’s success, they have a vested interest in influencing your day-to-day operations for profitability. Never seek investment when you don’t need it.

Read more of my articles on seeking investment:

angel investor lessons not all metrics are useful

Lesson 2: Don’t sweat meaningless numbers

My personal favorite in the “pure nonsense category” is the IRR, the internal rate of return, something that was interesting for about one hour as part of the MBA curriculum, but which has no relevance in the real world.

Combine a wild guess on future growth for several years, add in a wilder guess about future valuation prices and exit opportunities, and then pretend that the combination means something. It really only means that you haven’t recovered from your MBA years. Forget it. You’re out of school now.

I have to admit, I’ve seen some judges of graduate-level business plan competitions care about IRR, but never an actual angel investor during actual due diligence.

A close second is projecting stupid profitability into the future.

Please, get a clue: Real businesses usually turn out net profits in single digits, and only rarely up as high as 20 percent. Angel investors are not impressed by projections of 30, 40, 50 percent or more profits on sales. They don’t think that means you’ll be profitable, but rather that you don’t understand what you’ll need to spend. If your sales forecast is reasonable, then you are probably underestimating costs, expenses, or both, in your expense forecast, budget, or projected profit and loss.

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And it gets worse—a lot of angels, in a lot of tech business markets, prefer high growth and deficit spending to profits. I was told once that my business was too profitable for VC investment. Many investors believe that startups have to choose between profits or growth, and can’t do both at the same time (more on this in lesson 5 below).

Finally, depending on context, those big market numbers can work against you. Not that bigger markets aren’t everybody’s goal—the investors’ as much as yours—but because top-down market numbers are annoying. Angel investors hate projections of sales based on some small percentage of a huge market, as in “if we get just one-quarter of a percent of this $20-billion market.”

Read more of my articles related to meaningless numbers:

angel investor lessons know how to scale your business

Lesson 3: You have to be able to scale up

Good investments need growth, and growth requires what investors refer to as being “scalable.”

This is a very important concept: Scalable means a business can ramp up, increase its volume enormously, without increasing its fixed costs proportionately.

Can you jump from selling 10 to 100 to 1,000 to 10,000 without a proportional jump in headcount and overhead? Product businesses usually can. Some web service businesses can. But a lot of businesses can’t. This is why investors don’t usually like service businesses. They tend to depend on the people more than the product. Key assets walk out the door every night. They can’t scale up.

Investors use the term “body shop” to refer to the many service businesses that depend on people doing specific things for each unit of sales. They will ask “do the assets walk out the door at the end of the working day?” Professional services such as attorneys, accountants, consultants, and design or product development companies are classic body shop businesses that can’t scale. Rand Fishkin’s book, “Lost and Founder,” gives some interesting perspective on a company that transitioned from an unscalable consulting business to a SaaS product. Fishkin is pretty frank about the pros and cons of scaling his business and taking on investors.

Read more of my articles on what investors want:

angel investor lessons your business needs a secret sauce

Lesson 4: You need a secret sauce

Angels want you to have some way to defend your business against competition.

They’ll ask, “what’s proprietary?” They’ll ask, “what’s to prevent a competitor with a bigger budget from jumping into your market and taking it over?”

They’ll talk about whether or not you have a so-called secret sauce that sets you apart from the competition. All that is about defensibility, also called barriers to entry.

Sometimes, this discussion is about patents. Patents can protect inventions, formulas, and algorithms. In a perfect world, having patent protection would be a good answer to concerns about defensibility. In the real world, although patents are always an advantage, patents alone aren’t enough.

Investors look for what the patents cover and ways competitors will work around them. Not all patents are enforceable and not all patents rule out ways to work around them, getting to the same market without violating the patents.

The world of startups is littered with the carcasses of businesses that were protected by patents in theory, but not in fact. Patents require active legal budgets to protect aggressively against infringement.

There are other factors that make startups defensible. Trade secrets, effective branding, differentiation, and first-mover advantage can help. What investors will teach you is that you don’t want to identify a great market without having the resources to grow fast and seize market share before others do.

angel investment advice it costs money to grow your business

Lesson 5: Rapid growth costs money

Consider this the two sides of a single coin: First, angel investors want companies that grow fast and exit. Second, companies that grow fast are going to present both the need for more investment and the growth potential to justify more investment.

Therefore, companies that can fund their own growth are less interesting than companies that need to raise more money later to finance continuing growth.

Normally, attractive growth takes investment. It doesn’t fund itself.

The scalable defensible company that has a shot at increasing sales 300 percent per year for a few years needs to invest in marketing expenses, working capital, employee ramp-up, product development, infrastructure, and other factors that support that growth.

Product companies, for example, need to spend on product development and materials and prototypes before they launch, and they have to buy inventory to build products. Then, if they sell through channels, they have to wait months to get paid by distributors or retailers. All that absorbs cash resources. Web companies, as another example, need to develop the product offering in code, and test, before they launch.

Most of which boils down to: Listen and get a clue

If you’re working a startup and dealing with angel investors, it’s not up to them to understand your story and believe in you; it’s up to you to have something they want to invest in.

If they don’t get it, first listen carefully to what they have to say. Their most powerful tool by far is the simple use of the word “no.”

And, don’t expect angels to give uniform advice.

I’ve seen many times how a startup pitching a focused targeted ramp-up strategy, using a narrow market as a beachhead, will be told by angels that it’s too narrow—so the entrepreneurs change the pitch to go all the way to the huge market instead, to get turned down as “too broad,” or “too many moving parts.” Angels don’t do that on purpose to drive you crazy; they’ll have different opinions.

Read this article on unsuccessful pitches:

And one final word: If you pitch repeatedly for angels and nobody is interested, get a clue.

You might not have a good investment to offer. Revise your business plan, do something else, or maybe you have one of those good businesses that isn’t a good investment.

The only general rule? There are no general rules.

Editor’s note: This article was originally published in 2015. It was updated in 2019.

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The 7 Key Components of a Perfect Elevator Pitch

Whether you are trying to raise money from angel investors or venture capitalists for your business, or just want to perfect your business strategy, a solid elevator pitch is an essential tool for achieving your goals. An elevator pitch that describes your business in a nutshell can be delivered as a speech (ideally in 60 seconds or less), a pitch presentation, or as a one-page overview of your business.

An easy way to think of your pitch is as an executive summary that provides a quick overview of your business and details why you are going to be successful.

How to build a winning elevator pitch in 7 steps:

1. Define the problem

The most important thing is to identify a problem that is worth solving. If your product or service doesn’t solve a problem that potential customers have, you don’t have a viable business model. Simple as that.

Now, you don’t have to be solving a massive problem where the solution will change the world. That’s great if you are tackling such a problem, but for most businesses, that’s not the reality. Problems can be simple—and that’s OK. As long as you, as an entrepreneur, are solving a problem that customers have, you can build a business. Here are a few examples of problem statements that could be highlighted in a pitch:

“Transferring photos from mobile phones is a difficult and complex process.”

“There are no good Chinese restaurants in Eugene, Oregon.”

“Analyzing results from MRI tests is difficult, time-consuming, and expensive.”

Try and distill your customer’s problem down to its simplest form. Ideally you should be able to describe the problem you are solving in one or two sentences, or potentially a few bullet points. In the long run, your company may solve multiple customer problems, but initially you will be more successful if you just focus on one core problem.

2. Describe your solution

Too many entrepreneurs start their elevator pitch by describing their solution: a product or service that they think the market needs. They skip step 1 and don’t identify the problem they are solving. As a smart entrepreneur, you can avoid this mistake by first making sure that you are solving a real problem that customers actually have before you define your solution.

Once you have clearly defined the problem you are solving, you need to explain your solution. A clear problem statement will help you focus your solution on solving that one problem, and not stretch the solution to solve multiple potential problems.

Again, try and distill your solution description down to as few words as possible. You should be able to describe your solution at a high level in just a few sentences or bullet points.

Download the free Investor Pitch Deck Template Kit today!

3. Know your target market

As you define the problem you are solving, you should naturally be thinking about the potential customers who have this problem.

In the target market section of your elevator pitch, you will define exactly who has the problem you are solving and figure out how many potential customers you will be trying to sell to.

Market segmentation

You should try and divide your target market into segments—smaller groups of people whom you expect to market to.

It’s always tempting to define a target market that’s as large as possible, but that does not make for a credible pitch. For example, if you have a new shoe company, it would be tempting to say that your target market is “everyone.” After all, everyone has feet and everyone needs shoes, don’t they?

But, realistically, your new shoe company is probably targeting a specific group of people, such as athletes. Within this group of athletes, you might segment the market into additional groups such as runners, walkers, hikers, and so on.

How big is your potential market?

Once you have created a good list of target market segments, you’ll need to do a little market research and estimation to figure out how many people are in each segment. Take a look at our Bplans market research resource guide.

What do your customers already spend?

Next, try and estimate what an average person in each group currently spends each year on their current solution to the problem you are solving. Now, just multiply the number of people by how much they currently spend and you will have a realistic “market size” number or your target market.

In your pitch, you will want to talk about the market segments you are targeting, how many people are in each segment, and the total amount they currently spend. These numbers are critical and must be part of any good pitch presentation.

If you need more help with this section, check out our guide on defining your target market.

4. Describe the competition

Every business has competition. Even if no one has come up with a solution similar to what you have come up with, your potential customers are solving the problem they have with some alternative.

For example, the competitors to the first cars weren’t other cars. The competition was horses and walking. As you think about your competition and existing alternatives, think about what advantages your solution offers over the competition.

Are you faster, cheaper, or better? Why would a potential customer choose your solution over someone else’s? Describing your key differentiators from your competition is a great exercise and ensures that you are building a unique solution that customers will hopefully choose over other alternatives. These differentiators will also help you focus your marketing on the key value proposition that you offer, but your competitors don’t.

5. Share who’s on your team

As great as your idea is, only the right team will be able to effectively execute and build a great company.

In the “team” portion of your elevator pitch, you should talk about why you and your business partners are the right team to execute your vision, and why your team’s skill set is precisely what is needed to lead your company to success. People often say that a company’s leadership team is more important than the idea—and this is often true. No matter how great or unique your solution is, if you don’t have the right people on board, you won’t be able to see it to fruition.

It’s also O.K. to not have an entire team in place. It’s more important to understand that you have gaps in your management team and that you need to hire the right people. Knowing what your team is missing and recognizing that you need to find the right talent to fill the gaps is an important trait in any entrepreneur.

6. Include a financial summary

For a great pitch, you don’t necessarily have to show a detailed five-year financial forecast. What’s more important is that you understand your business model.

“Business model” may sound like something complex, but fortunately it’s not. All you need to know is who pays your bills and what kinds of expenses you will have.

For example, if you are starting an online news site, the customers that pay the bills are your advertisers. Your costs will be writers, graphic designers and web hosting. As you learn more about your industry, it is certainly helpful to put together a sales forecast and expense budget. You will want to ensure that you can build a profitable company based on your assumptions. But, for your elevator pitch, a won’t have to include a detailed forecast. You should certainly have a forecast completed so that you can talk about the numbers if you get questions and provide the forecast if your potential investors are interested in learning more about your business.

7. Show traction with milestones

The final key element of your elevator pitch is conveying your business milestones, or your schedule.

Here you will talk about your upcoming goals and when you plan to achieve them. If you have already accomplished notable milestones, you should mention those. For example, if you have invented a new medical device, potential investors will want to know where you are in the clinical trial process. What steps have been accomplished and what’s the projected schedule for final approvals from the FDA? If you are opening a restaurant, investors will want to know about plans to sign a lease, design the interior, and open for business.

Talking about upcoming milestones in your pitch makes your business a reality. This section of the pitch illustrates how well you have thought through the detailed steps it’s going to take to open your business and start making money.

If you’re lucky enough to have made progress on your business and have evidence that your business is going to be a success, you’ll want to talk about that, too. For example, if you have pre-orders for your product or other evidence of strong customer interest, investors will want to hear about the successes you’ve had—this is often called traction.

Put it all together into a presentation

If you need help putting together your pitch deck for a presentation, check out our article that outlines exactly what slides you should include in your presentation and what should be on each slide.

You can also create a Lean Plan which is a great hand-out if you are giving an elevator speech and also a good solution for sending a pitch via email. Check out our Lean Plan template if that sounds like the right solution for you.

Bonus component: The one-sentence pitch

Let’s say you’re at a dinner party and one of the guests asks you, “So, what do you do?” Can you answer in one sentence so that they understand your company?

Being able to distill what your company does into one simple sentence is incredibly valuable. It helps you, as an entrepreneur, focus on exactly what you do and who you’re doing it for. It also helps you clearly market your business. A simple headline at the top of your website or brochures will communicate the core essence of your company and generate interest in learning more about what you do.

There are certainly other components you can include in your pitch, but these seven are really the “must-have” pieces, whether it’s written down in a pitch deck presentation or literally delivered as a speech in an actual elevator. If I’ve missed anything that you think is critical to include, please let me know on Twitter @noahparsons.

View this as an infographic:

This article is part of our Complete Elevator Pitch Guide. Check it out to learn everything you need to know about pitching.

Editor’s note: This article was originally published in 2012. It was updated in 2019.

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10 Things I Hated About Your Business Pitch

why i hated your business pitch

As I write this in early 2019, I’m thinking back on more than 20 years of hearing business pitches as a judge of business plan competitions and as an angel investor.

Next month I’ll have another round of it, judging both the University of Oregon New Venture Competition and the Rice Business Plan Competition. Once again I’ll be reading business plans first, then sitting for the pitch and asking my questions. 

The image here is of the Rice Business Plan Competition, entrepreneurs pitching at the finals. That’s me in the front row, second from the aisle, on the left. [Editor’s note: Permission to use requested via email 2/28/19].

With that in mind, I’ve recently reviewed an early post, and updated the 10 things I hate most when they come up in business pitches. Here’s the latest.

1. Your pitch was boring

Tell me a story that resonates. Tell me about people who care, ideas, how you started, why you started, and how you’re going to change the world. And just so you understand, market need and solutions aren’t boring, especially when you show them in stories rather than alleged facts.

And please give me financial projections with assumptions laid out clearly—that’s not boring at all. Your business is exciting. Your prospects are exciting. Don’t dry it all up. Talk about it. Add interesting pictures to back your stories up. Put faces on the screen when you’re talking about people.

Read Resonate, or Presentation Zen, or just at least the blog post Really Bad Powerpoint.

2. You shared ridiculously optimistic projections

I’m amazed at how many pitches I’ve sat through that project completely unrealistic profitability. Please, get a clue.

Real businesses make profits like 7 percent, 9 percent, occasionally even low double-digit profits (stated as a percentage of sales). Rarely, some new innovative businesses will get to 20 percent profits to sales. And yet I’ve seen many pitches projecting 30 percent, 40 percent, even some with 50 percent and 60 percent profits.

Wildly optimistic profits kill credibility. They don’t convince me that you’re going to be that profitable. They tell me you don’t know your business that well.

So get benchmarks. Find out what other businesses like yours, on average, are making in profits. Benchmarks for different industries are easy to find online for a small fee. They are even built into LivePlan.

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3. Your co-presenters were bored

When more than one person presents, the others have to act interested. Sure, you’ve heard the pitch many, many times, but if it bores you then that makes me less interested.

New businesses are fascinating. The new ideas, creating new markets, really smart people, that’s all fascinating. So step up your pitch. 

4. Your slides were full of words

You should say the words, talk to me—don’t have us all reading the pitch deck slides together with you.

That goes back to point 1 above, boring. You should tell a story and show pictures—see point 1.

5. You read your slides full of words out loud

Never turn your face to your slides and read us the bullet points. That makes all of us listeners want to throw something at you. Point 1 again.

6. You used buzzwords and meaningless adjectives

Why is it that every single plan is “disruptive?” Can they all be? Don’t use the same words that everybody else uses.

I don’t mind the technical jargon as much because people know they have to explain them. I mind all these trendy buzzwords that everybody applies. Not just disruptive, but also game changing, market-leading, and viral, and pivot. They remind me of the old days when every software package claimed to be user-friendly (and mine was the only one that really was).

Tell me the story of what you have, where you are, how you got there, and who’s it for—let me decide the adjectives.

7. You focused on internal rates of return and net present value

I’m glad they taught you internal rates of return and net present value in business school. But both of those calculations are based on five years (or so) of future cash flows. They are assumptions cascading on assumptions, presented as if they were statistical truth.

Show me your projections, yes, and, even better, show me the assumptions behind them. But don’t quote me a damned IRR. I’ll judge your projections for realism and credibility, but that’s sales, costs, expenses, cash flow, and other basic numbers. Not discounted cash flow.

8. You tried to dazzle with big market “facts”

I hate hearing about a $43 billion market, and even more so when you present a sales forecast validated by getting some percentage of that market. I’m not alone in this. Most investors hate the forecasts that start with a huge number and take some small percentage of that number as potential sales.

Instead of that, validate sales by bottoms-up assumptions. One really good example is a sales forecast that sets an assumed number of sales per month per store and an increasing number of stores. Or the web subscription forecast that tracks web visits, conversions, conversion rate, pay-per-click results, email opens, and so forth. Or the enterprise sales forecast based on sales reps, pitches closes, and pipeline.

Be sure you understand the difference between the three popular concepts on market and market share: TAM, SAM, and SOM.

9. Your bluster tripped you up

Know what you don’t know. Don’t bluff investors.

Some entrepreneurs take a pitch presentation as if it were some kind of verbal final exam, in which they have to know all the answers. What they don’t know, they guess, pretending they do know. That’s disastrous. Odds are that in a group of investors, somebody will recognize this kind of bluff. That kills credibility.

When you don’t know, “I don’t know” is the best answer. And, unfortunately, there’s no way to look good when you don’t know the essentials related to your own business. Bluffing makes it worse.

10. You avoided fault or responsibility

“Yeah, these numbers are probably wrong. Our financial person did them but we’re going to change financial persons.” What? Yes, I did hear that in a presentation once.

Investors are looking for businesses they want to join and support. Most investors assume that people who deflect and blame others are not likely to be working well with a team. I suggest you read this personal account, a true story: Did You Get Screwed in Business?

Did you know this article is part of our Bplans Pitch Guide? Everything you need to know about creating your pitch, all in one place.

Hear more pitching tips with Peter and Jonathan on the tenth episode of The Bcast, the Bplans official podcast:

Click here to subscribe to The Bcast on iTunes »

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6 Simple Tricks to Avoid Late Paying Customers

get customers to pay on time

This article is part of our Business Startup Guide—a curated list of our articles that will get you up and running in no time!

More than 30 percent of small and medium-sized businesses surveyed by Sage say late payments are impacting staff pay, company investments, and supplier relationships. When businesses have trouble getting their customers to pay invoices on time, it can really affect a business’s cash flow, and even their ability to survive.

If your business is growing and you’ve made a ton of sales, it might look on paper like everything is great. But until those customers surrender their cash and pay their invoices, you can’t use that revenue to pay your own bills.

But what can you do to encourage your customers to pay up faster?  Start with these six simple tricks.

1. Be careful: Know your customers

Net terms are not for everyone. Plain and simple.

There are some customers who you can trust to pay you and some you cannot. Your job is to become an expert in figuring out which is which. In most industries, you as the business owner can choose whether you require payment at the time of service or delivery, or if it’s better business to issue an invoice and wait.

Do your due diligence. Find out as much about a customer as you can before extending credit. Pull their business credit report to see how they’ve financially performed in the past. Have each customer apply for credit and make your credit application specific enough that you can do quality research on them. Ask for trade references so you can get a sense of their past payment behaviors.

2. Be clear: Spell out your terms

Identify your standard payment terms (30 days? 45 days?) and spell out your late payment consequences. Leave no room for questions, and eliminate the possibility of any “he-said, she-saids.” If you offer different terms to different customers, make sure you’re not saying one thing to one customer, and putting something else on your website, for example.

Word your invoice as clearly and simply as possible. Use a professional looking invoice template. Don’t overwhelm your customer with a ton of information—be concise and to the point. Put your customer’s name on the invoice, not just their company’s name, if you’re selling B2B. Don’t use internal jargon or vague descriptions whenever possible so it’s abundantly clear what you’re invoicing for.

You want your customer to get the invoice, understand what it’s for, and be able to tell who authorized the work or product purchase as quickly as possible. Avoid general phrases like “due in three weeks” and put an exact due date on your invoice. The easier you make it for your customer to cut you a check, the more likely you’ll be paid quickly.

Free cash flow template download

3. Be polite

Did you know by simply adding a “please” or “thank you” to your invoice, you can increase your chances of getting paid by five percent? Being polite can go a long way.

Be friendly and warm in your invoices. Remember, the customer hasn’t paid late yet. By being cordial, customers will have a more positive response to your communication and you have a better chance at being atop their payment priority list.

4. Make it easy for customers to pay

The easier it is for people to do something, the more likely they will do it. It’s time to embrace quicker payments methods for your customers. First, invoice faster. Don’t send paper invoices, don’t fax invoices if you can help. Save the paper and the lag time and email them.

Take checks, accept credit cards, and PayPal. Make online payments available, and make sure they’re mobile optimized options so customers can pay right from their smartphones. Putting a link to a payment processing form in an invoice is a great way to speed up payments. The trade-off there will be credit card or processing fees, but weigh the options and decide if it’s a good trade-off for your business.

Put your contact information right on your invoice. Make it easier for your customers to contact you if they have a question about a bill. How many times do your customers not quite understand something and set aside your invoices until they have time to track down your phone number?

5. Be flexible

There are times when customers hit difficult financial spots. We’ve all been there.

You’ve been cautious when extending credit, but you didn’t see this coming (and neither did they). Sometimes it’s O.K. to work with customers whose cash is momentarily tight. You just have to be the judge in deciding if this is habitual or situational.

Don’t indulge the habit, but help out those who’ve hit a rough patch. Look at offering these customers installment plans. Although you won’t receive your entire sum up front, it will allow you to start receiving cash and will help guarantee that you will, in the end, receive what you’re owed.

When you work with a customer to develop a plan that meets their needs financially and still gets cash flowing into your system, you’re saving yourself. Installment plans, in fact, are at times the difference between you getting paid or not getting paid at all. Option number 1 is always the best, even if you have to be flexible with the terms.

6. Be consistent

The thing to remember when extending payment terms is the human element. We are busy people who easily get sidetracked and easily forget. It’s not unheard of for a customer to receive an invoice, place it to the side, and unintentionally allow it to get lost under a pile of papers.

Do them a favor and remind them. If it is a week before payment is due and you still haven’t received anything, don’t hesitate to send them a friendly reminder email or letter. Keeping yourself on their radar will only help increase your chances of getting paid.

Looking for a free invoice template? Here are a few to help you get started.

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What to Say in Your 1, 5, 10, or 20 Minute Pitch (+ Tips From Successful Entrepreneurs!)

what to say in your investment pitch

How much time you have to deliver a pitch to investors will have a big impact on how and what you’ll want to do and say.

If you’re giving five-minute presentation followed by a Q&A, you will approach that a little differently than if you’re giving a one-minute presentation!

So, how do you know what to include in a really short pitch? What about a 20-minute pitch? We’ve got you covered. In this article, I’ll review:

  • What to include in a one-minute, five-minute, 10-minute, and 20-minute pitch
  • Tips from entrepreneurs who successfully pitched their businesses for funding

The one-minute pitch

-you have to know what the problem

This very brief time slot is a little brutal—you have to be clear and concise—but if you’re nervous about speaking in front of people, there’s one big benefit: it’s over quickly. The challenge, of course, lies in using the time as wisely as possible.

Think of a one-minute pitch as the absolute heart of your business: What problem is your business solvingProjecting confidence and having the clearest, most concise explanation of your product or service possible is key.

Jackie Wu created Rook, a flying security camera, and received funding after pitching an incubator. Jackie says, “The biggest thing is, you have to know what the problem you’re solving is and how your product/service will solve it. We articulated that very clearly to the investors. That is the one-minute pitch.”

The five-minute pitch

A five-minute pitch is when you can start branching out from your core message. In it, you’ll cover the problem your business solves and how you’ll solve it, but you can include other important details like what your competitive advantage is and why your team is the best for the job.

Forbes has a great example of a winning five-minute pitch from a pitch competition. The winning entrepreneur offers some important advice: avoid unrealistic financial projections (you’ll look like an amateur), and always copy edit your pitch deck. A typo or misspelling in such an important event says to investors that you aren’t detail oriented—not exactly the message you want to be sending.

Download the free Investor Pitch Deck Template Kit today!

The 10-minute pitch

Caroline Cummings has successfully raised nearly a million dollars in angel investment. To help entrepreneurs achieve funding success, she’s distilled the process into a series of manageable takeaways and has even created a great format for a 10-minute pitch.

Caroline suggests this format for your pitch:

To present a polished and professional pitch, practice it. You should know the key points you’ll mention and the order you’ll present them in, whether you use a pitch deck or not.

The 20+ minute pitch

If you have the opportunity to pitch for 20 minutes, its safe to assume you probably have a larger block of time, like 40 minutes or an hour, in which to cover both the pitch and the Q&A. Guy Kawasaki, Apple’s former chief evangelist, has what he refers to as the 10/20/30 rule, which is a good guideline when it comes to longer pitches.

It goes like this: If you have a pitch deck of slides for your presentation, use no more than 10 slides, you should be able to pitch from these in 20 minutes, and you shouldn’t be using a font smaller than 30 points.

Screen Shot 2015-04-27 at 3.29.47 PM

If you start from the heart of your pitch—the one-minute version—then each longer iteration allows you to provide more detail expanding from that point.

20 minutes gives you plenty of time to not only hit those high points listed under the 10-minute pitch, but also time enough to really flesh them out. You could include a brief product demo that shows off your technology, or more details about your smart and efficient business model that you might not otherwise have had time for.

Advice from the trenches: Pitch to win

I talked to entrepreneurs who had successfully pitched their businesses and received funding and collected their advice on how to prepare for your pitch and what makes a pitch successful.

Here’s what they learned from their experiences:

Assemble a solid team

Have a great team working with you and know why they are the best people for their jobs. Jackie Wu says that your team is one of the most important things to mention in your pitch.

She recommends answering questions like, “Why are you guys uniquely capable of doing this? Do you have a lot of experience?” Be able to concisely say why you and your top people deserve funding.

Have a plan and structure

Jasmin Augustin of Swift Logistics, Inc., a shipping company, won the Liftoff Houston Business Plan Competition after a four-minute pitch and 10 minutes of Q&A, but she says she never would have gotten to that point without writing her business plan first.

You won’t need to submit a business plan before every pitch you make, but you can bet that having a plan in place will make your pitch that much easier to create, and you’ll have something to direct investors to should they ask.

Bring a backup

It sounds old school, and it is, but it’s also a guarantee: If you have a hard copy of your pitch deck on hand, no amount of technical difficulties will stop you from using it.

“I would highly recommend that you print a copy of the slides in case the projector or computer fail. This happened to me,” says Roman Diaz, president of Touchstone Compliance.

Practice

Practicing, especially if you’re the nervous type, is a must. It’s common to be a little jittery, but you don’t want it to distract from the great idea you have for your business. So the more you can get used to explaining your business to people, in a cohesive and relaxed manner, the better chance you have of staving off nerves when you really need to.

Remember that practice doesn’t mean memorized; this can make you sound robotic or mean that an interruption could throw you off. You just want to get so familiar with all of the pertinent material that you could answer relevant questions in your sleep, so that there’s little risk of drawing a blank when the pressure is on.

If you’re not comfortable with public speaking in general, check out Toastmasters, an organization that helps people build those skills, and also take a look at Bplans’ guide to pitching for more help and ideas.

Caroline Cummings says: “If there’s one thing I can’t stress enough, it’s the importance of rehearsing your pitch.”

Make them say, “Tell me more.”

I heard this one from quite a few people: piquing the interest of your audience is a worthy goal. Greg Archbald of Greasebook, an oil and gas technology company, says that this can be done in one of two ways:

1.) Talk about all the traction you’re getting, or 2.) not only inform, but entertain.

Remember, investors want to see any kind of external validation of the usefulness/coolness of your product or service. The more traction you can show, the less you’ll require investors to take a leap of faith.

The next best way to stimulate interest is to entertain. You can do this with penetrating new insight, humor, or controversy. Not only will the investor appreciate this, but you’ll stand out from the crowd, be memorable, and above all else, stimulate interest,” he says.

Tell your story

Every startup has a story. Lida Zlatic of ClassTracks, a language learning company that has won two pitch competitions, advises thinking of your pitch as a compelling story you have to tell.

Every story has characters (who is your product helping), a problem, a pathway (a general suggestion for solving the problem—we start this section with, ‘If only…’), and a solution (our product). Longer pitches spend more time explaining the product. Stats and humor are also helpful,” she notes.

Have you used any of these tactics during a pitch? Do you have a pitch-related question? Let us know on Twitter!

This article is part of our Business Funding Guide: fund your business today, with Bplans.

Editor’s note: This article was originally published in 2015. It was updated in 2019.

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Angelique O'Rourke
Angelique O’Rourke

Artistic + intellectual pursuits. Social justice. Actress. Model. Musician. Eugene // Portland.



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