Nobody hears about a startup and writes a cheque straight away, it just doesn't happen (maybe you’ve heard of some ‘stories’ going around but it's as rare as hen's teeth). Instead, it takes time. It's like buying a house; chances are you are going to want to take at least one more look before making a decision. You want to make sure you really like the house, the street, and that you can see a future there. Investors need the chance to get to know you, to like you, and like your business, so ask yourself - how are you going to get them to notice and like you?
You’re always pitching. Whether you’re trying to raise money, talking to a customer, talking to a co founder or talking to an employee, you need to be prepared to pitch at all times. But to get the investment you’re after, don’t think about your pitch as a one off to convince someone to invest in your business, rather its a 6 step process Pitch, Second Meeting, Negotiate a Term Sheet, Due Dilligence, Final Contract, Show me the Money Baby...
In this post I will just talk about the first two steps.
Preparation Confidence is key, and the only way to get confident is to practice. Practice in front of anyone who will listen, and then have a few pitches with people who don't matter as much. The more practice you do, the more natural it will become for you when you are up in front of the people who count.
I’ll let you in on a little technique of my own when it comes to practicing. It sounds strange but it really works... When I’m rehearsing a speech or a pitch and I nail it I pinch my left nipple. Then, when I’m about to actually give my pitch or speech and I’m feeling a bit nervous, I pinch my left nipple again and it reminds me of the awesome feeling of confidence and energy I had when I nailed it during my practice. As I said, it does sound strange but its actually a commonly used Neurolinguistic Programming technique called anchoring. It’s where people attach a certain behavior or state to a certain trigger. For me its pinching my left nipple, for you it could be anything from tapping your knuckles with your other hand, as long it gets you in the right zone when you’re pitching.
In reality, you have 20 seconds to convey enough excitement about your business to investors, the rest of your pitch is about reinforcing and elaborating on the first 20 seconds. But if you didn't have them interested in the beginning, chances are you won't get them interested at all
Main Points to Cover
There are a few main points that investors are listening out for in your pitch. They want to know if your idea is big enough, your team is good enough, and you're worthy of an extra hour of their time. So your job is to tell them what they want to hear, that is;
1. You have a great business. Describe the big lucrative problem you are solving, your understanding of your competition, your unique approach and external validation.
2. You have an awesome team. Talk about their capabilities and background.
3. You’re not desperate. It works with dating and it works with investors - put yourself in a situation where you will be successful without them and demonstrate that you don't actually need the funding.
4. Why you believe in your business. The best way to do this is by telling a story that elevates your status to the audience "When I was working at Google" or “It wasn't till three weeks after I was voted Australian of the year" for example. By engaging with people through telling your story, you’ll find yourself talking about why you’re doing what you’re doing, why its such a big problem, and why you think you can create a solution. And the great thing is, when you talk about why you do something you access a different part of your brain called the limbic system which is the area in charge of your emotions. Simon Sinek does a great ted talk that nicely summarises that people don't buy what you do, they buy why you do it and stories are the best way to convey that.
5. You're sticking to what you know best. The most innovative businesses solve problems in an area that you know really well. If you have spent the last 10 years in the construction industry dont try and build an app for restaurant owners.
6. You’ve set yourself a milestone. A nice way to finish is to let investors know that you’ve set yourself a milestone - for example, “I'm not looking at raising money right now. We have a good team and are focusing on X, Y, Z. I would however like to hear of any feedback you have on the business” and ask them if you can get back in touch once you hit your milestones.
Do this with 10-20 investors, and remember, the objective of your pitch is not to sell your business right then and there, its just to create enough interest in it to get you to the next stage.
2. SECOND MEETING
It’s amazing how many entrepreneurs don’t follow up with investors, and actually, it’s the follow up that’s going to get you your second meeting. Make sure you get back in touch with the investors like you said you would, tell them briefly about hitting your milestones and organise another time to meet. You’ll be surprised how positively this is received. My experience is most entrepreneurs don't actually do what they say they’re going to do so make sure you’re being proactive and in the investors mind you’re ticking all the right boxes.
The strategy for your second meeting with investors can be looked at like speed dating - if they don’t say yes straight away and suggest a next step then its a no, so move on. Its important to hit all the 10-20 investors that you pitched to at once and have a number of conversations happening at the same time. I would suggest opening the first round with money from a friend and/or family member. Get one investor who is key and give them a discount for investing first or for coming on as an adviser (who also invests). Paul Graham writes a good post about why raising with convertible notes is good for this reason - http://www.paulgraham.com/hiresfund.html
And when you get them interested comes the fun part of actually negotiating the deal! But that’s for another post...