7 rules for pitching to investors that almost everyone fubars

andyswan:

So you want an investor in your business. Here are some rules that I, as both an angel investor and entrepreneur have found valuable:

  1. Don’t pitch to strangers: People very rarely invest in an idea. They invest in people with ideas. If you don’t know anyone, get started now. Investors are more accessible than you think…not just guys like me but professional VCs too. Especially accessible if you prove a consistent passion and progress towards a single, well-defined goal.  Plus, you might just gain a smart friend in the process.
  2. Ask questions: You want to seem like an expert and so on…I get that. But I can tell you from experience that as an entrepreneur, you’re in a very tight bubble. You can almost hear your own ideas echo.  Don’t be afraid to ask the potential investor what he thinks.  And for the love of all that is pappy LISTEN.  Holy hell I can’t even count the number of times an entrepreneur has treated my genuine ideas for growing his business as an OBJECTION HE MUST OVERCOME.  Exhausting.  Listen to the man.  He probably has a very good idea/approach, and you’ll get him thinking about your business. Double win.
  3. Leave the powerpoint, take the whiteboard: Enough with the powerpoint. Everytime someone shows me a slideshow with projections and graphs and market size, I start thinking about ways to poke holes in it. It’s like presenting evidence to someone that is about to cross-examine you. Instead, bring a blank sheet of paper and a whiteboard. Know your stuff inside and out. Draw your concepts right there in front of your investor. Engage her, and again…get her thinking about YOUR business.
  4. Short, simple and direct to the point: It’s not just laziness or b-plan overload that makes people want to see short versions of what you’re planning. It’s actually got more to do with seeing how executable the idea is. If you can show me an amazing idea and how you’re going to execute it through on one page of paper…I know your odds of success are much better than the guy that needs an entire tree to get his point across.
  5. Be honest: If you aren’t good at one aspect of the business, don’t be afraid to say it. Part of the investment process is determining what amount of money will be needed…including for staff. If you don’t understand a question that the investor is asking, say so!
  6. There is no maybe: Look, as an investor, I’ll take a free call option on your business for as long as you’ll let me. There is no reason why someone can’t turn around a basic term sheet within three weeks with a closing in 12. The 2nd best answer you can get in a pitch is a no. Enjoy the no. It frees you. Don’t be afraid to ask someone to commit to a no. If they don’t say yes or no, then find out what more they need to know to make up their mind.
  7. NDA?  GTFO: It’s extremely unlikely that anyone is going to steal your idea. Ideas just aren’t worth much. It is, however, very likely that someone will refuse to sit down with you if you make them sign an NDA. Too much risk for an unknown, unlikely reward.

Remember, you’re just two people sitting down having a conversation about a business that you BOTH want to make you BOTH a lot of money. You are trying him out as an investor and probable board member just as much as he is trying you out as a place to put his hard-earned money.

Engage, simplify, and respect.

Win.

Starting a business that requires outside investment had always seemed like such a scary black hole to me before I jumped in the pool, but after several exposures to the whole process from both sides of the table, it really is just another skill one can learn, rather like essay writing. It also helps to keep in mind that this is not a class exercise where you’re graded on following the rules to the letter - this is about simple human psychology, where both parties are looking to profit, and they will do what needs to be done to make sure that all sides win (the customer, the developer, and the investor).

The only thing I might add is on the point of NDAs … having worked primarily in high-tech areas where IDEAS may very well be your most “saleable” or profitable property, it very much behooves you to be cautious about where you air them. The base point is true - no investor will sign an NDA first and bind their own hands before they even get the pitch, much less decide if they want to invest in you or not. On the whole, I would not say go in paranoid thinking that the investor is out to steal your idea, but particularly for creative folk (which many investors tend to be), ideas have a way of cross-pollinating, and sometimes an investor’s role is to prod and push at people’s ideas in order to make them more successful - which means that they may occasionally, unconsciously, unintentionally bring up ideas from other pitches. However, what can you do about it, then?

  1. This will be an exercise in how you can make a pitch without giving away all the juicy details. It will be a fine and fuzzy line you walk, and maybe you won’t satisfy all investors - no doubt you will encounter some who think you’re not giving them enough to make it worth their time to pursue. This is fine. You need to have a good fit with your investors - they need to be able to think in your space, and while your job is to convince them you will be able to make them a profit, they also need to have a similar enough vision to be able to project from what you’ve given them. While some people think of investors as simply a source of funding, I think it’s just as important to consider what other resources they can provide, such as council or their own expertise, and in order to do that, they need to be just as convinced that you’re on to something, or at the first hint of trouble, they’ll pull out. (By the way, this is not something that applies to investors only - you may wish your company to run stealth for a while in case the industry as a whole is trying to move into the same space as you are, but eventually, you WILL have to start marketing yourself out. At first, particularly if you don’t have patents in hand yet, it will be a fine balance between getting people interested in what you’re hinting at without giving away your secrets.)
  2. If you can, patent the idea. Not all ideas can be, but if you can, THAT more than anything else will make investors perk up. Patents are potential sources of profit for licensing or acquisition, and big barriers of entry for other parties looking to muscle into the same space. Even if you have not had the time or resources to acquire the patent yourself yet, if you say that it CAN be patented, that’s where the investor can really contribute. (And don’t stint on quality counsel for writing the patent - there’s nothing like having a patent published, and then a competing company finding a loophole in it that allows them to get their foot under your door!)
  3. Take a deep breath, grab your courage with both hands, and tell all. Do your due diligence and research on the investors you’re making your pitch to … look at their history and decide what sort of trust you want to place in them. If you are not willing to trust them with your baby, your dream, your future and the futures of your employees and potentially even your family’s (which is exactly what you’ll be doing when you give them a chunk of your company for their funds), then they’re the wrong people to look to for your investment anyway. If you can’t trust them to be discreet and honorable, they’re not the people you want to work with … and investors are not dumb. They can tell if you don’t place that sort of trust in them, and that may be just as much of a turn off as anything else in your business plan - they want due caution that will keep you from making mistakes, not paranoia that will have you bucking at everything they suggest.
  • December 10
  • , 2011
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    Ideas aren’t worth much.
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  9. leetucksing reblogged this from andyswan and added:
    almost everyone fubars
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  13. dw-t reblogged this from andyswan and added:
    Starting a business...requires outside investment had always seemed
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