One of the most important things you can do when pitching your company to investors is prepare. This guide will help you.
The better prepared you are, the more likely you will get an investor on board with your project. That's why we compiled a list of six essential questions for when you're pitching to investors!
What do investors look for in a pitch?
Investors want to understand your business and whether or not there's a real opportunity for your company to succeed. In our experience, there are five essential areas that investors focus on during a presentation. Let's look at each one of these now.
1. What's The Market Opportunity, And How Will You Seize It?
Investors want to know whether your startup is a safe bet and whether or not your company will make money. In other words, are there enough people in the world who are experiencing the problem you’re solving and want what you’re selling? Will they keep wanting it on a recurring basis, or will more people want it over time?
You'll need to answer adequately:
What business are you in (is it a large industry that is growing)?
How big is the market, and is the market showing indicators of continued growth into the future?
What percentage do you hope to get?
Who is your best customer?
Where and when will your product be sold or used, by whom, and for how much?
2. What Is Your Competitive Advantage?
Investors are looking at this from a competitive standpoint.
How difficult would it be for someone else to enter the same space as you?
What patents do you have pending?
Any intellectual property protection of note?
Anything about your company's size and staffing levels worth mentioning here, too, if they're particularly notable?
Do not forget to mention any barriers to entry! What do people need to have access to enter as competition against you in this field? Is it money, education level, experience level, or other? Can they realistically obtain these things without having any kind of significant disadvantage over you?
You want investors to see that even though there are already many companies in this field, yours stands out because of these factors.
What is the key that sets you apart from other companies in this space or similar spaces?
Is it something about how you produce your product (e.g., new patented process), a specific feature of your product, or an exclusive partnership with another company for distribution?
Do you have connections to the market through personal relationships, international distribution channels, or a unique piece of hardware that solves an expensive problem for customers?
Are you entering a proper niche in the market, something that's never been done before or never been done your way before?
Are you disrupting a traditional market, i.e., solving a problem in a different way than it is being solved right now? Will your business turn that market upside down? (Like Airbnb was able to do in the hotel market)
Examples of competitive advantage from successfully funded startups
Canva
For Canva, their competitive advantage was a simple design process that made it easy for any user to create their own graphics, even if they were not designers.
Their point of difference was that they were first to market with this concept - up until they entered, there was no way for ordinary people/business owners to make high-quality, designed graphics without using a designer.
The design templates make Canva stand out from other design programs or software where you have to start from scratch.
View the pitch deck here.
Airbnb
For Airbnb, their competitive advantage was made clear from the first slide on their pitch deck.
Can you tell what that is?
Airbnb Pitch Deck from Malcolm Lewis
From the very first page, investors are made to think about an uncommon scenario (at the time of the pitch) - Book rooms with locals? How is that possible? It’s also clear that their competition was hotels.
The Airbnb advantage was disruption. They took the hotel booking experience and turned it upside down.
Uber
What was the competitive advantage for Uber in the early days of the startup?
Ivan Zupic explains in his article, What is Uber's competitive advantage? -
“Two innovations lie at the heart of Uber's initial success. The first is superior user experience, enabled by a smartphone app. Riders order a taxi and pay effortlessly through their smartphones. Seeing that icon on your phone's screen coming closer to pick you up is a powerful experience. The second innovation is a rating system for the drivers. Riders rate their experience for the ride in the app, and drivers with a score below a certain threshold are booted from the system. This enables quality assurance on a scale that was often missing for regular taxi services.”
You can view a copy of Uber’s pitch deck here.
3. Have You Got Traction?
In the eyes of an investor, traction refers to whether or not your product has gained significant market share in a short period.
An example of traction is how quickly many customers have signed up for what you're offering. If there is online chatter about what you're doing or PR, then sure, that's a good sign.
It's important to note that early-stage investors are mainly looking at whether you've attracted any customers (or users) that have shown a willingness to pay for your product.
This means that if you're at a very early stage and still developing the features of your product, traction can be shown by the number of people who like your social media or have expressed an intent to buy via research.
You could confirm purchase intent through a survey: "if this product were available to buy now, how likely would you be to buy it (on a scale of 1-10)”. Or simply - “would you buy it? Yes, or no”.
If you can then say over 80% of people said they intend to buy it when it launches, that's good traction for a very early-stage startup.
If you're further down the line, then investors will expect signed customers and actual revenue. Or a solid plan that shows the progress you are making towards getting customers on board. This is especially true for a product/service with a longer purchase cycle, like bespoke tech systems.
For instance, if you're a startup that does white label software development for other businesses and has had many clients sign on already, it's more compelling to investors than someone who has only sold one product in the past year.
Investors will ask questions such as:
How many customers or users do you have now?
Or if you’re at a really early stage:
When will you have your first customers?
How many people have signed an EOI (Expression of Interest)?
They may even ask:
What are the purchase barriers, and what are you doing to break them down?
What they’re really driving at is establishing a big enough market of opportunity. Will that market make the leap and sign up to and pay for what your selling? How many have done so already? And importantly, how quickly is that going to happen?
4. What's Your Customer Acquisition, aka Growth Strategy?
One of the questions that pop up at every single pitch I’ve ever attended or judged is, “how will you get customers”?
In other words, have you got a marketing plan?
A lot of startups and even established businesses looking for growth capital go wrong here.
They’ve worked out the need for investment, how they’re going to use the money, and what to do next, but they forget about marketing.
All businesses, startups, or otherwise are innovation and marketing. Produce products and services your target customers want and need, then promote them so that enough people find out about them to make enough sales.
So if you don’t have a marketing or business development plan, you don’t have a viable business from an investor’s perspective.
Show them that you have a growth plan in place; it will make you much more attractive to potential investors.
Investors want founders who know the long-term goal of their business and can show a clear path forward on how to get there — so present your ideas well ahead of time!
No time to write a strategy? Here's the real problem.
By the way, a marketing plan is a whole lot more than just a content strategy (which can be helpful if content marketing is part of your plan). Check out this framework for how to write a detailed marketing strategy.
5. What's Your Financial Plan?
Investors need to know that you're going to be smart with their money.
So they'll be asking, "if we give you the investment you’re asking for, what are you going to do with it?"
Do not say, "pay co-founder salaries.” This will ensure you do NOT get investment. I've heard it said lots of times at pitches, and it always goes down badly.
Investors are not interested in keeping a founder afloat while they’re trying to get a business up and running. Instead, investors are interested in investing in tech or product development and the activities that will onboard new customers as quickly as possible.
You need a plan for the expenditure, usually in a detailed budget that you can share at the due diligence stage. You don't just want to make this up as an investor reviews your pitch deck; it's best if all these calculations have been done beforehand and summarized on one slide.
The other finance-related question is typically about your startup's runway and burn rate.
Runway: How long will your startup be able to keep going with the money you have?
Burn rate: What percentage of revenue is being spent on day-to-day expenses (like salaries), and what percentage goes into growing the company.
Every investor wants startups that are sustainable over time to get their return on their investment.
This should be demonstrated along with what the results will be along the way.
When helping our clients with their pitch decks, Pitchvest always creates a timeline slide that shows the months/years ahead and what is being invested at which time. Also, we indicate what will be happening by each time interval, e.g., number of users, tech progress, etc.
Here's an example of what this might look like in your investor pitch deck:
6. What's The Action Plan?
It’s a broad question that could be asked at any point in a post-pitch discussion, but if they’re asking it, it means they didn’t really feel confident that you have a step-by-step plan to bring customers onboard and develop the business and sales.
If they ask you this, you’re in trouble, so make sure you have a plan beforehand.
Here’s what Beata Klein, an Investment Associate at CREANDUM, a European early-stage venture capital firm, shared on Twitter about the biggest mistake she sees founders making when they pitch to investors:
Having a plan means articulating the specifics of the next steps you are taking so that your idea is commercialized and new customers can be secured.
Your action plan should answer:
What are you working on right now? This week? Next month? This quarter?
Can you name specific meetings that you already have in the diary?
What are marketing or business development activities planned or happening now?
Give investors a real sense of activity and action that is going to drive progress.
It may seem counterintuitive, but your plan should include less future talk, e.g., "when x happens, we plan to do y.”
Instead, your action plan needs to detail what’s happening soon, i.e., "next week we're meeting with a global corporation to discuss a partnership," or "by the end of this quarter, we are on track to have X customers signed on."
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Pitching To Investors - Frequently Asked Questions And Tips.
What other questions will investors ask?
A few other questions you will need to answer are:
Why is now the right time for my startup and me?
Why do I want an investor at this stage of development?
What does this round of funding mean? And, what should it lead to in terms of next steps?"
What is your business model?
Beyond your business idea, investors will be interested in your business model.
A business model is a plan for how you intend to make money.
Investors will want to know your plans in generating revenue and whether or not there's a clear path towards profitability.
It goes without saying that if you don't have answers, it would be wise to rethink taking on investors.
Regardless of the type of business – startup or a more established company - nobody wants their time wasted by an entrepreneur who has unrealistic expectations about what they can accomplish with capital alone.
It’s always best when founders understand upfront the timeline required before making any significant hires (or other significant investments).
Want help with your business model? You can start by mapping out a business model canvas or a lean canvas.
What should be in your investor pitch deck?
Your investor pitch deck should include a brief description of your company, the problem you’re solving, why it’s essential to solve this problem now, how much funding you need, and what milestones will show progress.
You should also have numbers/targets for key metrics like user growth or revenue generation that show investors exactly where they can expect their money to go.
Make sure you use your pitch deck to answer all five of the questions highlighted at the top of this article. This will show that you've adequately prepared.
One thing that is missing from most pitch decks? A timeline!
A realistic timeline shows potential investors when they might see results (and thus ROI), which could make them more confident in backing your venture.
Want to see pitch deck examples from three successfully funded startups? Refer here.
We recommend that startups prepare three separate pitch decks for different pitch situations as part of our Pitch Success Framework.
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How do you get better at pitching?
To get better at pitching, you must consider a few things.
First, make sure that your message is concise and clear. Then, speak to the investor in terms they will understand without going off on tangents about how excellent your company idea is!
Second, be ready for questions from investors and have answers prepared beforehand. Don't just wing it!
While a visually compelling pitch deck can aid in the presentation, many founders can get too caught up in making the pitch deck look good, but not so much on pre-empting the questions that investors want to be answered.
Finally, practice pitching to other people who are not familiar with what you're presenting or even try doing so in front of mirrors at home.
One way to get better at pitching is by making sure there's something unique about your company that sets it apart from others out there. The more differentiated and competitively positioned your business model, the greater your chance of success when seeking investment.
It goes without saying, but we often have to remind founders - practice your pitch! Practice your pitch repeatedly until you're comfortable telling your venture's story in such a way that it's compelling, data-driven, and highlights how you stand out from your competition.
What should you not do in a pitch?
There are various ways founders can pitch:
Pitching to venture capitalists
Crowdfunding
Entering a pitching competition
Asking for a loan from a bank
Pitching for investment from friends and family
Always remember your target audience and what they're looking for.
Be clear about how much money your startup or growing company needs and what criteria the investor has for approving funding.
So when you're pitching to investors, avoid any of these possible pitfalls:
Don't use jargon in your pitch. Remember that you're trying to speak the language the investor will understand
Don't give up if they say no! There's always a chance we can change their mind
Never lie or exaggerate about anything. This is an unethical and immoral move since it may come out later on when pressure tests are going on with other parties who might have questions for us
If you need help preparing your pitch deck, check out our article - 14 Steps to Creating an Effective Pitch
How do you write a good investor pitch?
To write a good investor pitch, follow these tips:
The first thing you should do is get to know your potential investors. Pick up a copy of their annual report or company website. This will help you make them feel more comfortable talking to you. Show investors that you've done your research
Always know what the goal is. What do investors want out of this pitch? Some investor might be looking for a specific product, while others want to invest in your company's vision
Make sure you prepare for the tough questions. Inevitably there will be many raised eyebrows and probing inquiries that you need to anticipate
Remember that it is not all about numbers. Investors are looking at individuals with a big-picture view of their business plans.
Use words that they understand and be concise but thorough in explaining what your business does.
Include any metrics on how well your idea has done so far (especially if it's an early-stage startup)
Don't exaggerate anything or lie when presenting data! That might hurt later on down the road.
What is a fair percentage for an investor?
Many entrepreneurs aren't clear how much equity they should give to an investor (or VC fund). So to determine what a fair percentage might be, here are a few guidelines:
If you're just starting, it's often in your best interest to offer up less equity as the reward for investing. This is because there will be more risk involved at this point, and you might not want to give away too much of your company without being sure that it has traction.
However, if an investor believes in what they see from early on and wants to invest later on when things have already taken off, it can make sense to present them with higher ownership levels.
Some experts say that it is essential not to ask for too much in return when pitching to investors. You should also tell them about your company and how they can help make a difference.
Ultimately, every situation is different, so make sure that you know about potential rewards before signing any agreements or contracts!
We recommend you speak to a lawyer or an accountant with expertise in startup investment to guide what's best for you.
What is the purpose of an investor pitch?
The purpose of an investor pitch is to convince a potential investor (VC, angel) that your company has the potential for success and you are worth investing in.
Preparing your pitch ahead of time will help make sure it runs smoothly when you're on stage or in front of an investor.
You should articulate what problem your business solves and how that solution can impact the target market.
How do I talk to an investor?
It's a good idea to talk to an investor before your pitch, if possible. This will help you establish a relationship with them before your pitch. You’ll also be able to determine how you vibe together and if you feel comfortable with them.
An investor should answer questions about their investment criteria and how they think your company might fit.
Where to from here?
If you’re looking for investment for your company, ask yourself these six essential questions and then outline your answers in preparation for your investor pitch.
You can also join PitchQuest to help you craft your pitch and get yourself ready for investors.
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