If you have a great idea for a new product or business, but need startup funding in order to grow your company, obtain intellectual property rights, or get your product on the market, a common way to raise money is through investments. The first step in attracting investors is preparing an "elevator pitch," or a quick description of your business lasting about thirty seconds long, aimed at catching the attention of listeners. You must be prepared to give this pitch "in an elevator," or under time pressure in situations where you might only have a few seconds with a potential investor.
An "elevator pitch" can be used during industry events, or tastefully during small talk in order to promote your business and "get the right rumors out" to those who might be interested in investing. While angel and venture capital investors are unlikely to respond to unsolicited contact, they may become interested in your business or product through the referral of someone in the industry.
When you receive the opportunity to make a business pitch to investors, make sure to avoid these common pitfalls:
Not Having a Strong Executive Summary
You should prepare a concise and short presentation containing a thoughtful summary of your investment proposal. Investors meet with many entrepreneurs and sit in on countless business pitches on any given day, so it is important that you carefully craft your pitch and make all of your impact points quickly. At most, you will be given half an hour to get your story out, so be sure that your pitch is not only efficient, but also memorable.
Be sure to address the need for your business or product, the relative market size, potential competitors and how you will compete against them, and expected costs and revenues. You will need to back your business plan with accurate projections and data to show that you have done the research, but be sure not to flood your presentation with statistics that might cause the investor to lose interest.
Prepare to answer questions at any time, because investors are constantly looking to test your business model and to see if you can think on your feet. Anticipate difficult questions so that you can give clear answers to show that you are not only intelligent, but well-prepared.
Not Introducing Your Team
Some business owners go to investment meetings with their teams, but present on their own. Investors are potential partners to your business, and are interested in getting to know the people they will be working with. Investors want to know that you lead a strong team that is equipped with the skills, knowledge, and enthusiasm needed to help grow your business together. Every team member should be prepared to field questions, even if they are not the primary pitcher.
Asking for a Non-Disclosure Agreement (NDA)
Most investors will not agree to sign a non-disclosure agreement at the first pitch, and it is widely considered a faux pas to ask for one. While investors want to hear your idea, they are more concerned with your plan and ability to execute it. The business plan and implementation of the product or service is more interesting than the idea itself.
Every day, investors are bombarded with entrepreneurs who believe they have a brilliant and novel idea; however, it is likely that the investors will have already heard something similar and will hear it again in the future. Therefore, asking investors to sign a NDA at the first pitch will waste your time and preparation, because they will refuse.
Discussing Valuation Too Early
Avoid addressing valuation until the investors do. During the early stages of your business, especially if it is relatively small, it can be difficult to come up with an accurate valuation to give to investors. Any number that you obtain is merely a rough estimate, and that number might change as time passes; both an overestimate and an underestimate of the value of your business can be damaging in the future.
During the first few meetings, investors will be more focused on your business model. While some investors might ask for your estimated valuation, oftentimes they care less about the actual number you give and more about whether you are realistic in how you justify your projections.
Not Providing an Exit Strategy
Whatever reasons you have for starting your business-whether it's changing the world, leaving behind a legacy, or making enough money to support your family-they are not your investors' reasons. Investors are looking to make a profit by supporting your business early on. Therefore, it is important to provide an exit strategy that will allow investors to envision their role in the development of your business. You will also need to give a realistic outline of your business plan, including how the investment will be used, ownership stakes, and the proposed burn rate.
In the end, investors are simply looking for an idea that they can invest in with confidence. Having a solid implementation plan and targeting your pitch towards things investors want to hear will set you on the right track towards obtaining the funds necessary to grow your business.