Understand that angel investors and venture capitalists are looking for high-level growth that is above the norm. After all, they are taking a risk and want to know there will be a substantial reward. That's why they're going to give you the third degree.
This BizConnect guide will help you to compile a funding pitch that demonstrates your expertise, confidence and trustworthiness, along with your knowledge of the market and the financial aspects of your business:
What do financial backers look for?
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Investors see scores of presentations. The key is to make yours stand out above all the rest. As a rule, always put the strongest points first and expect to be challenged. After all, if it were your money you would do the same. Here is an outline of the questions you need to answer, and the contents of the perfect pitch:
Begin by summarising the content of your presentation. Be prepared from the outset to listen to questions and responses and to answer them appropriately.
What's the gap?
You need to show the gap you have identified in the market, as well as your in-depth understanding of the key players, potential competitors and where the market is heading in the next five years. Explain how your product or solution will fill the gap you have identified.
What's the solution?
Explain why you have the only solution or product that can solve the problem or lack you have identified. In other words, show how you are going to meet customer needs. If you have a track record or sales history in the industry, here is where you talk about it. Remember to be specific about the product category, the target market and how your business is distinct and unique. All this information will be available in your business plan.
What about competitors?
What options are currently available to customers and how do you compare? You need to show that you have a comprehensive understanding of who your competitors are, what they are doing in the market and where you fit in.
Who is the team?
Experience, industry knowledge and expertise are the things that excite potential investors. They know that the team behind a business is what makes it successful. Outline your vision and describe the skills and talents of each team member. Mention any mentors or advisors you may have.
What's the business model?
Describe the business model have you chosen to produce the company's revenue. Let potential investors know the most important or difficult challenges you face and how you plan to overcome them. Investors look for frankness and candour because they want to invest in a relationship, not just a business.
What are the numbers?
Outline how much profit you realistically expect to make, and what the annual revenue will be for the next three to five years. Explain each of the key assumptions behind your statements and forecasts. You will not be taken seriously if you forecast revenues and profits that are out of line with the size of the market. Now is also when you tell potential investors when and how they will get their money back.
What is the investment required?
Investors will most likely know more about this area than you do, so make sure you are well prepared to make your position clear. Before you tell potential investors what amount you are looking for, be sure to let them know how much money the founders of the business have put into the business. You can talk about sweat-equity here too. That's the value you have created over and above the money invested through your unpaid mental and physical hard work.
What are the milestones?
Outline your key milestones. If you have achieved similar goals before, talk about them. You may be asked how you will succeed in your market if others have failed. Be prepared to answer that question.
What's the exit strategy?
Investors are only in it for the return. Explain to them how they will get their cash back. Use your closing to let them know why this is the most exciting business opportunity they are going to see for a long time. At this point, you should also explain why you have approached this particular investor and what synergies there may be between you.
Why it's important to scrutinise your investors
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When you're in search of funding, the idea of an angel investor with money to invest in can seem nothing short of enchanting. Remember to ensure that you are singing from the same hymn sheet.
It's vital to do a due diligence of any potential investor and they should have no hesitation when it comes to having their references checked. If they do, keep away. Most will be prepared to give you the names of other entrepreneurs in whom they've invested.
They should also be willing to give you a reasonable amount of cash so that you have enough funds to give you a real chance of success. Be sure to know at which point you will walk away if this is not the case.
Networks are a great way of finding out more about investors. Check out LinkedIn, or ask your mentor, accountant or lawyer if they have heard anything about your potential investors.
The elevator pitch
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One of the most important things you can do as an entrepreneur is learn how to speak about your business to others.
The elevator pitch - which should take no longer than the average ride in a lift - is a succinct summary of what your company makes or does. Here's how to sum up unique aspects of your service or product in a way that excites others.
- Know what you're trying to achieve: find a way to pique interest and highlight what makes your offering unique
- Know your target: your pitch is far more likely to be compelling if you know your target and their needs
- It's not about you: don't spend too much time highlighting your own achievements unless you can tie them directly to the reward for your audience.
- Keep it real: stick with the bigger selling points of your business that you really know well. Don't use slang and stay away from platitudes
- Be specific: concentrate on actual examples of how you're customer-focused or uniquely positioned
- Don't wing it: a first impression happens once. Respect your audience enough to prepare well
- Solve a problem: your elevator pitch is not a list of services. Focus on the problem you solve for the listener
- Let your passion show: let your listener hear the commitment in your voice, your words and your confident body language
- Practice: even if your pitch is one you have used regularly, get some feedback from a coach on how to improve it
- Keep it short: in the words of Winston Churchill, "Be clear. Be brief. Be seated."
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Top 10 reasons entrepreneurs fail to secure funding and how to get it right:
- Use a cut and paste template for your presentation
- Remedy: Interesting and unique presentations attract attention
- Talk at length about how excellent your product is
- Remedy: Explain how you are going to solve a real problem for your customer
- Use top-down market data that shows how many billions you will make by capturing just a tiny percentage of the market
- Remedy: Build a bottom-up business model that shows how many customers need and want what you have to offer
- Show lots of customers, but no margins
- Remedy: Have a clear business model that shows how you are going to generate revenue and make a profit
- Don't demonstrate any real differentiation
- Remedy: Make sure that your product or service is compelling and stands out from the rest
- Declare that you have no competition
- Remedy: Talk about your opponents' weaknesses and how you can use your strengths to exploit them
- Be convinced that your product or service is so amazing that you don't need a great marketing plan
- Remedy: Get early adopters to champion your product or service
- Be a one-man-band that works all alone
- Remedy: Build a dream team by getting some key people on your side
- Try to rush investors into making a decision
- Remedy: Have a reasonable timeline that demonstrate milestones already achieved
- Spin a story that is full of untruths and inconsistencies
- Remedy: Tell the whole truth and nothing but the truth