Pitching to investors is a whole new ball game for most entrepreneurs. Unlike baseball, which gives you multiple chances to throw a strike, investors give you one chance to throw the ball over the plate and capture their imagination. Considering what’s at stake when you’re selling to investors, it’s one of the most important skills an entrepreneur can have. But based upon what I have witnessed over the past couple of months—as has my fellow columnist Rick Spence—many entrepreneurs should be busted down to the minor leagues to work on their delivery.
In March, I attended the annual Canadian Venture Forum in Toronto, a conference at which firms looking for capital present their business ideas to venture investors. For the entrepreneurs in attendance, this was their great opportunity to shine; they’d been coached, they’d practised, they’d developed elaborate PowerPoint presentations. But most of them blew it.
This amazed me. While I recognize that it’s a great challenge to acquire the vast array of skills necessary to become a successful entrepreneur, one of the most fundamental of them is the ability to articulate what your company does and how it makes money doing it. Too many presenters at the venture fair needed to go right back to Square 1, the elevator pitch: a brief description—about the length of an average elevator ride—of a business and what it does better than the competition.
Your elevator pitch should be clear and simple, giving investors the gist of what your company does and what makes it different, but leaving them wanting to know more. Here are sample elevator pitches for some of the firms I work with:
I Love Rewards: “Our company builds loyalty reward programs that help businesses drive sales, increase employee motivation and build customer loyalty through a turnkey, Web-based points program.”
Allaris: “We provide inexpensive, simple-to-use Enterprise Resource Planning software for small and medium-sized manufacturers and distributors.”
SonnenEnergie: “We’re a photovoltaic systems integrator and independent solar-power producer with know-how that enables us to generate more output from solar-power systems than our competition.”
Once you have refined your elevator pitch, you can develop the more elaborate pitch you would use to raise money from investors, whether they’re friends, angel investors, venture capitalists or pension-fund managers. Many CEOs make the mistake of assuming their audience is conversant in their industry and its jargon, so my first piece of advice is to assume you’re presenting to a Grade 8 class. Having said that, don’t be condescending; assume it’s a gifted Grade 8 class!
Once you have dumbed down your thinking, answer the following questions in your pitch:
1. Who are you? What is your company? What do you do? (It’s the elevator pitch again.)
2. What pain is your company is addressing? For I Love Rewards, it’s the challenges companies face in retaining their clients in a dynamic marketplace, and retaining and motivating their staff in a highly competitive labour market.
3. What is your solution? How do you relieve your customer’s pain? For instance, I Love Rewards offers custom, turnkey loyalty reward programs.
4. What is your business model? How do you make money by solving the customers’ pain?
5. What is your competitive advantage? Do you have intellectual property? What are the barriers to entry? What makes you special?
6. How are you going to reach potential customers in a realistic and cost-effective manner?
7. Who are your competitors? Provide a comparison chart showing your advantages over them.
8. What is your track record? Who’s on your management team? Investors often are betting more on the jockey than on the horse. They want to know that you and your team have been there and done that, giving them confidence that you can do it again.
9. What are the prospects for the business? Show five-year projections. Keep it simple at this stage, with top-line numbers such as revenue, cost of goods, administrative costs and EBITDA. There had better be “hockey stick” projections to get the attention of outside investors, who want to see 500%-plus returns over five years.
10. What milestones have you achieved to date? What do you hope to accomplish with the money raised? And when?
One more piece of advice comes courtesy of Guy Kawasaki, whose book The Art of the Start is the best resource I have ever encountered on the subject of making investor presentations: limit your presentation to 10 slides, 20 minutes and 30-point type on the slides (the “10/20/30 rule”), thus ensuring your presentation is short, simple and legible to investors, most of whom are over 40 and can no longer read the small print!
Not many firms have a chance to pitch in the majors. Make your opportunity count.