Thursday, 24 October 2019
Entrepreneurs need to show investors why they and their businesses are worth investing in. So how can they best prepare for a pitch?
There are different types of investor for different types of business. “They will be different in focus and approach,” says Simon Calver, head of investments – early stage at BGF (formerly the Business Growth Fund). “Some will be geared up to support early-stage and proof-of-concept work, with others focusing on fuelling the expansion of proven propositions.”
It’s vital, therefore, to research the current focus of the investors you hope to speak to so that you’re not wasting anyone’s time.
Calver says that investors are hoping you can show evidence of a robust, supportive infrastructure that can help a business grow, and this largely rests on your ability to demonstrate that a capable team has been built around the founder.
Taking this a step further, Kevin Jones, founder of hosted e-commerce platform Shopblocks, says your goal should be to convince investors that the business could continue without you if you were suddenly no longer available to run it.
“When you’ve only recently set up your business,” says Jones, who has been through two rounds of funding and is about to enter his third, “it can feel counterintuitive to start thinking about how it would run without you. But investors will consider a business investment significantly riskier if its existence relies 100% on one single human.”
BGF meets around 2,000 companies a year that are looking for investment, and these businesses are more likely to be taken seriously, says Calver, if they know their customers, what pain points they are trying to solve for them, and how big they think their market is.
“You also need to know how your business will grow sales if you want to attract investors,” he says, adding that once an investor’s interest is piqued they will likely want to look at the last three years of financial records, your projections and the balance sheet.
“Research your market,” says Jones, “research it some more and when you think you’ve done all the research, research it again.” When faced with savvy investors, he says, you have to be absolutely clear as to who the competition is, what sets you apart from them and how you plan to take your slice of the market.
This is especially important if your product or service hasn’t yet launched.
“If you’re pitching for angel or VC [venture capital] investment, be prepared to show – not just tell – that customers desire your solution and are willing to pay for it,” says Craig Vachon, a leading VC investor and author of tech thriller The Knucklehead of Silicon Valley.
“Investors will consider a business investment significantly riskier if its existence relies 100% on one single human”
If you’re providing B2B solutions, he says you should be prepared for your potential investors to spend hours with your targeted first customers. If you have a B2C solution, he says you should expect to have to show the cost of acquisition for each customer and how much they would then spend with you.
How? “By acquiring a similar URL to your own, setting up an acquisition campaign based on your value proposition using Facebook and Google, and then demonstrating your results,” he says.
When Andrew Nowell, founder of dog activity monitoring system PitPat, was looking for investment, he realised it would be misguided to try and pretend there were no risks. Investors, he points out, are pretty sophisticated people.
“It would have been easy not to mention that there are other products like ours on the market,” he says. “Instead, we acknowledged this and embraced the fact that others believe in the value of the proposition and market opportunity.”
A market without competitors is not a true market, Nowell says; it’s your goal to focus on what makes your offering different from the rest of the pack.
As much as investors look at the product and market opportunity, Nowell believes that for many of them it’s fundamentally about putting their faith and money (£2m in PitPat’s case) into a founder and team who truly believe in what they’re doing.
“Investors need to see commitment and determination, but also a willingness to adapt and learn,” he says, pointing out that investors especially seem to like the fact that many of the PitPat team have put their own money into the business.
Holly Knower, CEO of the National Association of College and University Entrepreneurs (NACUE), suggests working on your storytelling skills. She explains that passion is most commonly displayed during a pitch through “the use of narratives to demonstrate feelings or expressions through first-hand experiences”.
“An entrepreneur must have a passion in order to drive them forward, as well as a firm belief that there is a need for their invention,” she says.
It’s often not possible to bedazzle a would-be investor with revenue figures and stuffed order books in the early days of a business, but Knower says there’s something else that can show you’re moving in the right direction: traction.
“In most cases, ‘traction’ refers to customers or users that are going to interact with your product or service,” she says. “This is a useful metric to convince others to back your mission.”
Knower adds that all entrepreneurs should be spreading the word to numerous groups of potential buyers, and investors need to be shown the potential of these future customers. Give as much evidence as you can that they will go on to provide a favourable return. “An early starting point is to prove that you spoke to and interacted with a large proportion of potential customers before you even launched,” she says.