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Seeking finance? Kevin Coleman of management consultancy Alliantus takes a closer look at how to structure a pitch
Great businesspeople know that the key to success lies in fully understanding customers’ needs and desires and delivering the right solutions at a profit. In the same way, when pitching to potential investors you need to be clear about what they want to know about you and your business and provide the necessary information in a clear and concise way.
Angel investors or venture capitalists are looking for growth that is above the norm and they appreciate that the risk will be higher. Indeed, it increases the focus on risk management and explains the ‘grilling’ companies can get when talking to investors.
The overall risk is a combination of the product or service simply being unsuccessful and the potential for bad decisions made by the entrepreneur or company that has the investors’ money. It’s hardly surprising then that the market opportunity and the management team are always at the forefront of investors’ minds. As a pitching company, you need to show expertise, confidence and trustworthiness along with familiarity with the financials and market.
A typical presentation should have a structure like the one below. This provides a framework around which strong answers to relevant questions can be prepared. Assume you have around 20 minutes, and modify if necessary. But don’t make the classic mistake of doing all the talking. Listen to the responses and consider what is behind the questions.
1.
Introduction Slide
Use your first side to summarise the content of your presentation. Number each section and outline your overall structure.
2.
What’s the problem?
Use this slide to show the gap you have identified in the market and the market position today. Knowing your market includes having an understanding of the key players and the different channels to market. You also need to demonstrate that you know where the market will be heading in the future and how to stay one step ahead. How does your solution fill the gap?
3.
Your solution
Why is what you do unique or better than others? Explain why you have the only product in its class that can solve the customers’ real problems. Where possible, back it up with your track record, sales history to real customers or competitive analysis defined by credible sources. Be specific about the product category, the target buyer and how you are distinct.
4.
Competitive position
In this section you need to identify how the customer can solve the same problem in another way. For example, if you are selling chocolate bars your competitors aren’t just other chocolate or confectionery sellers but other snack foods too. What are the customers’ options and how do you compare? Good entrepreneurs show a detailed understanding of the competitive landscape from an insider’s perspective, so demonstrate this knowledge.
5.
Your team
Investors see the team as critical to driving the business forward and making it a success. Demonstrate your record, industry knowledge and expertise. What is the vision and why can your team build a successful company? What about advisers or non-executives on your board – who are they and how does the board function? If you are the founder, are you ready to step aside and appoint a new CEO for the next phase of growth? This may be the hardest question to answer but may be one of the key questions, so be prepared.
6.
The business model
Explain how your business has operated to date and how it has been funded. What business model have you chosen to produce the company’s revenue? It is also vital to disclose any plans to change the structure of the company and any significant risks that may impact upon investors.
If your products or services aren’t ready to sell then what do you have to do to reach that point? Reveal any licence deals that might be necessary and their cost. Let the potential investors know the most important or difficult challenges you face and how you plan to overcome them. Investors look for openness and honesty because they want to invest not only in your company but also in a ‘relationship’ that may last several years.
7.
Back up your key forecasts
How much profit do you realistically expect to make? What is the annual revenue for the next five years? What amount of money is required to take the company to the next level of valuation and when do you expect the next investment round to take place?
It is vital to explain the key assumptions behind your statements and forecasts without forgetting that these have to relate to market forecasts. There is no point in forecasting £100m in a market worth £5m. Crucially, tell the investor when and how they will get their money back.
8.
Valuation and investment required
Potential investors need to know how you valued your company and what you are looking for in terms of funding. Be clear about how much money the founders have put in to the business as cash and sweat equity – your hard mental and physical efforts.
Have the directors and advisers invested? Explain how you reached the figures for the valuation for this round of funding and what you are using to compute the valuation for the proposed initial public offering (IPO) or exit. Investors need to have an understanding of the cash requirement and need to be aware of what happens if conditions change, for example if the product is late or market adoption is slower than you predicted.
It is worth noting that you will be at a disadvantage at this point, as most investors know more about this stuff than you do. So get some help so that you go in prepared. Also, have a point beyond which you won’t go and be ready to walk away if the deal is not right. Good investors – angels less so than venture capitalists – expect to deploy reasonable levels of cash, so you need to reach a position where you have enough funds to give you a real chance of success.
9.
Key milestones – and how to hit them
Outline your key milestones. Can you demonstrate your track record for hitting them on similar projects? Will you have to hire people to reach these targets? Be prepared to be asked: ‘how will you succeed in this when someone else you don’t know has failed?’ Be positive and explain how you will handle any emergencies that turn up.
10.
The business exit strategy
Investors are only in it for the return so you have to have a credible route for them to get their cash back – and more. Use this slide to explain why competitors cannot just step in and take the market. Let potential investors know why this is the most exciting business opportunity they are going to see for a long time.
It is important to target the right investors, those who will be most interested and create a buzz, remembering that investors talk. Obtaining investment is also driven by supply and demand – the fewer opportunities around, the more likely you are to be successful. Timing can be key.
And finally… these are just guidelines. A good pitch does not always need to have all this detail, but use this as a way of organising the flow. Pertinent imagery, bullet points or the odd word may be sufficient with the right presenter and supporting materials.
Adapt the pitch to your company’s needs and take into account your development cycle and the type of money you are seeking. Whatever you do, always put the strongest points first and expect to be challenged by potential investors. Let’s face it, if it were your money you would do the same.
Kevin Coleman is project director for the Cambridge Wireless Discovering Start-Ups competition. www.cambridgewireless.co.uk/discoveringstartups/
