If you’re planning on generating outside funding, you need to be prepared to pitch your business to potential investors. This may be a full-fledge pitch at a business meeting or an elevator pitch (typically 120 seconds long or less) at a networking meeting or, in fact, on an elevator. In order to create a stellar pitch, follow the guidelines in the next couple posts.
First, you should know what the investors are looking for:
The People First and foremost, the investor needs to like you as a person, in business and as a human being. Are you trustworthy? Are you ethical? How do you make decisions? Are you able to make tough decisions when necessary? Are you someone the investor gets along with? Will you consider advice provided by the investor?
The Opportunity Not all products are destined for success. Think, New Coke. Some strange products become oddly successful, like the Snuggie and Chia Pets. Potential Investors will take a look at the opportunity you put in front of them, including your plan; product potential; how they can be involved; and their resources available, such as funds and expertise.
Context What is the business environment like at the time of your pitch? Do they already fund a similar product? Is the investor looking to fund something like you, or are they looking to venture into a completely different space? You have to be at the right place at the right time to get the right investor’s support.
Risk & Reward How much are they risking (dollar-wise, reputation-wise, time-wise, etc.) for how much reward (percent of return exceeding investment)?
Time to Positive Cash Flow A lot of VCs are looking to cash out within 3-5 years. If you won’t be cash flow positive for over 5 years, you may be in a sticky situation approaching investors.
Probability of Total Loss This is similar to risk and reward but considers the likelihood that the investor will get nothing back from their investment because your business completely tanks. You want to keep this probability REALLY low.
Now we know what the investor is looking for, tomorrow we’ll talk about how to write a pitch, including 10 common lies to avoid.