08 Getting Behind the Perfect Investor Pitch
Tell a story to captivate investors
Investor pitches can be daunting, and advice from across the internet varies widely as to what information to include in your pitch. While every company and their potential investors are different, our suggestion for your investor pitch is simple: tell a story. In this video workshop (1 hour and 3 minutes), you’ll learn what types of information to include, and how to weave a narrative that’s compelling enough to raise the capital you need to start your business.
These days the pitch to a VC displaces the old business plan because most investors simply don’t have time to read a full business plan, and most entrepreneurs don’t have time to write one. That said, the business strategy still serves as the foundation for any presentation you create.
Step 1: Agenda and Assumptions
Where should you start your Pitch? Begin with a simple agenda summarizing what you’re going to discuss.
With the agenda set, take a minute to clarify a few basic questions about the content of the slides: Is this a comprehensive overview of your business that will go into detail covering your entire business plan, a brief introduction to your business, or something in between like an update to your current stakeholders?
Whatever the case, present your agenda and set your audience’s expectations clearly so you can exceed them with that Steve Job’s like zeal for “one more thing” to put your audience over the top.
Step 2: Team
Next, dive into the most important question that investors have in mind when they sit down to hear a pitch: Can I invest in these people? If you haven’t already had the chance to introduce yourselves on the way into the room or in prior meetings, get the team slides up as soon as possible.
We invest in people first and foremost. We want to know who you are right up front so we have context. You should share your relevant experience, and if you’re lucky enough to have already created value and driven great outcomes in other ventures, tell us about it.
But what if you haven’t had that experience yet?
Many great entrepreneurs, ranging from Gates to Jobs to Zuckerberg, have succeeded without any prior experience. In many instances there is no industry to have experience in when new areas opening up (e.g. social media didn’t exist 10 years ago nor did mobile apps). So if you’re not already a proven entrepreneur, explain the experiences that have led to your business insight and convinced you to invest your time and career in your new company.
Good VCs see entrepreneurs as investing their life in the company. That’s more significant than anything. So when I get to know an entrepreneur I’m always looking for someone who shows focus on their subject matter and the passion and persistence to pursue the opportunity they’ve identified.
No entrepreneur succeeds alone, and great teams are often formed through shared experience. So it’s good to hear if you have worked together or shared some experience that has helped you bond as a team. We recognize how important that can be in navigating the challenges ahead.
Equally don’t be afraid to profess where you need help. Self-awareness is a great quality, and many investors enjoy helping to build teams and expect to help fill gaps in your team when necessary.
Step 3: Business Overview
The business overview should summarize what you do uniquely well for whom and how. Keep it short and sweet. Provide context and orient your audience to what is about to follow — get your audience wanting to learn more.
Ideally, the overview is a description of the business that is completely aligned with your positioning statement.
Step 4: Business Opportunity
Now we’re at the point in the presentation where we need to get your audience excited about the market opportunity. Clearly state the business pain that you’re going to tackle, connect that to a technology that can address the pain, and explain why customers will see this as an urgent need.
Make sure your audience fully understands the significance of the opportunity before you move on. Ideally, they should literally be visualizing the unbearable nature of the pain. Or if they are representative of the target customer, they should confirm they are feeling the pain. Ideally, you want people dying to hear how you address the pain before you unveil your solution.
People often don’t include the 3rd point around customer urgency. You could say it’s optional, but in uncertain economic times, customers often opt to do nothing by default. However, if the urgency is real, they will choose to act. On top of inertia, you’ll also be competing with many vendors vying for the same dollars and trying to capture money from an existing budget. As a result, customers should feel an urgent need to address their pain and make your solution a priority.
Step 5: Value Proposition & Solution
With the investors you’re pitching feeling the pain, you can present your solution and wow them with the technology and insights that drive your approach to meet your customers’ real and pressing needs.
However you describe your value proposition, ensure your audience really “gets it” before proceeding. Check in with them and ask them if they do. Best case you can move on, worst case you save the rest of your presentation from going wrong.
Be careful not to make any assumptions here that may come out of your familiarity with the opportunity. Instead, be explicit about what could simply not be done without the solution you are proposing and why that is so compelling.
One other word of caution, many entrepreneurs, particularly technically driven thinkers, spend too long on this section of the pitch. Just present it and don’t try to describe every detail of the solution, no matter how proud you are of it! Present just enough to make the breakthrough clear. Then use customer and partner examples as proof points. And if you don’t have those yet, provide whatever market validation you have. (See point 7 below.)
Step 6: Vision
The description of the value proposition and solution should lead to describing your vision for how the market will evolve and how you plan to lead it.
Vision matters. Early opportunities evolve and change over many years, so I always look for entrepreneurs who have the vision to see how the market will unfold and grow down the road.
See the resource “Vision vs Execution” for more details of this important topic.
Step 7: Examples and Proof Points
No matter what you claim, examples and case studies will prove that you can deliver. They are more credible than anything else you could say. As investors, evidence means far more to us than random superlatives.
If you have proof, explain the tangible benefits the customers are enjoying from your solution.
Describe it in terms of ROI and payback period. For extra credit, articulate how the solution can be easily and repeatedly sold to create a scalable business. This will lay the groundwork to present your business and financial models.
Beyond pitching investors, case studies and demonstrable ROI should help you pitch your customers. To state the obvious, if you can walk into a customer with a solution that takes just a few days to show results and thereafter provides a clear ROI, it will be much more successful than an offering that takes months to implement years to show a return and is not measurable in dollars and cents.
Step 8: Market Size
Market sizing helps quantify the total available market for your product. You should develop an estimate of your market size from both the top-down and the bottom-up.
In the tech industry, a top-down analysis is sometimes available from analysts like IDC and Gartner. While they’re directionally helpful, they rarely predict the true nature of your specific market. That’s why bottom-up analyses are often more important.
A bottom-up analysis can be as simple as defining the price for your product, estimating the number of prospective customers, and doing the multiplication. But, we really look for people who understand their market in a very granular way, right down to the persona of the buyer, and where that is distinct, the user of the product or service.
A good analysis will, therefore, involve careful segmentation of the truly addressable market and thoughtful descriptions of how those customers will pay for the solution over time to build up a picture of realistic market size.
Step 9: Competition
This is always a fun section. At this step, you should clearly describe how you will achieve sustainable competitive differentiation. Then explain what barriers block others who try to follow you.
Entrepreneurs often claim they have no competition because the idea is so unique. While that may indeed be true, it’s unlikely that you won’t have competition for at least the dollars that the customer has to spend on either existing approaches or alternatives.
Technology is one obvious differentiator to bring out, but don’t forget others. For example, a wide variety of other aspects of your business model could provide competitive differentiation such as pricing, go-to-market, an open-source strategy, and unique business partnerships.
Other sources of competitive advantages may include the network of users you build or the data you collect over time. In the end, all of these may be as compelling as your technology differentiation and more important as a barrier to entry for competitors.
One way to present your competitive differentiation is to show visually how you are uniquely different than your competitors. The classic format is a 2×2 grid where you end up in the upper right. The trick is defining each axis and then explaining in a credible way why you end up in a leadership position. It’s even better if you can explain why it will be hard for your competitors to move.
Step 10: Business Model
Your business model is also potentially a whole subject unto itself, but you should at least cover the basics of how you create, deliver and capture value.
For example, in a software company you should cover how you develop your product, sell, install and support it. You should also explain how you package and price it and what channels you may sell it through.
In the end, we need to know as investors that you understand the methods and costs associated with building your product, selling it, and supporting customers in a profitable manner.
Step 11: Financials
The business model discussion ultimately leads to the financial model where the numbers should prove your claims about the business model. In the financial section you should include:
- Pro-forma P&L statement (quarterly for the first year, and annual for 3-5 years)
- Pro-forma cash flow statement (quarterly for the first year, and annual for 3-5 years)
- Behind these two aspects of your model, you should be able to explain the assumptions you’ve made including:
- Key milestones and dates
- Revenue drivers
- Cost of goods sold
- Expense assumptions
Here the assumptions are as important as the model. Anyone can use a spreadsheet to make projections but if the financials hang together with the rest of your pitch, we know you’re modeling the business with the thought it takes to build a company.
Financial planning is a specialist skill and few entrepreneurs have it. It’s an example of where we can often help introduce the right resources to help you get your plan together.
Step 12: Fundraising Needs
From the financial plan, we’ll use the cash forecast to determine how much you need to raise and test the assumptions you have about when you’ll need to raise money. This analysis requires figuring out what milestones you need to achieve in order to justify a higher valuation at each round of funding.
At Underscore, we typically finance about 18 months at a time because we’ve learned that’s long enough to allow the team to get focused on things like building and validating a product. Less time and teams struggle to get momentum and respond to changes. More time and we have trouble predicting what will happen.
Step 13: Summary
At the conclusion of the presentation, you should summarize what you’ve covered and reiterate why your company is a great investment.
If you’ve done everything right, the investors you’re pitching should be thinking: “How can we invest in this company today?”
Video Workshop: Getting Behind the Perfect Investor Pitch
On the go? Listen to this workshop on SoundCloud:
This video workshop contains ideas from all over Startup Secrets. Hop to specific sections in this video:
- Your Founder Story will shape your ideas as you head into pitches (6:50)
- Explain your Market Opportunity clearly to get investors’ attention (13:06)
- Upfront, you’ll want to state your Value Proposition (15:08)
- Show that you understand your customer’s motivations through the Gain-Pain Ratio (19:41)
- Captivate your audience with a strong Vision and Mission for your company (28:43)
- Position yourself in the marketplace against your Competition (36:56)
- Share how you’ll make money with your Business Model (45:00)
- Know what Financial Details your investors will be looking for (53:08)
- Don’t scare off your investor! Be a Realistic Optimist (54:46)