Prompted by an article by professor Aaron Dinin, here are some ideas about what it takes to make a good pitch in front of investors and why, when something seems too good to be true, it probably isn’t.
Pitching in front of investors is a little like staging a play. There’s a script (our storytelling), a set (the Deck or any other support material), a carefully selected costume, and, of course, an audience (the investors).
However, unlike what happens in a theater, things here don’t just end when the curtain falls and people begin to clap. Here, no matter how perfect the performance, it’s not enough if it doesn’t lead to the next step: an interest by the audience/investor in investing in my company.
Many entrepreneurs ask me whether the presentation they’ve prepared for their fundraising process is right, and it usually is. At least formally. There’s a lot of online material that is very accessible and can be a great guide on how to prepare a good deck. There are tutorials, tips, and role models–which may be all good, but they’re not enough.
If you’re not able to show that there’s a business opportunity and a founding team capable of executing it, all that effort will be for nothing more than a nice stage production.
I was thinking about that when I came across an excellent article written by Aaron Dinin, who teaches entrepreneurship at Duke University in North Carolina, USA, in which he shares his experience and his constant failures, in spite of making absolutely “perfect” pitches.
Dinin writes: “I entered every fundraising pitch prepared to ‘wow’ investors. I had a polished pitch deck. I had a killer demo. I knew exactly what I was going to say and how I was going to say it. I even had perfect ‘entrepreneur-casual’ outfits (i.e. faded jeans, a t-shirt, and a blazer). I thought if I looked like an entrepreneur who was ‘crushing it’ and talked like an entrepreneur who was ‘crushing it’, investors would believe I was ‘crushing it’ and they’d want to invest”.
But that isn’t what happened. Although everyone congratulated him for how good his pitch had been, nobody was investing in his startup.
He says the answer to why nobody invested in him came one day when a “scruffy man” tried to sell him a Rolex for 60 dollars. Of course, that couldn’t be the real deal. A real Rolex is like 10 thousand dollars, not 60. But, as he was waiting for the lights to cross, Dinin had to listen to the would-be seller until he could finally excuse himself and cross the street.
Needless to say, he didn’t buy the Rolex. It was just too good to be true. And that’s when it hit him. What he was offering was a literally unbelievable deal. His startup was so promising that it couldn’t fail. And that sounded, somehow, like offering a Rolex for 60 dollars.
According to Dinin, the next day he added a new section about potential risks to his presentation, and that got investors interested. They asked him questions about those risks and how he would solve them. They began to see a business opportunity because they could see an entrepreneur who was ready to face the potential risks.
Showing the challenges that a company may face is not the same as revealing the weaknesses of a project; it’s actually about explaining why the investment round is needed. Is it to hire more staff? Or to enter new markets? Perhaps getting a patent for a product? There has to be something, otherwise, if everything is so perfect and all issues have been dealt with, what do you need an investor for?
In his article, Dinin says that he began making more honest presentations, and this helped him, among other things, to get better feedback from investors, even from those that didn’t invest in him. It also led him to improve many aspects of his value proposal, business model, networking and yes, it also gave him access to more investors, ones that not only congratulated him but that were also willing to discuss and sign investment deals.
Of course, it’s not about revealing any vulnerability when there’s no need, especially if we’re not asked. After all, we choose what to show and it’s the investor’s job to ask the right questions in order to find out whether there are any opportunities or weaknesses in the project. Honesty is actually about answering always truthfully and admitting when an issue may not yet be solved or even when you don’t know something.
I found Dinin’s article excellent, but I’d also like to add another thing, which is related to the attitude of the entrepreneur at the moment of interacting with investors and/or mentors. This is something that’s relevant for everything else in life as well: the importance of listening. Many times we investors ask entrepreneurs questions and their answer is completely unrelated to what we asked. Why? Because they aren’t listening!
And, just like Aaron Dinin learned, pitching in front of an investor can be a very educational moment. The best feedback we, the investors, can get is when an entrepreneur after they were told we weren’t going to move forward with the investment for whatever reason, tells us: “Thanks for all the input you’ve given me because it’ll help us grow. Allow me to stay in touch and we’ll keep you updated on how we overcome our barriers and unresolved issues”. And that can only happen when the entrepreneur has the ability to listen intelligently during the pitch.
The Do’s and Don’ts of a good pitch
Here are some of the things you should do and some that you shouldn’t do when presenting your pitch.
The Do’s are quite clear:
- Present the problem or the opportunity and its size.
- Explain how you plan to solve that problem or seize the opportunity, that is to say: what your project is, exactly.
- Describe in detail how it will be monetized: what is the business?
- Depending on the stage of the company, it’s good to show key metrics (KPI’s).
- Include an analysis of the competition and comparables.
- Introduce the team, but don’t waste time talking about their whole biography. Simply go over any relevant information and say how you met and got to be business partners.
- Something that is frequently absent from many pitches: state what you are looking for and why. Coherence between the sum of the investment round and the plans on how to use them is fundamental.
Now, about the Don’ts…don’t waste time on what isn’t important.
I’d compare the pitch to an Ikebana. When you see it as a whole, it’s beautiful. But upon a closer inspection, you notice that there are just four or five pretty flowers, and the rest are just fillers. However, it’s the pretty flowers that are in the spotlight.
The same thing happens when you pitch: if you have 40 minutes, you need to showcase your best flowers. It’s no use talking on and on about the problem if there isn’t any time left to say how the team of founders can solve it. All you’ll have done is give the investor a lot of information about the market, which is great for us, the investors, but that’s not really the goal.
After all, who do you think an investor will choose? Those who can accurately define the problem or opportunity? Or the team of founders that can prove they have the skills and the capacity of execution needed to seize the opportunity they’ve identified?
Marta, este artículo es un buen reflejo de la realidad de los emprendedores que no conocen los procesos de recaudar fondos, excelente articulo.
Gracias Antonio. Publicar este tipo de contenidos es una manera mas de ayudarlos a conocer dichos procesos.