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Getting a business idea is nowhere as difficult as getting the resources to execute it. There''re many ways to build a company, but in today's world, getting funding from investors is among the most common ones. Learn how the startup pitching world works.
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It’s a wonderful feeling once you’ve put together a solid, engaging business idea. You can’t get enough of developing and refining it, and you look forward to the day you can see your business in action. But there’s a big hurdle to get over before you can start really enjoying the return on your idea.
In many ways, putting together the idea is the fun part. The potential of a great idea is often the very thing that holds us back from going further with it because we don’t want to see it fail. However, once you do make the leap and decide to take it further, the reality of putting together a business begins to kick in. For the first time, we begin to see just how much we need investment and experience.
But how does one navigate the tricky world of enlisting investors? It is one of the most difficult parts of our early business process - it is partly a test of the soundness of our idea but also a personal test to ensure we know where we are going.
One of the best ways of understanding how to pitch to investors is to look, not to those who have succeeded in bringing in investors, but to those who have tried and failed. Those who have pitched incorrectly have had the opportunity to look back and see where they went wrong. Often, hindsight is a greater teacher than success.
Here are a few ways you can end up losing interest from a potential investor.
It’s very tempting to get so caught up in your idea that you ignore the bigger picture. Entrepreneurs who don’t research their market are not really looking to start a business - they are looking for someone else to start it for them. There’s nothing more sure to irritate a potential investor.
A very important part of putting together a business is checking out demand. You may have an innovative idea, but what if the market is not yet ready for it? How many people are actually going to buy your product or service? You may even have missed the boat, and your potential competitors might have already monopolized your customer base before you even get started.
Understanding your market can be one of the hardest things to deal with. In researching, we may end with the sad realization that our idea is just not profitable. It’s for this reason that many innovators try to avoid research. But it is surely better to be informed yourself before you get to the pitch stage - if your idea isn’t market-ready it can always be refined.
If you have discovered, in researching your market, that your business may well actually have some potential, it is important to start looking for investors who will actually benefit your company. For first-time entrepreneurs, navigating the trick field of investment can be daunting, so in an effort to get it out of the way, we may look for any kind face with cash to spend.
But if you don’t spend time actually looking for investors with expertise, there is a good chance you'll be spending a lot of your time pitching without result. Nobody really wants to invest in industries about which they know nothing, and good investors avoid risk if they can. For the investor, you might be wasting their money at worst or their time at best.
In addition, investors are often a tight-knight group, so whilst you may have pitched to one wrong investor, there is the possibility that your lack of research will get around, raising warning flags to those whose expertise you could actually benefit from.
Even worse than that, not all investors make wise decisions. If you do manage to secure investment from someone whose expertise is not in your field, they may end up guiding your startup towards catastrophe.
When you’ve identified appropriate potential investors, it is natural to want to show how well you know the market. You want to wow them with your in-depth knowledge so you chart out facts and figures showing how your business can compete. But if you’ve done your research on them correctly, you should know that they know the market too, and just showing off may well have them yawning.
They’ll want to know that your business is easily marketable. In many ways, you should try to treat your targeted investor your first customer. A product or service that isn’t eye-catching is unlikely to sell in the real world, and there’s no reason it will sell in the boardroom either.
In effect, the pitch is your first foray into marketing the business. Listing off the market attributes lacks in content and makes your business seem week. Investors like to leave a room excited about a pitch, something they’ll remember.
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One of the biggest turn-offs for an investor is the sense that a pitch has been dishonest. Any kind of dishonesty is a big red flag in the business world, including exaggeration, improvising strategy or just outright lying about numbers. Unfortunately, many first-time entrepreneurs fall victim to self-aggrandizing, whether intentionally or not.
This means that experienced investors have a good eye for when someone isn’t necessarily telling the whole story. They may quiz you further on assets of the business that you haven’t made clear. It can be very embarrassing if they spot a gap in the story, and will ultimately destroy any credibility to your business, even if it is viable. At this point, you yourself have become detrimental to your idea.
If you do manage to make it past the pitch stage and your investor decides to give it a shot, you are in for some further embarrassment down the line. Wherever you have misled the investor, there is the overwhelming possibility that it will return back on you. This will not only damage your business but potentially end your time as an entrepreneur. As we’ve seen earlier, investors are a tight-knit group, and if you get a reputation for lying and misrepresentation, you will find fewer and fewer investors who will want to work with you.
So we’ve taken a look at what not to do when making your pitch to investors, but what are the tried and tested methods to maintain their interest? Well-crafted, powerful pitches are something of an art form, a delicate balance of engagement and education.
Engaging investors is somewhat like storytelling, but it is also important to remember that beyond all the showmanship they are looking for something can engage with professionally. Essentially you are educating them about yourself and your motivations. They are looking for an opportunity that only you can provide - to put something robust out into the world.
That isn’t to say you should neglect any opportunity to show off your other talents. A business should be rounded, with both insightful acumen and the ability to draw people in imaginatively. Where appropriate, you should seek to paint a picture of the industry with your business in it, how it will interact and grow.
As with any storytelling, you should start with the state of how things are at present. Before heading into the pitch, you should compile everything you know about your business and industry. Seek to gain insight into your current state of finances, and realistically project how the business may move without investment.
Though you may be an ‘ideas person’ you should take your preparation for the pitch as an opportunity to get really tight with the numbers. For anyone investing in your start-up, numbers are the most important factor.
You should paint an honest, realistic picture of how your business works. This includes the size of the company, royalties that will need to be paid, and any other costs that are factored in to make the business work. Only by providing these details will an investor feel comfortable enough to listen to the rest of your pitch. If there’s anything they are unsure about, it may end up clouding the rest of your pitch, regardless of how well you present it.
The numbers grab the attention of a potential investor, but they also need to see that you are adaptable. The middle section of your pitch should always showcase the creative side of your business. Even the most experienced of investors need to see a little flare to draw them in.
People are drawn towards entertainment, and whilst you should avoid going overboard with it, a little tasteful humor or showmanship will keep them interested in you as a business leader. Remember you are telling them a story, and a good story, even one as seemingly trivial as how you came up with the idea in the first place can engage an investor on an imaginative level.
Finding ways to be creative in your pitch shows your potential investor that you yourself engage with it on an emotional level. It shows a level of care and passion about your idea that may not be apparent through number alone.
Ultimately, a pitch is your opportunity to show an investor how desperate you are to get your product or service out into the public. By showing how well you’ve thought out the business strategy and your reasons why you are the person to deliver it, you’ve got them engaged in the early process. But a business is fundamentally built on its clients and customers.
“Marketing can take a lot of time and money, and you if you haven’t thought about how it will be presented to the public beforehand, you may be in for a nasty shock when the marketing bills come back,” says Naomi Reynolds. “This is something investors would like to avoid, so show them that you have at least some idea of how you intend to reach your customers. “
A good way to start is to present the bare bones of a marketing strategy. These are a company logo, a mission statement, and your core values. If an investor understands these, you have given them a good insight into how your business can develop.
One of the most exciting and rewarding parts of a pitch meeting is when you get to the all-hallowed ‘yes’. All the hard work you’ve put into the business, your research and your presentation have finally paid off, and now, seemingly, you can sit back and let the investment do its work. But this is a delusional state of mind because now you are actually answerable to someone.
Your investor is sold on the idea, the numbers and your ability to present them well. Now you need to offer them the assurance that you aren’t going to rest on your laurels, but actually, accelerate the process. In addition, you need to make sure that the numbers add up to a mutually beneficial agreement. Your pitch, in short, has not ended.
Once again, you will need to employ your creative skills to create a picture of how things are going to go. Your investor is keen to see that you want to make full use of their backing and will want to see how far they need to engage with the business as it develops.
It’s your opportunity to cement their faith in your idea, to visualize themselves as investors in a successful growing business. Remember that it’s not all going to be smooth sailing from here - every story should have conflict. Identify the potential pitfalls or issues you will face as the company head, and how you will overcome them.
Every business is built on vision and values, and your investor wants to see that theirs are in concordance with yours. Your business’s story should be uplifting, as well as realistic. Show that your investor has your gratitude - they are, after all, your wise benefactor!
On a more practical note, the investor will want to see a well thought out map of how things will progress. Before you’ve even entered the room, you should have planned for the best case scenario. This means looking long term.
Think carefully about what is achievable in each time frame. Specific and realistic milestones ensure that you maintain forward motion. Set goals that they can easily measure your growth on, whether it’s a development goal, a process you want in place or a particular financial target you want to set.
In mapping out your milestones, you’ve set out a plan for them as well as for you, making sure they don’t feel the need to micro-manage you.
A big part of the negotiation process is ensuring that all the legal stuff is clear, comprehensive and signed off. Without the appropriate paperwork, you may wind up skewing all the figures and projections you’ve so carefully prepared. Anything from copyright infringement, unexpected legal fees or unforeseen production costs can eat into your profits and leave your investor feeling let down.
First of all, even before you go into the meeting, you should have a clear understanding of the patent rights to your business or product. Make a comprehensive search of similar patented inventions or services, and make careful notes on where you may have a confluence of attributes. If there are, seek to find out if these attributes are held in the patent, and adjust accordingly. Be clear with the investor if there are issues that may need to be addressed and heed their advice if they think you may end up infringing any rights.
“As you negotiate the deal, think carefully about what points of the contract you are happy to concede and what points you want to remain firm on, says Trevor Nichols, a regular contributor to Researchpapersuk and Last Minute Writing. “For instance, if you are desperate for the investment now, be aware that the more money invested, the larger the cut they are going to want back. There’s no harm in taking your time over this - only sign off on the up-front payment only if you are certain it’s not going to harm your own investments in the long term.”
There is much written about business negotiation tactics - all kinds of psychology and grand-standing to get exactly what you want. It is certainly important that you come out of your negotiation satisfied with what you have been offered. But it’s important to remember that you are going to be starting a business relationship with the investor, and if there is no spirit of compromise at this early stage, it is going to make the relationship more difficult further down the line.
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