No, it’s not really the format, the pictures, or the design … although those help. Ugly, confused, or disjointed is never an advantage. But what makes a successful pitch in a pitch presentation to investors is not the cosmetics; it’s the content.
Question: Is there one unique piece I’d seen in a successful pitch that made angel investors immediately interested in a startup? No, not really. No one unique thing comes to mind. But here are five things that I’ve seen that make for a successful pitch. Important, but not unique.
A line chart showing very fast — geometric, viral, hockey-stick — growth in subscriptions to a SaaS or website product.
A strong expression of commitment from a powerful distributor, with guaranteed minimum sales.
Substantial non-dilutive funding from a government agency funding research and development.
Strong evidence (patent along with real-world validation by some credible sources) of innovative technology that makes disruption of a big market a reasonable hope, and will offer barriers to entry.
An unusually strong group of co-founders with known successes already and a good match of skills to what’s needed.
I was asked recently for a list of things that annoy me in angel investment pitches from startups. I’ve done this before, so there will be some duplication here. But here is my top 10 pitch fails list.
Profits. Talk of profits, overestimated profits, the failure to understand that investors make money on growth, not profits; startups with high growth rates are rarely profitable; profits in high-growth startups stunt growth and reduce the odds of successful exit. That’s why you need to spend other people’s money, right?
“I don’t need no stinking projections.” Surprises me how often I’ve seen it. “We all know,” the pitcher says in a cynical tone, “that all those projections are useless.” And dismisses the idea, often with a wave of the hand. Or sometimes it’s a holier-than-thou tone. But no. I need you to think though unit costs, realistic volume, the conceptual links between marketing spend and volume, what it takes to fund growth. I want to know that you know, roughly, that you’re growth will take a ton of marketing spend, and that when you get to $20 million annual sales you are going to have a big payroll and overhead.
Expecting me to believe your numbers. You’re damn right I want to see them, but don’t expect me to believe them. I use them to guess how well you know the nuts and bolts of your business. But at the moment of truth, I’m going to trust my instinct for what I think you can sell, and how much I think you can grow, given the stories you’ve told me and the markets you’ve carved out.
Discounted cash flow. IRR and NPV. Amazing how people can believe numbers that project the future based on a compounded absurdity of assumed sales, less assumed spending, multiplied by an assumed discount rate, five years from now. And yet, I see young people crushed because I wanted something that had a lower IRR than their thing. Y’see, I didn’t believe the IRR either way. I went with the people and the market. This is actually a particularly annoying subset of the point above it.
The annoying myth that nobody reads business plans. Big mistake: confusing the obsolescence of the big pompous formal use-once-and-throw-away business plan of the past with not wanting or needing planning. Ask the two faces of lean startups, Eric Ries and Steve Blank, whether startups need to set strategy, tactics, milestones, metrics, and essential projections for revenue, spending, and cash, and they’ll say the equivalent of “yes of course.” But they are (mis)quoted often as saying don’t do a business plan. What they mean – ask them – is don’t do an old fashioned business plan. Keep it lean, revise it often, and manage with it.
Knowing everything. Sometimes people think investors want founders who know everything, answer each question no matter what, and are the world’s leading expert on any possible subject to come up. No. I want people who know what they don’t know, and aren’t afraid to be not certain.
I don’t want people who get all defensive when challenged. The win is in the relationship, long term. I can’t tell you how many times I’ve seen private discussions between investors, after a pitch, go negative for somebody who investors feel “isn’t teachable.” It’s easier to work with people who listen, digest, than with people who think every doubt is a challenge to their leadership and authority.
The small piece of a huge market. No, please, don’t ever tell me that your $10 million sales figure is realistic because it’s only one percent of a $10 billion-dollar market. Or 1/10th percent of a $10 billion market. That logic never works. Build your forecast from the units up, not from the top down.
Oversharing the science or technology. I want to hear about the business, not the physics, not the biology, not the chemistry. Pitches and plans are not the right place to show off all of your knowledge.
Not needing the money. If you don’t need the money then don’t seek investment. Own it yourself. Never seek outsider money you don’t really need. People who can live off of their generated cash flow are never going to exit
(bonus point) Stock words and phrases like “game changer” and “disruptive.” Don’t tell us that you are either that. Cross your fingers, and hope we tell you that you could be.
Question: What are the normal steps for angel investment? What’s involved in submitting a business plan?
I decided to answer this question here because I see it so often in email and in question and answer sites on the web, especially Quora, which is where I first saw it and answered it.
Yes you do need a business plan
In the U.S. market the business plan generally stays in the background while investors look at summaries first, then pitches, and only eventually, after a lot of screening, if they are interested enough to do the detailed study called due diligence, then the business plan.
You want a bare-bones lean business plan to guide your summary and pitch deck. You need to know strategy, tactics, milestones, and essential projections. But investors screen startups based on summaries and pitches before they look at full business plans.
If and only if the summary is interesting, then the pitch. There is a lot more information on the business pitch here on bplans. And for more of my posts, on this blog, choose the business pitch category.
If and only if the pitch is interesting, investors will want to see a full business plan for due diligence.
However, this applies as general norm only, and in the U.S. market only. Generalizations are never always true. There are always exceptions.
This is a true story. I was there. The details are possibly not exact, and the quotes are paraphrased, but the essentials are true. A startup founder was pitching to 22 local investors. The group had asked him to pitch because we liked his summary materials. He was local to us and had an interesting product. But he got screwed.
This is what happened
Two minutes into the pitch, he said he had been screwed by a partner in a previous venture.
Ten minutes into the pitch, he said that he had been screwed by attorneys in a previous business deal.
Fifteen minutes into the pitch, he said he’d been screwed by an employee he had to fire.
Normally, after every pitch, after the founder has left and we’re alone, the group takes time to discuss what we saw and heard. In this case, the room was quiet for a few seconds. Then one of us said:
“One thing we know for sure … if we invest in that guy, he’ll be blaming us for it later.”
He didn’t get the investment from us. Do you know why not?
This is what reminded me
This morning I saw this question in Quora, the world’s best question and answer site.
I listen to a lot of business pitches and way too many of them try to make something out of the entrepreneur’s attitude. Commitment is great, but who isn’t committed? Passion is great but who isn’t passionate about their business. Saying that adds nothing. It’s assumed. So too, with optimism. Business pitch optimism is vastly overrated.
Business pitch optimism
This comes up because I heard this the other day:
I love your optimism. What I don’t like is the complete lack of experience that’s causing it.
Ideally, a business pitch is exciting because the business potential is exciting. Optimism ought to be a combination of potential market, product-market fit, scalability, defensibility, and management experience. Better yet, early sales, initial growth rates, proof of concept in buyers or users or subscribers or signups or something equally concrete.
Don’t talk about it. It’s assumed.
Frankly, in a business pitch, I mistrust shows of undue optimism, passion, commitment and resolve. I worry that early-stage entrepreneurs are working towards some mythological promise that they have the will to succeed, as if will alone can make a business successful. I don’t want to invest in passion unless it’s tempered by experience and based on a solid business plan.
You’ll find people talking about showmanship in business pitches. Absolutely. Tell your story well. Tell the story of the market, the need, the solution, the steps along the way, and the team that’s driving it. But it’s about your business, and you fit in as the manager who will drive it. Angel investors will frequently talk about betting on the jockey, not the horse. In that case, it’s betting on the jockey’s skill and experience, not just optimism or passion.
It’s a fine line. Sell your angel investors your business, not your optimism. Not your passion. Not your commitment.
I gather from a stream of emails I’ve received that there are a lot of misconceptions on the relationship between a business plan and getting seed money and/or angel investment. So here’s a list of reality checks to apply to all those lists.
Business plans are necessary but not sufficient. Even a great business plan won’t get any investment for any startup. Investors invest in the team, the market, the product-market fit, the differentiators, and so forth. And they evaluate the risk-return relationship based on progress made, traction achieved, and market validations. The plan gets information the investors need; it doesn’t sell anything. One of the most serious misconceptions is the idea that the quality of the writing and presentation of a business plan is going to influence its ability to land investment. Sure, if you consider the extremes, a poorly written plan is evidence of sloppy work. If it’s hard to find the important information, that’s a problem. But barring extremely bad plans, what ends up being good or bad is the content – the market, product, team, differentiators, technology, progress made, milestones met, and so forth – not the document.
All businesses should be using business planning regularly. They should have a plan to set strategy and tactics, milestones, metrics, and responsibilities, and to project and manage essential numbers including sales, spending, and cash; and they should keep that plan alive with regular (at least monthly) review and revisions. Business plans are for business planning, and management; not just for investors.
Nobody has ever invested in a business plan, unless you count what they pay business plan writers and consultants. People invest in the business, not the plan. Just like people buy the airplane or car, not the specifications sheet. The plan is a collection of messages about past, present, and future of the business. It’s past facts and future commitments. People invest in milestones met.
The normal process goes from idea, to gathering a team, doing a plan, and executing on the early steps to develop prototype, wireframes, designs, and ideally traction and market validation. And the plan is constantly rewritten as progress is made.
Investors come in only after a lot of initial work is already done.
The startup process does not – repeat, NOT – go from idea to plan to funding and only then, execution. You don’t go for funding with just a plan. That’s way too early.
Investors do read business plans. Regarding the myth that investors don’t read business plans, I’m in a regional group of angel investors, we’ve had maybe 80 people as members during the eight years since it started, and the vast majority of us would never even consider investing in a company without seeing the business plan.
But investors don’t read all the business plans they get; and they often reject deals without reading the plan. To reconcile this point with the previous, note that investors read the plans during due diligence, as a way to dive into the details of a startup they are interested in. They don’t read them as a screening mechanism. So a lot of startup founders who don’t get investment are telling the truth when they say investors didn’t read their plan. Investors rejected them based on summary information or pitch.
On that same point, the process with angel investment today starts with an introduction or submission through proper channels (gust.com, angellist.co, incubators, 500 startups, and so forth). Investors screen deals based on summary information in the profile or a summary memo. The deals that get through that filter will be invited to do a pitch in person. Those that still look interesting, after the pitch, will go into due diligence, with is a lot of further study of the business, customers, market, legal documentation, and the business plan.
Business plans are never good for more than a few weeks. They need constant revision. Things are always changing. People don’t expect the big full formal plan document anymore, not even investors. Keep a plan lean, review it often, revise it as necessary, and use it to run your business. Use it to steer the business and keep making course corrections. That’s what a plan is supposed to be these days.
So in my last three posts, I’ve written about a simple one-minute business description that every business owner should know, which I’m calling “the elevator speech” because that’s what they call it in a formal way for grad-level business plan competitions. I say every business owner should be able to do a simple elevator speech. Can you describe your business in 60 seconds? I suggested in previous posts that you start with your essential market story, then add why you are right for doing what you do, and then, what the customers get as benefits.
In the real world, you know your so-called elevator speech and you use it when appropriate. Every time you do it, you and it get better. I’d recommend taking time out and working on it, but you probably won’t; you’re too busy. Think about it in the shower. Think about it when you’re stuck in traffic, or waiting in line. Rehearse it in your head.
After you’ve gotten through those first three parts, then you close. If it’s as simple as describing your business to somebody sitting next to you in an airplane, or somebody in line at a conference, you’re done. If there is a specific business purpose, like generating a lead to follow up, then you close by asking for the sale. The sale might be a business card, a phone number, or maybe just “so please, drop by when you can.” Maybe it’s you offering your business card. If it’s an investment situation, like the classic elevator speech idea from the business plan contests, then what you want is a follow-up meeting. Ask for it.
That said, I’d like to focus in this post on elevator speeches as delivered by MBA students in venture competitions. I’ve seen a bunch of these, probably more than 100, but who’s counting. They’re fun to watch, and I’d think fun to compete in. But some students take them as torture.
The last one I watched had 20 competitors and a large clock, about six feet high, ticking off 60 seconds. Each 60 second speech ended with a very loud buzzer. No going overtime with that buzzer there.
Of the 20 competitors, three failed to get all the way through. They choked up, got caught on some phrase, panicked, and crashed. They stepped off the small podium with half the clock’s minute, and most of their memorized speech, left.
The moral: please don’t memorize your elevator speech. Not ever. It just doesn’t work. It’s at least 10 and maybe 100 times harder than knowing it thoroughly and rehearsing it well without ever trying to get the exact same words twice. You need to make points, not memorize a speech. Know your points, and their order.
You’re supposed to know your business and enjoy a minute to talk about it. Real businesses do.
Interesting moment: after the embarrassing failures in that last contest I watched, the moderator got up and asked if anybody else would like to try. His point was empathy, wow, it’s hard to make an elevator speech. But he didn’t make his point very well: there wasn’t a non-contestant entrepreneur in the room who wouldn’t have loved to have 60 seconds at the microphone with that audience. If you don’t like to talk about your business, find another business.
But you’re in a contest, you know this is coming, so practice. Use your computer and record, over and over, and listen.
Don’t rush. Believe it or not, 60 seconds is plenty of time to describe that person with a situation, your unique abilities to come to the rescue, what your solution is, and what you want from your listener. Pause in between each of the four main points, breathe, and emphasize. Look at your listener.
You do have to make eye contact, but you don’t necessarily smile. Describing somebody with a problem isn’t always the right time to smile. If you start with some humor, then smile with that. Sincerity and conviction is a lot more important in an elevator speech than good looks and a smile and a twinkle in the eye. Trust your judgment.
If you dread it, relax, you’re young, it’s not just you; but take a deep breath, slow down, and enjoy it.
So you’re rounding the corner now on the elevator speech, which I say is something all business owners should be able to do. You’ve done the market story, which was part 1, and the why you, part 2. You’re about 30 seconds or so into your one minute talk. And I hope you agree that this isn’t just a formal one-minute talk as part of a grad-level business plan competition. This is something you want to do as part of your business ownership. This is about what you say whenever somebody asks you about your business.
What do you offer
So now, as the third of four parts, explain what that person you’re selling to gets. Or the organization. You’ve personalized the need or want, identified your unique qualities to solve the problem, and now you have to put the need or want in concrete terms that anybody can see. This is where you highlight the benefits to your customer. For example:
So our clients have the peace of mind of knowing that their social media persona are well management, strategic, and professional, without having to hire a full-time employee. They know they will look good when somebody searches for them.
Our customers get help with the part of the task that can be automated, without having to pretend that it doesn’t take human thought, and some effort to think it through an organize. They get a unique plan without having to do all the drudge work.
The customers get the benefit of a professional email system that allows sharing the email task among several people, managing common responses, assigning responsibilities, and tracking responses and response time.
So people love the whole dining experience. It’s great food, in a great environment, served well, and at the same time healthy, organic, and local.
Focus on benefits
In each example here, following on the ones in my previous two posts, we should be able to see clearly how this meets the need or solves the problem. Forget features as much as possible, and illustrate benefits. You’ve already described the person with the situation, and built up your being able to solve it, so now it’s just about the solution. Stay focused and concentrated. People will get one or at the most two unique attributes of your business offering. Don’t confuse them with more.
In my post yesterday Elevator Speech Part 1: the Market Story I suggested that all business owners should be able to describe their businesses well in a single measured minute. The formal elevator speech is a reference to grad-level business plan contests, but I say it’s a good exercise for all business owners. What do you say when the person sitting next to you asks about your business? What do you say at a conference, or a local event, when your business comes up?
So the first part of it tells the market story. I recommended personalizing your target by giving it a name, a personality, and a readily identifiable want or need. In the next part of your elevator speech, you address the ‘why you’ question. Why your business? What’s special about you that makes your offering or solution interesting to your target market?
This is where you bring in your background, your core competence, your track record, your management team, or whatever. For example:
We live and breath small business and social media. We know what it takes to get noticed in social media. And we know how it feels to run a small business.
We’ve been the leader in our space for more than 10 years. We have a team of dedicated developers who believe in what we do.
We’ve been dealing with this problem ourselves for years. We developed our own in-house solution because we couldn’t find any vendor who did it right.
Our founder, Chef Soandso, has dedicated herself to this kind of cooking for her whole career.
What we focus on here, in this second segment of the elevator speech, is core competence and differentiation. And, in the classic elevator speech, you have to say it fast. You make your point quickly and go on.
Make sure your point is the right point: benefits to the target customer. It’s not what’s great about you, but rather, what about you lends credibility to your ability to meet the need and solve the problem.
You might also think of this as the classic “what do you bring to the party?” question. It’s not just your brilliance or good looks or great track record, it’s fostering credibility for solving the problem.
Its members grab the phone and call. “I need more casual stuff for the golf course, or cargo pants for hiking, or two more slack and sports coat combinations.”
Can you describe your business in 60 seconds? In grad-level venture contests, and in startup groups and the startup eco-system, they call it “the elevator speech.” It’s a formal event in many business plan competitions, but aside from that specialty use, do you agree with me that every business owner should be able to do it? What do you say when the person sitting next to you asks about your business? What do you say at a conference, or a local event, when your business comes up.
I was at a grad-level business plan competition, not long ago, watching the elevator speeches. Each startup got one minute – measured by a big ticking clock – to describe the business. The moderator challenged the crowd, trying to point out how hard it is to give that speech, “would you like to do it?” And I thought, silently, “I’d love to.” Give me a crowd and a microphone and I’m delighted to speak, even if limited to just one minute. I’ve been ready to do that elevator speech every day for the last 20 years.
If you’re a business owner, and you can’t describe your business in 60 seconds, you have a problem. Your strategy isn’t clear enough. I don’t think its academic. I think it’s important. I think it’s a great exercise that everybody in business should be able to do. Let’s get simple, let’s get focused, let’s get powerful.
I’ve been writing lately about simple business strategy. What better way to condense it than in a quick elevator speech. If you can’t do it, worry.
Start your elevator speech with a person (or business, or organization) in a situation. Personalize. Identify clearly. For example:
John Jones doesn’t particularly care about clothes but he knows he has to look good. He sees clients every day in the office, and he lives in a ritzy suburb, where he often sees clients by accident on weekends. But he hates to shop for clothes.
Jane Smith wants to do her own business plan. She knows her business and what she wants to do, but wants help organizing the plan and getting the right pieces together. The plan needs to look professional because she’s promised to show it to her bank as part of the merchant account process.
Paul and Milena live in a beautiful apartment in Manhattan, with their two kids. Paul has a great job in Soho, Milena works from home, and neither has time for food shopping.
Acme Consulting has five people managing several shared email addresses: [email protected], [email protected], and [email protected]. The five of them have trouble not stepping on each other. Sometimes a single email gets answered three or four times, with different answers. Sometimes an email goes unanswered for days, because everybody thinks somebody else answered it.
Notice that in each of these examples I could be much more general. The first targets mainly men who don’t like to shop but need to dress well, and have enough money to pay for the service. The second is for the do-it-yourselfer who wants good business planning. The third is simply fresh food delivery in the city. The fourth is for companies managing shared email addresses like [email protected] or [email protected] But instead of generally describing a market, I’ve made it personal.
Sometimes you can get away with generalizing. “Farmers in the Willamette Valley,” for example, or “parents of gifted children.” It’s an easy way to slide into describing a market. However, I suspect that you’re almost always better off starting with a more readily imaginable single person, and let that person stand for your target market.
What you do, in this part, is establish a defining market story. It’s also called the problem in the set of problem and solution. And it’s a core element of strategy. And it’s a good place to start your elevator speech.