It’s said that if you fail to plan, you plan to fail. When it comes to pitching a prospective investor, this can quickly prove itself painfully true.
“But I’ve got my presentation prepared, complete with slick, colorful graphics, and my speech rehearsed and memorized,” you think to yourself.
But before you walk into an investor pitch, remember this: while investors care about your idea and your presentation should be polished, it’s important to think like an investor in order to pitch one.
In short, investors want to know about you, your team, your company, and how an investment in your company will make them money.
“If you don’t have an effective pitch that people can understand quickly and easily, it’s going to be hard to continue the interest of your audience and convert them into an investor,” Sheryl Hunter of Hunter Business Law explains.
So while you prepare to field any question an investor may throw at you, think carefully and strategically through every potential question that you could stare down. Once you have your comprehensive list of questions, practice your responses until you feel confident enough to set aside a script and have a persuasive and transparent conversation.
Thankfully, you don’t have to go at it alone.
Our attorneys have extensive experience sitting on both sides of the table, representing both investors and entrepreneurs, so we’ve seen – and heard – it all. That’s why we’ve gathered 10 of the most critical, frequently asked questions posed at those tables so you can be prepared before pitching investors.
Be specific and knowledgeable about your competitors, demonstrating how well you understand the competition, both the direct and obvious, and the indirect and less apparent alternatives for prospective customers. Your job is to demonstrate that you’ve done your homework and are conscious and thoughtful about the competitive landscape you must traverse. The worst thing you can do is boldly state that you have no competitors.
Customer acquisition is gaining new customers by persuading them to purchase your company’s products and/or services. Show reasonable estimates for customer acquisition, using well-researched, thoughtful and accurate numbers and reasonable conversion rates.
Your burn rate, or negative cash flow, is the rate at which your company spends money before generating positive cash flow. Most investors prefer at least six months of runway available at all times. For example, if your expenses total $50,000 per month and revenue $10,000 per month, your burn rate is $40,000 per month. If you have $240,000 in the bank, your runway at this burn rate is 6 months (6 x 40,000 = 240,000).
A follow on to understanding who your competitors are, is how you are different – and a superior choice for your target market. Demonstrate what makes your business different with proper due diligence and competitive analysis to make a case for how you differ from others in the marketplace.
Not surprisingly, investors like to know how their money will be tangibly used: to build products, hire employees or add to the business in some other quantifiable way.
Know your intangible – often intellectual – assets, such as proprietary research, a formula for acquiring new customers, criteria used to evaluate a potential new location, and your unique approach to satisfying customers.
Your human resources are as important as your product or service, so most investors will look for a dedicated, passionate team with a big vision and a track record of success to give your business – and pitch – credibility. Organizational (“Org”) charts and short bios of the core management team and advisors should demonstrate that you have the “people” to execute on your vision.
Know the market segment you’re targeting and explain how you’ll reach it, discussing your audience’s growth potential and consumer preferences based on your research. Investors want to confirm that the total addressable market, i.e. universe of buyers for your goods or services, is significant enough to support a business that can deliver to investors a 5x – 10x on their money.
Be able to justify your valuation based upon traction, momentum, and what has been accomplished thus far, including financial metrics in order to come to a valuation that works for both parties.
You must be able to explain how the investor will make money. Again, an investor may be impressed by your engaging pitch and dazzling deck but ultimately, it all comes down to the dollars and cents. The challenge is to strike an appropriate balance between realistic projections on revenue growth and profitability, and demonstrating the homerun possibility.
Determining when and how much money your business needs to grow is an important milestone in your journey as an entrepreneur. At Hunter Business Law, our attorneys have decades of experience helping start-up and high-growth business enterprises meet their short and long-term capital needs.
We’re proud to partner with our clients every step of the way as they continue to drive innovation, deliver game-changing products or technology and move the Florida entrepreneurial ecosystem forward. For more information about our services, contact us here.
DISCLAIMER: This blog is for educational purposes only and does not offer nor substitute legal advice. Additionally, this blog does not establish an attorney-client relationship and is not for advertising or solicitation purposes. Any of the content contained herein shall not be used to make any decision without first consulting an attorney. The hiring of an attorney is an important decision not to be based on advertisements or blogs. Hunter Business Law expressly disclaims any and all liability in regard to any actions, or lack thereof, based on any contents of this blog.