August 8, 2012
The following answers are provided by The Young Entrepreneur Council (YEC), an invite-only nonprofit organization comprised of the world’s most promising young entrepreneurs. The YEC recently published #FixYoungAmerica: How to Rebuild Our Economy and Put Young Americans Back to Work (for Good), a book of 30+ proven solutions to help end youth unemployment.
Tech Cocktail asked for their top advice on how to pitch an investor. Their answers are below.
1. Share Your Big Vision, Not a Product Tour
2. Find the True Believers
Investors will mostly say no. And contrary to what many entrepreneurs may think, it’s not your job to convince them why they’re wrong but, instead, to find investors that think you’re right. I’ve found that’s the hardest part, really – spending time speaking with investors who aren’t convinced can be a huge waste when, at the end of the day, they aren’t likely to invest in something they’re not sure of to begin with. That’s their job. Not heeding this has been my biggest mistake so far in fundraising and pitching – and eaten up time I could have been searching for true believers and advocates instead.
3. Win the Battle at the Beginning
When pitching to an investor, you’ve got to win the battle ahead of time. I think doing PR and branding work for your company in advance is important. Make sure that when someone Googles you, they see great results. Make sure you’ve built a relationship with one of the partners at the firm. The deal should already be close to being done before you pitch; the “partner meeting” is suppose to be a formality that allows the other partners to feel good about the deal and ask their questions.
If you are talking to an individual investor, make sure you have milestones that align with your financial projections. Anytime I’ve been able to inform an investor exactly how we plan to produce the projected revenue concisely – and, clearly we’ve gotten the deal done.
4. Know What an Investor Fears
The biggest thing an investor fears isn’t what you think it is. Investing in something that fails isn’t an investor’s biggest concern. The thing an investor truly fears most is missing out on something big. The surest way to land an investor is to convince her that your project is a big opportunity not to be missed out on. The best proof of your opportunity is social proof, specifically by having other respected investors on board. Once you find one eager investor, the rest are easy.
5. Be Cocky to Seal the Deal
My team and I are super nice people. We originally walked into investor meetings with a huge smile on our faces and a perfectly practiced pitch. Unfortunately, we found out that nice guys finish last. It wasn’t until we changed our approach that we finally closed our million-dollar round.
Instead of being friendly and nice, we acted cocky and brash, as if the investor was lucky to be meeting with us. Of course, we were still very respectful, but we stayed away from thanking them for the meeting or sounding too eager for their money. We successfully closed investor pitches when we mentally decided that we are the prize and that the investor needs to impress us in order to take the money.
6. Communicate Your Milestones to Build Confidence
Potential investors want to know where their money is going and what their investment will help you to accomplish. Perhaps most importantly, they want some assurance that you will wisely use their money to hit milestones that will, in the future, allow you to raise additional money.
Instill your would-be investors with confidence by clearly connecting the dots between their investment and your business goals. Create a compelling narrative that shows that you will be able to accomplish X, Y, and Z with their money – which will most certainly guarantee future investments.
7. Do All Your Homework
The golden rule for meeting with investors is doing your homework. There are two things you absolutely need to know: which industries they invest in and what prior investments they’ve made. This is really the bare minimum; it’s also nice to know a bit about their personal and professional background: where they went to school, what they’ve been posting about on their blog, and what outside interests they have.
These things will help target the conversation and demonstrate that you’re a professional and have done your research. You need to show these people that you’re a capable and reliable recipient of their money, and solid preparation will help you jump out of the starting gate in good style.
8. Do NOT Talk Valuation
Talking valuation during a pitch is shortsighted for an early-stage investor pitch, and just one of many components that will be discussed at a later stage of the investor discussion. Instead, focus on the team and the technology (you should actually show it to them). Clearly explain the stages of your startup and the reasons why you are requesting a certain dollar figure. Keep the dollar figure on target to a run-rate to achieve your goals through that stage.
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