8 steps to delivering the perfect pitch for investment
How to knock the socks of potential investors when selling your business
It’s that eyeball to eyeball moment. You’ve sweated over your business plan, burned significant quantities of midnight oil perfecting a presentation and now the big day has arrived – you’re facing a potential investor across a table for the first time.
It might be a business angel, a venture capital trust or even an institutional fund ahead of a planned flotation on AIM. The common factor is, that you have a limited amount of time, to convince one or more quizzical individuals that your company merits investment. If the pitch goes well, you could be at the start of a process that will ultimately secure the cash you need to grow and transform your business. If it goes badly, you are back to square one.
These can be tense occasions and having your company put under a microscope can be an uncomfortable experience. Robert Donaldson, a corporate finance adviser at accountancy firm Baker Tilly, regularly accompanies clients to the investment pitch meeting. He recalls one occasion when a disagreement over the figures resulted in an angry exchange of views, “there may be a place in these meetings for a debate about figures,” he says, “but a blazing row is not appropriate.”
However, a more likely scenario is that the meeting will go well, there will be smiles and handshakes all round and the investor will ultimately tell you ‘thanks but no thanks’. And if you’re not careful, you can waste months – or even years – knocking fruitlessly on doors. Bernard Hallewell, managing director of the National Business Angels Network cites one entrepreneur who delivered 140 pitches before finally securing funding.
“That is just a waste of time,” he says and few would argue with that sentiment.
Chasing additional finance for your company is bound to divert your attention from the day-to-day issues that arise in your business. So, what is the secret of pitching successfully?
1 Know your audience
“You can waste a lot of time and get very demoralised talking to the wrong people,” says Nick Ray, CEO of Trustcorps, an anti-hacker software company that has successfully completed two rounds of funding.
The truth is that pitching to every potential investor that will let you across the threshold is not a good way to spend your time. For instance a VC specialising in technology and healthcare is unlikely to back a retail coffee chain. Similarly, if you’re looking for early development capital, identify backers who are prepared to invest at that stage rather than those who focus on late development capital or buy-outs. Ray says his firm started with a list of 100 VCs and narrowed it down to a handful through research.
As Claire Madden, director of the Hotbed Venture Capital Trust puts it: “You have to know your audience.” Information on investors is available through organisations such as the British Venture Capital Association, the National Business Angels Network and local Business Links.
2 Seek help
It’s perfectly possible to go through the funding process on your own, many companies buy the services of a corporate financier. These guys don’t come cheap, but a third party expert on the books can make the process of securing finance on favourable terms considerably easier.
Any adviser worth his (or her) sausages will help your company address the investment readiness issues that could make or break a deal, while also providing guidance when you come to write the business plan and prepare the pitch. They will introduce you to investors most likely to back your company who you may not have thought of, or may never get access to if you had tried alone.
Many VCs will look favourably at companies who seek professional advice before going on the cash trail. “Having a route in through a corporate adviser or a non-exec director helps,” says Raymond Abbott of Edinburgh based VC Albany Ventures. “Most VCs tend not to invest in businesses unless they are recommended by a trusted third party.”
3 Prepare your pitch
Most investors will expect to see a business plan before agreeing to see you, but you will also need to put together a presentation for the meeting itself.
According to David Thorpe, chairman of Isis EquityPartners, there are six key areas to cover: the market size, growth potential; opportunities; your company’s position in that market (including information about competitors); your company’s revenue streams; the history and qualities of the management team; the growth plan; and your company’s attitude to working in partnership with the funder.
While the product or service that is core to your offering is important, remember that the VC will want to know exactly how you bring it to market.
“If you don’t have a good strategic plan, forget it,” says David Cheesman, general partner at Advent Capital, a VC specialising in early stage technology companies. “If you aren’t clear about how to get the product to market, how will you succeed? An adviser will help you hone the finer points of the text but the real test will be in the delivery. Even if you are accustomed to publicly extolling the merits of your company it is worth rehearsing the pitch in the comfort of your offices to iron out any flaws and identify weaknesses.
“We rehearsed with an adviser present,” says Nick Wray, CEO of Trustcorps, an anti-hacker software company that has successfully completed two funding rounds. “The adviser then threw in some awkward questions to test our ability to answer.”
If you don’t have an adviser, try and find an independent third party to act as a sounding board. For instance, Mike Norman, CEO of internet load testing company Scapa Technologies, pitched to VCTs without the assistance of a corporate finance expert but he did seek help when it came to focusing on the presentation. “I worked with our chairman and a PR company to ensure that the messages I wanted to get across were coming through,” he says.
4 The tools of the trade
For better or worse, Powerpoint presentations tend to be the order of the day, but there are pitfalls that you should be aware of. A common mistake is cramming too much information onto the screen.”You shouldn’t use more than three bullet points per slide,” says Bernard Hallewell of NBAN.
And remember also that technology fails.If you’re using Powerpoint slides take along paper versions in case your laptop screen goes embarrassingly dead. Your technology worries will probably be considerably lessened if you make the presentation at your own offices and there are other advantages to playing at home “
Most VCs will travel if there is a decent opportunity,” says Robert Donaldson. “It can be nice to present at your own office. It will give the VC a feel for the business.”
5 Structuring the meeting
While you should prepare a presentation of about 20 minutes, covering all the salient detail but avoiding overkill.
Be prepared for a meeting that will last about two hours. Much of that will betaken up by questions although the overall structure will vary.
Some investors will prefer that you kick off with a formal presentation before a question and answer session.
Others, such as Albany Ventures will, expect to ask questions as you go through the pitch. “We take an interactive approach,” says Raymond Abbott. The key to a good meeting is to show commitment, passion and enthusiasm.
“Keep the presentation punchy,” says Hotbed director Claire Madden. “You always have to keep in mind that you are there to convince the potential funders that they should invest.”If you can’t be passionate about your company, it’s pretty certain that nobody else will be. Humour can break the ice, but don’t overdo it.
6 Present the team
Some entrepreneurs pitch single-handedly but by and large investors want to meet a team to get abetter feel for the dynamics of the management team who might be spending their money.
For instance, Raymond Abbott says he would normally expect to see the CEO/MD, financial director and chief technology officer at the first meeting. “All of them should speak,” he adds.
How you come across as a team could be crucial to your success in a pitch.
“Often VCs are not listening to the business plan – they are watching the management team in action together during the pitch,” says David Cheesman.
7 Be honest about your company
It may be tempting to field projections that show you will be as big as Microsoft by 2015, but no one likes unreliable statistics. Instead, be honest and point out the potential obstacles as well as the opportunities.
“It’s always impressive when a company points out the risks – it shows great realism,” says David Thorpe. Equally, if your team still needs a strong sales person, be open about that – the VC or angel may be able to help.
Also be realistic about what you expect the deal to cost in terms of equity. A first meeting is not the time for detailed discussions about the equity split but as Bernard Hallewell of NBAN points out:
“You should be clear about how much money you need to raise and the valuation of your company.”
8 Follow up
When the meeting comes to an end, don’t expect an instant answer but be certain about what happens next. Always get a timetable for getting back.
If your pitch fails, you can reasonably expect to get some comments on the reasons why, which you should use to sharpen future pitches, but don’t be tempted to argue or try to convince the funder that a mistake has been made. “When people argue it gets very tedious,” says Madden. Instead, pick yourself up, dust yourself down, take on board any criticism or feedback from the last presentation and go on to the next prospect.