How NOT to pitch your business
Think you can put a few deck slides together and start asking investors for money? Think again says Areion Azimi ...
I’ve heard my fair share of pitches made by capable individuals looking to raise funds for their start-ups. Unfortunately, a majority of fundraising pitches are a mix between a short-story fantasy and a bad school project.
Why is it that would-be entrepreneurs throw a few slides together and somehow think they’re ready to start asking for money? It’s unfortunate that the structure used in pitches by late-stage companies raising funds from venture capitalists somehow got stretched beyond reasonable justification to be used by pre-seed start-ups with no revenue, no product and no market validation.
It’s fairly easy to come up with an idea based on a perceived consumer need, but what isn’t so simple or obvious is spending time to create the compelling metrics and fact-base around why or how a start-up has a chance of success. Determining the following answers is of pinnacle importance yet often neglected from most pitches:
- How much will it cost to get a customer?
- How much will a product be sold for?
- When will the start-up be profitable?
- What competitors are currently already serving the market?
The sad truth is there is more guesswork and fortune-telling in most pitch decks than any investor could ever want to see in a lifetime. This ‘entertainment’ most commonly comes in the form of ridiculous financial models with exponential growth curves, sparse competitive landscape research and imagined revenue streams that are a perversion of business reality.
What’s the pitch panacea? Good old fashioned honesty compensates for a lack of evidence and questionable or biased basic research. From hearing hundreds of pitches over the years, here is a list of principles to abide by to ensure you pitch more like a person and less like a pompous pre-seed prick.
Having a concept that is developed but untested is not a competitive advantage, however, founders may think that they alone are the ones anointed to turn a business idea into reality. It is also mildly perplexing to hear founders place more of their fervour behind the opportunity they’ve stumbled across than their actual concept.
Any billion dollar market is exciting, but trying to credit and justify investment for an unproven and unbuilt concept, by association with the market size or opportunity shows a lack of experience. One should avoid sugar coating assumptions and facts, few as they may be, as the more assumptions used during a pitch, the less investible one becomes as any sensible investor will quickly call the founder’s bluff. For example, start-up projections for growth should not exhibit exponential growth characteristics unless they are based on real metrics, unless one wishes to risk looking like an idiot by counting chickens before they hatch with no eggs and no chickens.
Pitches can get heated, and pride always creeps onto the stakes table when it doesn’t need to. Those who get defensive during their pitch are likely to have less entrepreneurial experience and/or have developed few, if any, other concepts in the past. A more practical and experienced individual would admit the flaws in their pitch yet offer solutions to give the investor confidence that whatever the issue, it will be resolved before the check is cut.
If a concept sucks, it won’t sound any better if you crack under the stress of questioning. It would be helpful for a person pitching to take the stance that the concept is not theirs, and to not get themselves married to the outcome of the pitch. State the facts and embellish accomplishments with excitement, and elaborate problems in the same excitement or in monotone.
Don’t ask for more finance than you need
Many founders don’t know how much it will cost to test a product, market and business model. It shows poor planning if you don’t know if you need £25,000 or £250,000, but are happy with anything in between. Being oversubscribed may seem like a benefit, but having extra cash for a rainy day is hardly a good way of keeping lean and avoiding dilution. Marketing and personnel/tech costs will likely amount to the lion share of expenses, but these are fairly predictable thus making it unnecessary to try and raise as much as possible without knowing what you’re going to spend it on.
Most MVP (minimum viable product) web and mobile-based start-ups can be bootstrapped with £10,000 to £25,000, with founders taking a £0 salary. This amount should cover a majority, if not all of the website or mobile app build as well as leave plenty in the bank for marketing. Furthermore, taking less investment will also allow founders to avoid dilution, for example raising £25,000 on a £250,000 valuation (founders giving up 10% equity) is more realistic, achievable and perhaps favorable than raising £150,000 on a £600,000 valuation (founders giving up 25% equity). This will also make it faster and easier to raise as well as likely increase the start-up’s valuation for the next funding round, which again, can be more precise given a smaller initial seed investment.
Don’t make promises
One of the most difficult statements to swallow when hearing a pitch is “we will do…” or “we are planning to…” While amateurs pitch on promise, more experienced entrepreneurs (the ones that are more investible) will state the facts with some personal interjection that support their justifications for obtaining investment. Putting off concept validation or quitting a full-time job until after fund-raising are all selfish promises as the founder is hoping the investor will bet on him/her before they take on any risk which means this would-be entrepreneur is most likely not a genuine entrepreneur nor worth investing in.
Don’t be a caricature of yourself
Often when entrepreneurs pitch, they have the tendency to morph into someone else and use a different tone of voice, mannerisms, and personality. They say what they think investors want to hear and what they think will get them funding to try and make someone else believe they are deserving of investment. Often, after the pitch, the armour comes off and many revert back to their ‘normal’ selves. This contrast can appear disingenuous and can put investors off. When you pitch to investors, you should act naturally as you would during a casual conversation. Pitch as though you are pitching to friends and family, not individuals who you are trying to impress.
The ability to raise money is meaningless, but often ego takes over. When someone pitches poorly, raising money becomes all about the individual, i.e. the founder, and not so much about raising money to build a viable business. Fundraising should be about ultimately providing value to investors by paying back a profit, and not just a “thank you” or a “we tried”.
Many entrepreneurs in this day and age put more passion in validating themselves then they do a business model or concept. The ‘pitch’ has thus unfortunately become more of an exercise in self-validation then displaying proof of business model validation.
Please do yourself and any other investors a favour and follow the tips above when you pitch. You may just get funded.
Areion Azimi is founder of Sweet Startup; a company which provides development services to start-ups and small and medium businesses.