I have been attending several start-up investing pitches as an Angel Investor. What amazes me is the enthusiasm and creativity to solve problems. That’s fantastic!
But there is a difference in the way the idea is communicated. To sell the idea broadly is one, to sell to the perception and expected outcome of the audience is another.
For most start-ups, they will start with a problem statement, followed by their perceived solution. Soon, they will talk briefly about the market size. Then the revenue model and geographical coverage; the last slide is asking investors for a six-figure sum.
All seems great till the Q&A where they are peppered with intriguing questions, queries that bombarded straight up that make them wonder if sufficient preparation is the key.
To be fair, there is a time limit, mostly of up to 20 minutes. The investors understand. So, the point is “what can be done in a short span of time, how Start-Ups can zero-in their messages effectively?”
Here are some tips:
Know your investors well
Before the pitch, send over a brief deck of say 8 to 10 slides. Thereafter, speak to the organizer about detailing the Angel Investors who signed up. This would mean a list of 10 MCQs for them to fill in. One of the MCQs can be structured to evoke an open-ended question about their opinion on your idea. Use Survey Monkey as the platform to get views.
The objective is to understand the Investors’ expectation, their investing appetite and their thought process. Entering into the room without getting a knowhow about them is as good as walking in the dark without torchlight.
Focus on value creation
It’s a key concept that most knows but hard to conceptualize, let alone bring across to the investors.
So, Start-Ups have to self-reflect “what’s so special about my business that others find it hard to compete?” I can assure Start-Ups that the usual question thrown out is durable competitive advantage.
Making cosmetic changes to current models will not win the minds of many.
“My Start-Up focuses on providing cheap accommodation to anyone who rents out his bedroom”
“My Start-Up zooms into the exquisite 4 to 5 star and special types of accommodation across the major cities of Europe. We start with 5 most populated cities, followed by the next 5…..”
The first illustration touches more on price, the mass market. To compete in cost doesn’t equate to strong value differentiator unless this is a market leader who has the bargaining power. In fact, the Start-Up risks losing out to Airbnb.
The second is more specific. To dive into a niched area, focus on a region and a unique cluster of accommodation may be an interesting starting point. There is a clear way of executing in phases – 5 cities first, followed by another 5. The business value emerges over time as more people recognize the curated offerings by the Start-Up. This will make more business sense for Investors.
Therefore, it’s worthwhile for Start-Ups to clearly segment their products/services from the market. To do this, they need to practically conduct on ground research. Then, find out where their product/service could fit into it. By then, the positioning is envisioned and Start-Ups know where to compete financially. This will help the Investors recognize the potential value over time.
Meaning, Start-Ups will need to craft their pitch by highlighting the USPs (Unique Selling Points) that few others are able to imitate. Talking about how your system works back end, that you have a formidable platform is not convincing.
But relating to how you can capture a user base of 1 million subscribers because of the need to buy this product, how you can “lock in” the users and therefore churn out a revenue size of $1 million within 2 years assuming $1 per average spend – now, that’s something valuable Investors are looking for.
A good way to illustrate is luxury tea maker TWG. How have they differentiate themselves and attract people to buy at a premium price? Can others easily copy their tea offerings?
Use personal stories to validate your business
A business is about dollars and cents. It has to be financially viable. The income statement has to be rosy – in short period of time, it’s about incremental revenue. In longer time horizon, it’s about profitability. Apart from facts and figures, a captivating way to sell to investors is using your personal stories.
Sharing what you know and what you learn is important. It also reflects your inner motivation and passion as you speak. Better still, put a number to it, this demonstrates business sense.
For example, if the Start-Up is about developing a platform for house cleaning jobs, talk about how you notice households are getting smaller and busier due to changing demographics (situation). And how you manage to figure out the potential sales (by commission) earned from the number of cleaning assignments per calendar year. And why you feel this is something that makes you highly interested (passion).
Finally, how you can bring this to other cities to replicate the same model (scalability). Alongside, you will think of how to upsell and cross-sell other services to bump up the revenue. At least, there is a sense of how you as the founder, spot opportunities.
I am happy to discuss over coffee if your idea is too general. Probably, your existing concept can be tweaked to position it to a special segment.