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2010-06-30 15:37:30
Hitting a home run with potential investors requires selecting the right pitch.
Every entrepreneur has to present a business plan to outsiders at some point if
he or she is seeking a loan or investment in the company. Obtaining venture
capital funding, angel investment, or even bank loans for a business is
increasingly difficult in a tough economy. You don't want a poor pitch to
impede you ability to score financing for your business. In fact, it's
imperative to have a pitch and presentation that showcases your idea, your
potential, your market and your ability to provide investors with a return on
their investment.
The business pitch is different than the business plan. But you need to have
your plan drafted before you can fine-tune your pitch. "People misunderstand
that the pitch is a different medium than the plan," says Tim Berry, president
and founder of Palo Alto Software, maker of Business Plan Pro software, who
blogs at bplans.com. "They misunderstand that somehow plan is going to sell the
business. The plan is the screenplay for the business. You have to have it
before you can put together your pitch. The pitch is a summary of the plan."
The following pages will cover how to prepare your pitch, how to choose
potential investors, and some basics for delivering the best presentation
possible.
Prepare Your Pitch and Presentation
A business pitch consists of an effort to convince others that your idea for a
business is a good one. The pitch involves summing up your business plan --
going over your product/service offerings, your market, your leadership, and
why you will succeed. Informally, you may have done this a thousand times
already. "It can be as simple as your reality check in a one-person business,
or agreeing with a spouse or significant other, your team members or your
boss," Berry says.
The more formal process of pitching and presenting is usually before an
audience of venture capitalists, angel investors, or bank loan officers in an
effort to secure a loan or investment in your company. Usually, an entrepreneur
starts off by asking for a certain amount of money, and the value proposition
for the investor -- such as what percentage of equity in the business that
investment would buy. Most of the time, an entrepreneur would make a formal
presentation -- often with a slideshow -- to help illustrate a pitch. The
formal presentation is typically followed by a question and answer session.
Investors often mull over the details and, if they make an offer, will perform
due diligence on the financials before turning over any funds.
Know Your Business Plan. The first rule of thumb is to write a business plan
and to know that plan inside and out before pitching and presenting to outside
investors. The written business plan is often the way to get in the door with
investors. If they like your plan, they may invite you to pitch and present.
You may get only one chance to present to this group. Don't blow it by seeming
ill-informed or being unable to answer questions.
"It's crazy to think you can jump into this process without having thought
through the details that come up in a business plan," Berry says. "You're not
going to cover those details in many encounters with investors, but you need to
know your plan backwards and forwards, inside out before you start, whether you
show it to investors in early meetings or not. There is no room for filling in
the details later. You are supposed to have them ready to go from the first
encounter."
Venture capitalists, for example, may have 100 or so business plans piled on
their desk at any given time. They only listen to formal pitches and
presentations from a handful. Your business plan needs to include the necessary
components -- the business concept, market, management team, financial
projections, marketing plan, etc. You should have a hand in drafting the plan
if you are the presenter so that you are intimately familiar with all the
details. The goal of the business plan is to convince investors that you are
worth the risk of investment.
Your pitch and presentation need to build on that theme."It really has to pop
them," says Linda Pinson, author of Automate Your Business Plan for Windows
and Anatomy of a Business Plan, who runs a publishing and software business Out
of Your Mind and Into the Marketplace. Pinson also was selected by the U.S.
Small Business Administration to write its government business plan
publication. "It's got to say to that VC 'What's in this for me?' It's got to
have an overview of what you're asking and what you're trading for it. Is this
a business that looks like it will have fast and sustainable growth and get the
returns to the investor that he or she is looking for?"
Determine How Much Funding to Request. The reason an entrepreneur makes a pitch
is most often to request funding. But just how much to ask for is often key.
"Match your financing goals to reality," Berry says. "Don't think you're going
to get millions in venture capital unless you have a good track record with
previous startups, a very strong potential business, and a realistic exit
strategy. If you're looking for a few hundred thousand dollars, look into angel
investors, seed money investors and/or seed money funds. Understand which
investors want high-growth and high-risk strategies, and which will accept
lower growth and lower risk."
Many of the decisions by investors are based more than financials. "A lot is
based on the personal confidence they have in you. It's not just numbers on a
piece of paper," Pinson says. "Today is a very difficult time for investment
capital." One way to prove to investors that you are investment-worthy is to
show that you are investing in the business, too, by putting up your own
capital and being willing to trade some equity for their financing.
Prepare Your Message. A pitch needs to be prepared in a variety of formats to
take advantage of not only the formal pitch and presentation meeting but the
informal chance meeting in an airplane or elevator. Here are a few types of
pitches:
E-mail message and elevator pitch. Every entrepreneur should have a short,
concise speech ready whether they step onto an elevator or prepare to travel on
an airplane. You never know who is going to be sharing the ride with you. "It's
the 60-second or two- or three-minute pitch where one person in a seat tells
the other person about their business," Berry says. The key words to keep in
mind while crafting this message are: quick, powerful, and condensed. You won't
have the investor's attention for long so condense this message. Berry suggests
a one-page e-mail and/or a 60-second elevator speech are sufficient.
Summary memo. This is a lengthier treatment of your elevator pitch. It
consists of a 2-5 page memo summarizing the need or want you fill as a business
offering, your target market, differentiation, growth prospects, management
team, and your financing plan, Berry says. It's important to emphasize how much
money you need from investors, how much of your company ownership you're
prepared to give in exchange, and how you're going to turn that back into money
for them, including when and how much, he says.
Pitch presentation. This is your more formal pitch presentation that you make
to investors. Cover the same elements included in your summary memo and in the
executive summary of your business plan. Plan oDig Deeper: Finding the Perfect
Pitch
How to Choose Potential Investors
Research Potential Partners. Potential investors can range from family members
and friends to venture capitalists or angel investors. "You should choose an
investor as carefully as you choose a spouse," Berry says. "Look for investors
who will be good long-term partners. They have to be comfortable with you and
you with them." That's because you are going to be spending a lot of time with
your investors if they become financial partners in your business. There are
meetings, reports, and reviews. They may also seek new management if you don't
do a good job meeting your goals.
"If you want partners who will just give you money and leave you alone, search
for investors who do that -- and good luck with that," Berry says. "Very few
people write checks to businesses and then forget about them."
In today's economy, you have to explore many different avenues before you
secure financing. On one hand, venture capitalists frown upon businesses that
blanket potential investors with their business plans. "Do not under any
circumstances shower potential investors with mass print or electronic
mailings," Berry says. "They'll know you did, and it won't work. Instead, focus
on a few, well-researched targets." On the other hand, if you only approach one
or two potential investors, you may have to wait a long time before hearing
back. "You're probably pretty quickly going to see that most of them are going
to say, 'No, this won't work today. Our funding is not there for this now,"
Pinson says.
Here are some tips on finding the right investors to approach:
Who you target is very important. Pinson advises that you research which
investors tend to know your industry well and invest in companies in your
industry. She says you may want to start by approaching those investors with
your plan.
It's not always good to go it alone. "It's good to find intermediaries,"
Pinson says. Sometimes intermediaries can help you connect with the right
investors. Join the chamber of commerce, talk to business professors, and
search the Web. The U.S. Small Business Administration (SBA) sponsors about
1,000 Small Business Development Centers (SBDCs) around the country, most often
hosted by universities, colleges, or state economic development agencies. SBDCs
are designed to help entrepreneurs start, finance and run their businesses.
Their counselors may know potential investors and may be able to introduce you.
Seek compatibility. You should want investors who will become partners in
building the business as well as funding it. Do your research and ask the right
questions. "Do they know people who can help you? Are they familiar with your
business area? Do they share your long-term goals for growth and eventual exit?
" says Berry. "Are they good partners? Do the people in companies they've
invested in regret it?"
Dig Deeper: Five Tips for Selecting an Investment Partner
Pitch and Presentation Tips
It's important to be versatile and to be able to deliver your pitch in a
variety of different media. These days, a growing number of businesses take to
YouTube to deliver their business pitch. Some angel investors like Berry have
taken to reviewing some of the YouTube pitches before scheduling a face-to-face
meeting with an entrepreneur. "It's a new world," Berry says. "That lets me see
the people as they talk about their business and how they manage communication.
It gives you more access to information faster."
Berry's new pitch website suggests entrepreneurs adhere to the following five
steps to deliver the perfect pitch:
Be specific and concise. Know what you want to say. Know your business plan.
Pick out what matters most.
Sell yourself. This is the "why me" section. Talk about your skills,
background, vision and why you can make it work.
Sell your offering. Berry calls this the "heart" of the pitch. What need does
your business fill? Why is anyone going to buy your product or service?
Close the deal. This is where you put your salesman's cap on. Make sure to
make a strong finish.
Nail your delivery. Practice makes perfect. So practice your pitch and
presentation in front of family, friends, business associates, etc. and get
feedback on how to improve it.
You also need to avoid some key pitfalls.
Don't memorize the presentation. "Know it like the back of your hand and be
able to give it fluidly, using different words each time," Berry says.
Avoid PowerPoint faux pas. The formal pitch is usually accompanied by a
presentation, most often a slideshow, which you should also hand out to
attendees at the pitch presentation. "Avoid bad PowerPoint like the plague,"
Berry advises.
Keep in mind what's in it for investors. "Describe what benefits you offer to
specific investors and how that will make your investors money," Berry advises.
Stay Flexible. In the text books, the standard process is that you make an
elevator speech that produces a request to see your business plan, followed by
an opportunity to pitch, which ends with investors offering you funding.
However, Berry says, "The real world is not nearly as orderly as this would
imply." Follow up with the investor but remember that the relationship is only
going to work if it is mutually advantageous. If they want to invest, make sure
you work with an attorney you really trust.
In the end, you should think of the pitch and present process as a filter. "If
nobody wants to invest in your business, yes, you might be the true visionary
in a world of lesser beings, but -- no disrespect intended -- it's much more
likely that the world is delivering you an important message," Berry says.
"Maybe you need to revise your plan, go back to the drawing board and improve
it. On the other hand, maybe this idea has fatal flaws and isn't going to work,
and your failure to raise money has saved you a lot of heartache."
Dig Deeper: How to Improve Your Presentation Skills
Presenting Your Business Plan: Additional Resources
The Funded
Research on histories and lists of different high-end investors.
Small Business Development Centers (SBCC)
Provides management assistance to current and prospective small business
owners.
Bplans Business Pitch
Author Tim Berry's website dedicated to pitching your business plan.
How to Change the World: The 10-20-30 Rule of PowerPoint
Blog entry on pitching by venture capitalist Guy Kawasaki n 20 minutes maximum
with no more than 10 slides, and use pictures and diagrams, not bullet points,
Berry says. "Don't ever read bullet points in a presentation."