Creating your business plan and pitch deck is only one part of the capital raise process
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If you’re like most entrepreneurs, you’re excited about your business. Any investor would only be so lucky to be a part of it, right?
Well, unfortunately, that's where you're wrong. While your company may indeed be the next big thing, today's equity investors are innuncated with founders saying the exact same thing about their business.
You must instead look at the fundraising process with the perspective that investor's come to the table not wanting to invest, and your job is to convince them that your opportunity is too good to pass up.
To understand this, first you must put yourself in the mindset of an investor. Like anyone, they don't want to act foolish and lose money. You need to make the case that the opportunity is a sound business decision in order to establish yourself as legit. I can't stress this enough: if you just have an idea, DO NOT approach investors. Make sure that you have a strong start that includes research, a prototype or a minimum viable item, and even some media buzz or input from early adopters.
Remember, if you fail to impress an investor the outset — if you appear to be wasting their time or not being prepared — you risk never getting a second chance. Even worse, you could develop a bad repuation or even end up a punchline. “Remember that WeWork meets Shopify meets Lyft guy?” And laugh as they sip their hundred-dollar glass of champagne. Don't be that person.
Merely impressing investors isn't enough though . You should be sure they are also a good fit for you, because not all investors are the same. You don't want to join forces with just anybody. To help make sure that they are credible and a perfect fit for your industry, mission, and stage of growth, you must research each potential investor. Many angel investors invest in sectors that they know; they are going to invest and develop. A passive, silent investor is rare. By leveraging their expertise, they are trying to maximize their investment and deliver greatness.
Investors will have a significant role in your company, so make sure they reflect your core beliefs. The best candidates will give you more than just funds, such as invaluable referrals, industry access points, and guidance.
Like so many business functions, securing an investor is a matter of numbers. According to a survey from First Round , almost 14 percent of founders have pitched over 20 potential investors, and almost half have pitched more than 10.
Added to that, most funding rounds will be split into multiple investors. Suffice it to say, you will be dealing with a bunch of investors, and it will take some time and organization to nurture them.
Luckily, there are a lot of tools out there to help you find and monitor investor interactions. Our friends at Foundersuite have developed an effective software solution that includes 21,000 venture capital firms and more than 100,000 angels and family offices.
Even if you think you've found the ideal partner to invest, sending a "cold email" with a request for a pitch meeting is not likely to obtain one. Like I said above, I nvestors get a lot of requests from founders, so it's critical to develop connections long before you ask for a pitch meeting.
The easiest way to think of it is like a funnel: you start by casting a broad net and then start chiseling it down. The key is to give yourself time and to focus. It is recommended that you start this process 3–6 months before you plan to request investment. Look at investors who fit your growth process and your sector and compile a potential pool of investors. Depending on your industry, about 100–150 potential investors is a good place to start.
(Related Post: How To Build An Investor Suite With Foundersuite)
Now that you've identified your pool, it's time to start a conversation. One way to begin is through permission-based marketing, such as email newsletters. We recommend that you send a personal email to each person in your investor pool along the lines of, "I saw that you made investments in . We're not currently looking for funding, but may be looking in the next 3–6 months. Can I add you to our newsletter list to keep you updated on our progress?”
(Related Post: Learn What to Include in Your Investor Email Newsletters)
At the same time, you should follow these same investors on LinkedIn and Twitter. Both social media platforms have active investor communities, and now is the time to join that conversation. Offer thoughtful and pertinent comments on the posts and articles of your potential investors. Congratulate the success of other founders. Share your experience with others.
Now that you've laid the foundation, the email you send to request a pitch meeting is far more likely to be approved.
Now let's talk about how you should be ready for your pitch opportunity. Got investors to take you seriously, you MUST have a detailed business plan and pitch deck—in that order. If you skip the business plan and just create a presentation, you risk being caught empty-handed when the investor asks for your business plan after you present. Start with your business plan, which will lay the basis of your pitch deck. The business plan is the waffle, the pitch deck is the syrup. You're not going to eat syrup straight, are you? Wait a minute, don't answer that.
When designing your pitch deck, as well as your elevator speech, social media, and other communications, make sure you have direct, consistent messaging across every channel and with amongst everyone on your team. Establish your story and make sure everyone tells it the same way. Inconsistency is going to confuse people and undermine your affect. Hone on what you're doing greatest. Clearly spell out the ways you are superior to your competitors, because they're likely trying to pitch the same investors as you.
(Related Post: A Guide to the Best Pitch Deck Ever)
When you create your pitch, limit it to 20 minutes—even if you have an hour—because you want to keep it concise and impactful, with time left over for questions. Better yet, edit it down to 10 powerful minutes. A common rule of thumb is to prepare for 15 minutes of presentation time and 15 minutes of questions. Investors are known for getting you off course by asking a question in the middle of your script. They're trying to see how you respond to scrutiny. Be ready with brief, precise answers, and then return to the narrative with a respectful, "Does that answer your question?"
After you complete your pitch deck, carefully proofread it and have a friend or advisor do so as well. Double-check your statistics and facts. It's an easy place to look stupid. Because if you can't spell the name of your co-founder accurately, what other important information are you neglecting?
Once your presentation is perfect, practice it until it's second nature. Rehearse in front of the mirror to observe your body's language. Record yourself and play it back to see how you sound. If you're presenting with co-founders, make sure and work on how your parts fit together. And when you're ready, get your friends and family to test your pitch. (This may be a good time to bribe them with free snacks.)
As I mentioned above, you should also try to predict questions and practice the answers beforehand so that you can stay relaxed and composed at the time. Some questions will be easy to answer if you've done your business plan—like knowing when you break even or outlining your capital stack.
Expect to be asked difficult questions: why are you better than competitors, what are the main threats to your business, and why do you think you can achieve success? Investors don't just want to know the answer; they want to see how you're acting under pressure and how you can improvise. A founder of a startup that is easily flustered will not be able to withstand the pressure of fast growth. Practice is going to keep you calm in the moment.
Last but not least, dress to impress (a bit)! I used to suggest you wear your best suit, but things are changing. The norm is to dress up by one level. What do I mean by that? Glad you asked. If the investors are wearing t-shirts and jeans, put on a collared shirt and khakis; if they are wearing button-down shirts with no tie, put on your suit. You might have to do some research on this but their receptionist might be your best friend—"Hey, what does Carl usually wear in the office on a pitch day?" Every pitch opportunity is unique, and you need to treat them that way.
When you're finally in the room with your potential investors, don't get off to a bad start by asking them to sign an NDA, because most will say no. Investors have likely seen something like your idea previously, and they'll probably see it again. If you like, write "confidential" on your handouts.
Once you get started, appreciate their time and adhere to your main points. Be confident, optimistic, and urgent. Investors should feel that now is the time to get invest, and things are going to happen fast. Make eye contact and be earnest. You're supposed to be the company's biggest advocate. If you're bored, the investors are going to be too.
Pay close attention to just how investors react to your presentation. If they look confused, either explain it in another way, or ask if they need elaboration.
After your presentation is complete, take questions, and respond to them graciously. Ultimately, you are receiving an investor's invaluable time and advice, so take their advice seriously and don’t be combative.
Most importantly, be truthful. Your credibility is critical, and nothing builds trust like authenticity and transparency. Be ready to back up all statistics and trends with established sources. No respectable investor wants to support an entrepreneur who is charismatic and flashy but ultimately lacks integrity. Chances are, if you lie, it'll come back and bite you in the ass.
With that in mind, do not bluff if you get a question that you're unsure of. They may know the answer already and may be testing you. Admit that you don't know.Say something like, "That's a great question. I don't have an answer for you today but as soon as I get back to my desk, I'll follow up." Then, get to work and find some solid market research and update them as soon as you can.
Throughout all this, you have probably picked up on a theme: investors are incredibly busy. Don't assume they will come to you. Take that initiative yourself. The day after your pitch — or even later that evening — send a short thank you email for their time and include anything you may have promised to follow up with, like a link to a demo.
A week or two later, email them again but be sure you are providing some kind of value, such as a pertinent news story, an invitation to an event, or a breakthrough you made. Keep in mind that they are overstretched and so keep it really brief. If they don't respond to emails but are active on Twitter or LinkedIn, try reaching out to them that way. Make it convenient for them to reply.
Keep the dialogue flowing as you create new features or achieve a milestone. Even if you haven't heard anything, he or she may be interested but may be working on other deals. Find that fine line of being consistent and cordial, while avoiding coming off as desperate and pushy.
Be humble and accept it if you get a no. Rejections are an opportunity to enhance your pitch. Learn from it and move on to the next one! Keep on trying and your likelihood of getting funded will keep improving.
No matter what, stay positive. Five big Silicon Valley investors turned down Airbnb. Salesforce, too, was rejected repeatedly by the big VC firms. And before getting funded, Pandora was turned down 300 times. Bottom line, rejection doesn't mean that you're a failure or that your business is unfundable. You're an entreprenuer; either you'll find investors, or you'll figure out another another way to get the funding you need. You've got this!
Brent Butler is Founder & CEO of Masterplans