Originally Published Jun. 4, 2017
I had the honor of being a business coach at the 2017 Black Enterprise Entrepreneurs Summit. A few smart, young, and driven men and women competed to win $10,000 to fund their startup companies. I sat at a table filled with capital: two bankers, two angel investors, and one successful entrepreneur who had lost that very same competition just a few years back. We watched each entrepreneur try to sell their product to the best of their ability in about a minute. Only 60 seconds was allowed. No props, no samples, no demonstrations. Just the presenter and his or her words.
A few were successful; many fell flat. What all of the presenters had in common was enthusiasm, great ideas, and good products. A few of the pitches lacked essential information that most investors need to hear when deciding to put their money on the line.
Here are five common reasons why pitches to angel investors fail to convey a likelihood of success:
1. Your Pitch Is A Commercial
There’s no other way to say it. A pitch is not a commercial. A pitch is a concise description of a business idea to an investor. The key part of that definition is that the audience is an investor, not a consumer. Consumers need to
be sold on the product. Investors need to like the product but be sold on its profitability. So, your pitch should speak briefly about the product. My rule of thumb is that for a 10-minute pitch, two minutes should be devoted to describing the product itself. A few minutes should be directed at the market and to how your products fit into that market or disrupts it. The remainder of your time should be spent showing the investors how they will profit from your invention.2. You Didn’t Tell Us That You Owned It
I’m an intellectual property attorney, so I’m sensitive about a startup’s ownership rights to their prized product. I’ve listened to countless excited and motivated entrepreneurs who have invested all of their savings and time into what they see as the next big thing but have failed to ensure that someone else doesn’t already own it. About two seconds after I believe I understand what the product or service is, I begin a rudimentary clearance search. A clearance search looks for any intellectual property rights that could be infringed by the use or sale of the product or service. About 50% of the time, I find that the bright new idea being pitched isn’t so bright and new; it’s already owned by someone else.
Many inventors patent their ideas but never commercialize them. Once a patent is issued, the patent holder has the right to stop anyone from making, using, or selling the product or process. Commercialization is not necessary. My next step is raising my hand to ask the presenter if they have protected their idea and how it differs from the protected product or service. Prepared presenters anticipate these questions and include the answers to those questions during their pitch. Once the investor asks, uncertainty has inevitably already been introduced into the investor’s mind. If you don’t have any intellectual property protection, tell the investor in one sentence why it’s not necessary before they ask.3. You Love Your Business Too Much
Many first-time startup leaders try to impress investors with how passionate they are about their new product or service. While that’s wonderful, please know that most investors don’t care. What investors care about is how they will get their money back, plus a profit. How does that happen? Exit. Investors want to exit the business in about five years. Startup CEOs who are overly enthusiastic about the product or service, not the profits it might generate, convey a message that they will never want to exit. If you don’t exit, the investor may never get the financial reward
they seek. Wise presenters will express enthusiasm about the product or service and even more enthusiasm about their ability to have a successful exit. They know to whom they will divest, how they are going to get before that person or company, and how they fit into that company’s portfolio. If your startup has a new haircare product, and an investor asks if you have connections at P&G or Unilever, you should understand that they are asking if you’ve thought about your exit. Your exit strategy should come closer to the beginning of your pitch than the end of it. If your pitch doesn’t include the word “exit,” you’ve made a mistake.You Don’t Know Your Numbers
You must know your numbers. Talented presenters can get the most important figures in two to three sentences. The most important figures are:
- How much it costs to produce the product or service (and if the investment will lower the cost)
- How many widgets you’ve sold, or services you have provided
- How profitable you are (you don’t have to show a profit to get funded)
- When you expect to be profitable
- How much money are you raising, and what are you going to do with it (specifically). Whoever is pitching on behalf of the company should know the numbers; saying that you aren’t the numbers guy during your pitch won’t fly.
You Didn’t Show Us That You Understood The Market
More and more people want to find the next Uber, crowding the market for startup funding. If others have pitched similar ideas, it will behoove the presenter to explain why her widget is different from all others out there. Conduct a SWOT analysis and summarize it for the investor. Describe the consumer and how to market to the consumer (specifically). Tell us how large the marketplace is and your target demographic group. Then, say how much of that market you think you can reach and specifically how you will market to that target group. An investor does not want to be told you will do social media marketing. Your pitch should be more detailed, “We will conduct a targeted Facebook campaign, directed to single women 20-35, with incomes of $50,000 or more, than live in urban areas with populations exceeding $500,000.”
Most startups get one chance to pitch to an investor, investment group, or fund. If your pitch has any of the flaws discussed above, you aren’t likely to get funded. So, make sure you get it right the first time.
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