5 business plan pitch tips that may surprise you

May 6, 2010

When it comes to pitching business plans to potential investors, a lot of so-called conventional wisdom is simply dead wrong. Here are a few pitch pointers you might find counterintuitive, but you’ll definitely find helpful:

1.) Aim low. If you make outlandish claims, such as touting yourself as the next Google, investors will be more inclined to poke holes in your arguments. And trust me, they will find holes. Instead, sell just hard enough to get investors to nod their heads and think “yes, that seems reasonable.” Be confident, but not cocky.

2.) Be picky. Getting in front of the right investors is at least half the battle. That means people who invest the amount you are asking for, in the industry you’re in, and they invest in companies at your stage of development. Do your homework, and make sure there’s a fit, to avoid wasting everybody’s time.

3.) Less is more. Emphasize one or two points on each slide. No more. These are your friends: White space, photos and charts that make complex ideas simple, bullet points with less than ten words. These are your enemies: Small fonts, confusing graphics, too many words, your company logo repeated 15 times, and consultant speak (e.g. “leverage”, “value-added” and “synergy”). Pitch the headlines, with about 15 slides, in less than 20 minutes. If investors want more detail, they’ll ask for it.

4.) Your deck shouldn’t make sense without you. A good pitch deck is an outline. It reminds you what to say at each step of your presentation, but doesn’t compete with the words you speak. In a great pitch, your eyes should connect with the eyes of your audience about 90% of the time. If all eyes are glued to the slides, you are probably not generating much excitement.

5.) Let investors help you pitch. Great sales people get customers talking, thinking, and wanting more.  The same is true for pitching to investors. Encourage investors to discuss their perspectives and their experiences with related businesses. You’ll learn more, and raise more.


Different business plan strokes for different startup folks

May 5, 2010

Some startups don’t need business plan presentations. This includes companies that won’t grow beyond one person and won’t ever raise capital. If you fall into this group, do the thinking behind a plan—but keep your output very basic. A few bullet points about each of the topics in a plan should suffice. Forget the fancy graphics and charts.

If you have more than one founder, want to get feedback on your plan, or intend to raise capital, you’ll need a presentation. Still, demands will vary.

Many startups raise capital from friends and family. These investors tend to be fairly easygoing. Chances are good that your wealthy Uncle is investing in your business because he loves you, wants to help you succeed, and thinks you are the greatest nephew this side of the Mississippi. He’s not going to grill you. Still, the more you explain to him, the more informed he’ll be—which means he’ll be able to do more to help you (e.g. make appropriate introductions)—and the better he’ll understand the challenges and risks you’ll face using his money.

Other startups raise capital from angel investors—people who invest their own money on an amateur basis. Angels that invest in many startups or that are part of angel groups or “networks” tend to see many business plans and have high standards. If you are pitching to angels, you’ll need to have a great presentation.

Finally, some startups raise money from VCs. If you are pitching to VCs, you’ll need a comprehensive, investor-grade business plan backed up with detailed research and analysis.

Sell, don’t tell: 5 ways to improve your business plan pitch.

May 5, 2010

1.) Understand your audience. One of the first rules of selling is that you’ve got to know where your customers are coming from. If pitching to investors, find out how much they typically invest, what they’ve invested in before (e.g. stage, industry) and how those investments have worked out. Probe to determine their turn-ons and turn-offs, and tailor your pitch accordingly.

2.) Share your story. Explain how you came up with the idea. Take your audience through the process that led you to your “aha” moment, and you’ll increase the chance they’ll catch the fever.

3.) Appeal to both reason and emotion. In the early part of your pitch, focus on tight logic. Explain why the environment is attractive (e.g. big, growing market, trends in your favor), who the customers are, what they need but can’t get today, and why your product or service will satisfy those customer needs. Then, switch gears for a moment. Step away from your slides, and bring your product to life. Ramp up the energy level in the room. Show your audience a quick demo, profile a customer before and after they use your product, or share a short video with music.

4.) Be humble. It’s great to be confident about your idea. But don’t forget humility. Be honest about the risks involved, the theories yet to be proven, and the hurdles to be overcome. Show that you are aware of what lies ahead, including a degree of uncertainty. More “here’s a key challenge, and how we’ll approach it”, and less “we’ve got all the answers”. You’ll be more likely to have audience members pulling for you to succeed, instead of trying to find fault.

5.) Ask for the sale. If you are raising capital, avoid ending your pitch with a fizzle. Don’t just say thanks for your time. Ask if they’d like to invest. Request introductions for advice, capital, or customers. Remember your ABCs – always be closing.

Got other advice on how to make sure you’re selling, not just telling?

How to approach angel investors

May 5, 2010

Once you’re truly ready to raise an angel round, craft a plan for who you’ll go after, and in what order. Keep in mind the whole process typically takes three to six months. Here are some pointers:

Fans of yours. Start by approaching people in your inner circle, including friends, former colleagues, and family members. If you’ve established their trust over the course or a long term, in-depth relationship, and if they have ample liquid assets, they’ll be the easiest people to get on-board. Get them to write checks, but tell them you won’t spend any of their money until you hit a pre-determined minimum amount. For example, if you are raising $500,000, set a minimum at $300,000. That way the first investors won’t have to worry that you’ll burn through their money, fail to raise more, and get yourself halfway pregnant.

Fans of your space. As you begin to network beyond people you know, find angels who are industry insiders – people who share your insights into the market. They’re already believers in the opportunity, so you’ll just have to convince them you’ve got the right team and approach. Entrepreneurs who have build and sold companies in related fields are also particularly attractive, because they understand both the market and the startup process. Best of all, these people aren’t just check-writers – they are “smart money” investors who can help you build your business, by advising you on strategy, and making introductions to potential suppliers, customers, distribution partners, employees, etc. To find these people, you’ll have to do a lot of networking. Angelsoft.net can help. So can venture capitalists, who tend to have great contacts in areas related to their investment focus.

Known lead. Once you’ve raised at least 15 – 25 percent of your round, it’s time to go after the big-kahuna:  A person who is widely recognized as one of the foremost experts in your field, willing to put their money and reputation on the line. This could be the CEO of a company in an area related to yours, a high-profile professor of entrepreneurship, a venture capitalist investing their personal funds on the side, someone in a leadership position at an angel network, or a super-angel like Ron Conway who has made investments in over 75 startups. This person’s involvement will put a stamp of approval on both your startup, and the deal you are pitching (no more questions about valuation after this person invests).

Angel networks. Angel networks, like New York Angels, the Band of Angels, or Common Angels, are getting more and more sophisticated in the way they assess and negotiate investment opportunities. They are tough nuts to crack, but you’ll vastly improve your chances if you have a good amount of your round raised, and a known lead involved. The beauty of the angel networks is that when you pitch them, you’ll get in front of a dozen or more people, each with a big checkbook. If you get one to bite, you’ll likely get others, and you may even be able to close your entire round.

Fillers. If you are just a bit short of closing your round, don’t give up. You’ve already done the toughest part, so get the round completed (or even over-subscribed, meaning you raise more than your target). At this point, broaden your reach to include trust-funders, investment bankers, hedge fund moguls, and others with ample means.

What tactics have helped you raise angel capital? Please share comments…

4 things to consider before you ride on the wings of angels

May 5, 2010

Before you seek financing from angel investors or angel networks, make sure the fit is right. If you or one of your co-founders has built a business before, sold it, and made profits for your investors, you can probably break the rules. Otherwise, take note of the following guidelines:

1.) What stage are you at? In general, your chances of raising angel funding are much greater if you’ve already got a product developed. It doesn’t have to be full-blown, but the most critical features should be operational. Get that product created any way you can – with financing from your savings, your credit cards, or from friends and family, by giving away equity to partners, by bartering for services – whatever it takes. Just have it up and running.

2.) What’s the money for? As per the paragraph above, many angels are reluctant to spend money to help you build your site. They’d rather see you put their money towards proving customers want your product. Use angel money to find out what percentage of people who see your product use it, pay for it, stick with it, and tell friends about it. Have quantifiable targets in mind, and measure your results.

3.) How much do you need?  An angel round is typically between $100,000 and $750,000, and individual angels tend to write checks for $25,000 to $100,000 each. Looking for less? Go back to friends, family, savings, etc. Looking for more? Either find a way to make do with less, or take a shot at raising venture capital.

4.) What’s your exit strategy? Your rich Uncle may invest because he loves you, but angels have other goals in mind. Yes, many angels get off on helping to create new business, but for the most part they are economic animals. They want a return on their investments. How and when will you turn their $25,000 into a much bigger amount of cash? You can’t know for sure, but have a reasonable hypothesis in mind before you pitch.