The Web is scattered with hundreds (thousands?) of articles guiding you through creating the perfect investor pitch and pitch deck. So rather than take you through “Pitching 101” again in this post, I thought I would hold the advanced class. Think upper division, past the entry level stuff. Yes, we all know that you need fewer words on your slides, you need to dress for your audience, and you need to leave time for Q&A. Google “How to pitch to investors” for more of those tips and tricks.
Now that you have the basics down, let’s start the advanced class. To get to the next step with an investor during a presentation, you need to inspire them. I often talk about “building the crescendo”. You start slow, then in the first few slides present an idea that is BIG, but to the audience seems unbelievable, and maybe even unachievable. And then you prove you can do it. You have a killer team who has done it before. You even have an MVP (minimum viable product, for those who skipped the entry level course). And maybe you even have some customers and sales. Cool, the crescendo builds throughout your 10-minute pitch (or 12 minutes, or two floors in the elevator) and you leave your audience frothing for more. That is exactly the objective – get the investor on the edge of her seat just prior to Q&A, and then close it in the Q&A period.
But along the crescendo there are perils and pitfalls. A lot can go wrong as you build that crescendo. And over the course of that 10-minute presentation, there is a fine line between getting your prospective investor “frothing” and getting them “foaming at the mouth”.
So how do you ensure that you don’t step into a trap? I have personally seen over 1000 pitches and delivered over 100 myself. And regardless of which side of the table I have been on, I have seen an otherwise high-quality pitch deteriorate rapidly. Here are some of the plays that are likely to move your investor from “crescendo” to “cranky” in record time.
I know what you are thinking. You think that the hockey stick financial proforma is cliché and investors hate them. Well…we don’t. We actually want to see the big growth forecast – in fact, we need to see the big growth if we are going to be interested in your company. But we also want to know that such growth is achievable. That means that you understand your total addressable market (TAM), you understand the reality of what it takes to go from $0 to $50M+ in revenue, and you know that that kind of growth is not likely to occur in 3 years (or 5 years, or maybe ever). So while the hockey stick can be forward-looking, it does indeed need to be achievable.
And while we are on the subject of the Hockey Stick, do you know what investors hate? They hate to see an inflection point that happens the month after the financing closes (i.e. the Viagra Hockey Stick). What a coincidence! You have been doing $0 in revenue for the last two years but you will be on a $5M run rate the month after you get the check! Come on. The reality is that if you present that in your pitch, most sophisticated investors (whether VCs or angels) will defer their investment and wait to see if that growth truly does occur. That provides two benefits to the investor. First, it de-risks the deal, since they don’t invest until after they see growth. Second, it validates the integrity of the founder. It is a beautiful (and rare) thing when a founder forecasts growth in the business and then actually delivers.
The Last-Slide Eye-Roll
Back to the crescendo. You have spent the last 9 minutes building it, and the investor is indeed on the edge of her seat. And then you show the last slide. Let’s call it “The Ask” or “The Deal”. This is where you proudly proclaim that your pre-revenue, pre-prototype, pre-customer deal has a $10 million pre-money valuation. Remember that crescendo? It now devolves quickly into what I call the Last Slide Eye Roll (or LoSER, for short). Over-valuing their company is one of the most disappointing mistakes that a founder can make, because it is so avoidable. Rule of thumb: if you have no chance of selling your venture at its pre-money valuation TODAY, then the valuation is probably too high.
So what should the valuation be? That is a tough one (and the subject of many other articles and blog posts). But if you are not sure, at least be prepared for your audience. Know the valuation range of other investments they have made and the range within your industry and geographic region. And if you are still unsure, present the investor with a range and indicate a willingness to work with them to derive a final number. But don’t just punt the valuation question to investors – they want to know what your thoughts and needs are, so they don’t enter into a protracted due diligence period that is unlikely to get to the finish line in the end.
The ”C” Word
This is an easy one… Never, ever use the word “conservative”. Why? Because whatever you are saying is conservative, most likely isn’t. “Here is our hockey stick sales forecast, and we believe that these numbers are conservative.” Seriously? Even if you are correct (and I haven’t seen it yet), then if you know the numbers are conservative, then why not give the investor the real numbers? Are you afraid they won’t believe you? It is your burden to either show them that the real forecast is achievable, or present the lower, NON-CONSERVATIVE forecast.
Ok, so timing your presentation is indeed from the beginner’s class. But I believe it is so important that I am re-visiting it here. In many investor forums, you will be given very clear guidance on how much time you will have for your presentation, and how much for Q&A. Since Q&A is likely where you will close the next steps of the deal, it is absolutely imperative that you not run over your time limit on the main presentation. Even better, come in under. Extra credit for not speeding up the last four slides when you realize that you are running out of time.
Why is this important? Because investors want to get to know you, and they do that during Q&A and even after that as they are having lunch with you, walking you to your car, or asking a follow-up question on the way to (or in?) the restroom. So be real. Be confident. And part of that confidence is spending 8 minutes to deliver a 10-minute presentation, and putting those additional 2 minutes “on-account” to make for an even better Q&A/follow-up after the pitch.
And while we are on the subject of Q&A…KEEP YOUR ANSWERS BRIEF. I have seen so many entrepreneurs squander the time they have with investors by spending substantially all Q&A time on the least important questions. Just as important, it is ok to say “NO” proudly and unambiguously if someone asks a question where the answer should be “no.”
That’s it for the advanced class for today. Hopefully you are well on your way to happy investors and that funding diploma…