5 What I Look for in the Pitch
If you’re invited to the New York Angels, you’ll have 15 minutes, some of which might be reserved for Q&A. With a quality pitch, this should be enough time for you to interest investors who want to know more. That’s all an initial pitch should do.
In that time, founders have to convey a whole lot of critical information. In Chapter 4, I identified the three characteristics—integrity, determination, and street smarts—that I want to see in the first 45 seconds. This chapter deals with how best to use whatever time you have left.
Before we get into the mechanics of the pitch, let’s start with the audience. Angel investors can be demanding. It’s vital for you to know something about the mindset of angels. We are really on your side and want you to succeed. However, we know the challenges you are up against. Our initial skepticism drives us to ask tough questions that allow us to better appreciate and believe in what you’re doing. Seattle angel investor and venture capitalist Bill Bryant calls this “permission to believe.”
I tend to tune out when a founder clicks on a PowerPoint with a lot of words and looks at the screen or, worse, reads what’s there. That’s so wrong for a number of reasons. First, the attention needs to be on you. So don’t do anything to take the audience’s attention from where it belongs.
In Annie Hall, Woody Allen is breaking up with his girlfriend. “A relationship is like a shark,” he tells her. “It has to constantly move forward or it dies. And I think what we got on our hands is a dead shark.” Well, presentations are akin to sharks. A pitch must go relentlessly forward, never stop or go backward, or it will die.
Angels want to see a tight progression. Whether you start with a story that sets up the opportunity for the business or the need for the product, or whether you get right into the opportunity or need, start by telling us what you propose to do, why you propose to do it, and how you propose to do it. The presentation has to flow from a natural beginning to a natural conclusion.
“At the very end of the presentation, you want to knock them out of the park,” says David S. Rose, my predecessor as chairman of the New York Angels. David gave a celebrated TED conference talk on the art of the pitch to investors that has been viewed over 700,000 times, and I urge you to view it. It’s one of the reasons that BusinessWeek described David as The Pitch Coach. “You want to be able to get them to such an emotional high that they are ready to write you a check, throw money at you, right there before you leave,” he says. But how do you start, and how do you get to such an emotional conclusion?
Angels really want your presentation to have touchstones, or points of reference that the angels can relate to. Perhaps the most powerful touchstone is a reference to a respected industry analyst, journalist, or—best of all—customer who has validated the product. We’re always listening for actual—not anticipated—metrics like sales figures or cash flow. Other touchstones might include awards, patents, licenses, or anything else that adds validation to your representations. We’re always looking for that permission to believe.
There are lots of books and online resources on how entrepreneurs should pitch to investors. I don’t want this to be a comprehensive tutorial on the art of pitching, but I do want to give you a sense of what I look for, what I expect, what delights me, and what turns me off, because I think I’m representative of many angels.
I really want to understand what an entrepreneur’s motivation is. This is a long-term relationship we are entering into, and I need to know you have the staying power to sustain the journey. A passion for wealth alone won’t do it. Your motivation has to be tempered by something that will survive the many inevitable setbacks. And I want to understand why this startup, versus all the other creative opportunities you may have, is front and center in your life. David Rose listens for something that is just a bit orthogonal to conventional wisdom. I, too, appreciate pitches that leave me slightly off-balance.
In his handout “Secrets of the Pitch Coach,” David provides a concise introduction to the Perfect Pitch:
Presentation Flow
The single most important thing in sequencing a presentation is that everything must flow logically from beginning to end, and require no prior knowledge. You do NOT want the audience to have to think AT ALL, which means you need to answer every potential question at exactly the right place, just before the audience would think to ask it. Sounds easy, but 99 percent of presentations don’t do it.
The Opening
The world’s greatest presentation trainers all agree that the presenter has between thirty and sixty seconds to grab the attention of the audience. To do this, start with NOTHING on the screen but your company logo, your name and your title. Then, begin with something dramatic and memorable that will have the audience want to follow along with you for the rest of the presentation. This opening can be a personal anecdote, an unusual number, a historic progression, a counter-intuitive fact … virtually ANYTHING that will open with a bang and set the mood for the remainder of the presentation.
Context Setting
It is crucial that after the opening, the presenter immediately sets out the context for the rest of the presentation. This should NOT(!) be the agenda for the presentation, but rather should (at least for a venture fundraising pitch) be an extraordinarily concise explanation of what the heck the company does: “We manufacture and sell buggy whips”; “We operate a search engine that finds anything on the Internet”; “We are a global terrorist organization dedicated to overthrowing democracy”; whatever. Consider this to be the picture on the outside of a jigsaw puzzle box, that gives the audience the overall picture into which they can then fit each piece as you deliver it.
The Sequence
The slide/topic sequence for a fundraising pitch is pretty straightforward, and should look something like this:
• Company name and logo and your name and title
• Business overview (context setter)
• Management team
• Market size and pain
• What your product is and does
• Your business model (how you make money)
• Your customers (or the customers you are planning to target)
• How you are going to reach your customers (partnerships, channels, marketing)
• Your competition
• Why you are different, better and have something unique
• The financial overview, showing your revenues and expenses for the next 3 to 4 years
• The funding history of the company, how much you want to raise, and what for
• A review slide of the major points, or a great photo of the product or site
If you follow these suggestions, you’re going to have a clean, very Zen-like presentation, which is great for conveying who you are and getting me intellectually and emotionally involved. And speaking of Zen, one of the very best sources for inspiration and advice on state-of-the-art presentations is the book and blog, PresentationZen, by Garr Reynolds.
1. Never, ever look at the screen.
2. Never read your remarks; speak fluidly without notes.
3. Always use Presenter mode so you can see the upcoming slide.
4. Always use a remote control.
5. The handouts you give out are not your presentation. Your slides should have little to no text; instead, make up a special “leave-behind” deck with the text added back in.
When I’m being pitched, I like to feel that you’re in control. Patrick Ambron, the CEO of BrandYourself, introduced in Chapter 3, is a master of pacing. Entrepreneurs should know their business better than I do; if I believe the founder is likely to get to what I’m interested in, I’m content to hold off interjecting questions for a while. Ambron has learned to apply emotionally intelligent signage to help impatient angels relax: “I’m going to give you a five-minute overview of the product and the business model. I think it will answer all your questions, and then I’ll be glad to answer any questions you may still have. So, BrandYourself is …”
When you’re waiting in a line, you know how reassuring it is to see a sign that indicates how long the wait is? That’s emotionally intelligent signage. I appreciate narrative equivalents to such signage in your presentation.
Why would you give a presentation without answering the critical questions you know will be asked? Take control of the situation and anticipate the important questions. The angels will be impressed, and you will come off as more prepared and ready to handle more in-depth follow-up questions.
Many angels want to know how, specifically, their investment will be used. The more concrete and detailed your presentation is on this point, the better. These angels tend to invest when they know that the startup has been thoughtful about how their investment will be applied and that it will move the startup forward in a meaningful way.
If you provide a specific overview of how much money will go toward development, salaries, operations, and marketing, many angels will perk their ears up. Frankly, some angels are sensitive about startups spending too much money on marketing, especially advertising and promotion, and are reluctant to see their money going toward these expenses. We like to believe that you can find more creative viral marketing approaches that cost far less than traditional advertising or marketing.
“The more specific entrepreneurs can be in identifying how the money in the round will be spent and how long it will take them, the better,” says my New York Angels colleague Alain Bankier. How will they allocate the funding, how far will it take them, and what is their next milepost: proof of concept, the next round, or the ultimate goal of being cash-flow positive? These are some of the points he expects entrepreneurs to clarify during the course of a presentation.
Angels also want to know that their investment will go to new initiatives and not simply to pay off sunk costs. Bankier focuses on the balance sheet to ensure that his investment will help drive the startup forward. Ideally, that means the money he invests will definitely drive new development, new customer acquisition, new product design. Few angels are enthusiastic about their investment going to pay off “old” costs such as accrued expenses or deferred salaries. You will improve your chances if you specify the productive ways you will use the investment and how the money will incrementally move the startup toward profitability.
At this point, you have choices, and I’m open to any course that moves the presentation forward. You can start by introducing the management team. But don’t dwell on the team members’ backgrounds, as illustrious as they may be. We’re more interested in what you’re going to do, not what you’ve done. Remember, I’m drawn to teams that have serial entrepreneurial experience, so if you’ve previously stewarded one or more businesses from startup to exit, now is definitely the time to mention it.
You can start with the market that is in need of your solution. As you describe your product, remember the last thing I want is the product pitch. I don’t care about the features, functions, and benefits. Not now. I just want to know how the product solves a customer problem. I definitely don’t want to sit through a live demo, although a very tight video clip is acceptable if it’s totally professionally done.
Once I understand what you’re selling, I’d like to know how you intend to make money. Tell me why people are excited enough to fork over good money for it. This is the time to get as specific as possible. Do everything you can to back up your assertions. Make me believe the numbers are real. It’s okay to admit that you’re thinking through various scenarios, and by all means, identify assumptions as assumptions. I just want to know you’re intelligently reaching your conclusions. Do your best to describe the business model. Per-unit sales? Freemium? Premium subscription? Advertising? Recurring revenues? Affiliate sales? Whatever. It’s always best to have multiple revenue streams.
Most of all, I want to know what the drivers of sales are. Let me see how your business model can translate into reasonable revenue streams.
Tell me something new about the market, and show me you understand you know where the market is, what the demographics are, how to reach the customer segments, and what the costs of doing so will be. Do you have distribution relationships or partnerships that will make reaching customers easier? Do you have a unique competitive advantage? If so, this is a good time to say so.
Sooner rather than later in the pitch, you’ll need to present your financials. I realize that early-stage companies don’t have a lot or even any historical financial data to present. Fine. Projections more than four years out are just hallucinations, and I’ve never known anyone to achieve them, but it is reasonable for you to project your first and even second years. This is critical because everyone wants to know when you will achieve breakeven or will require additional financing.
Anticipate questions about your startup’s valuation. This part of the presentation must be clear and definitive. Are you looking for a priced equity round, or are you looking for convertible debt, which will offer a price capped note and percentage discount on the Series A round? If you have money committed from other sources, we need to know. Who from? On what terms? How much of your own money have you and your team invested?
Judy Robinett is managing director of Golden Seeds, a $40 million angel fund focused on women entrepreneurs. She is an active investor in startups focused on life sciences and high-tech, often taking board positions to guide strategies to market. Any startup requesting funding from Golden Seeds has to have a woman who owns at least 10 percent of the business. If a company doesn’t have at least one woman on the board, Robinett wants to know why and has yet to hear a satisfactory response. “The research is clear: there will be an increase in ROI with diversity on the board,” she says. “Commitment must start at the top.” From 2000 to 2008, Robinett served as CEO of Medical Discoveries, Inc., a publicly traded, developmental biotech venture. Trained as a social worker, Robinett now devotes her energy to consulting on strategic plans and financing for newly emerging companies. If you’re going to pitch Judy Robinett, you should certainly do the following:
• Regard her as you would a customer. The product you are asking angels to “buy” is you and your company, so they want to know what they will get for their investment. Too many entrepreneurs are so in love with their projects that they forget that money has value. The lesson: describe your funding strategy from where you are now to how much you need to reach certain milestones. With $1 million, maybe you could build infrastructure, hire a team, and secure patents, but to get a revenue stream going, you will need additional rounds of funding. Be conservative about what you promise so that you can meet or beat expectations.
• Demonstrate that you understand how to get to the next level. It’s less important to posture about the ultimate business than to demonstrate you have a plan to get to the next level. Focus on what it takes to be successful in the short term. Early-stage investing carries great risk, so investors bet mostly on the character of the entrepreneur. It’s up to you to show that you value the angels’ money and that you want them to act as mentors and to open doors for you.
• Create a strong customer acquisition model. Demonstrate that you understand what it costs to acquire a customer. Let the investors know you have done the work of calculating the size of segments and identifying the channels for reaching them. If entrepreneurs say they have no competition, it’s safe to assume that there is no market for what they are selling. Ideas are easy; it’s execution that counts.
• Anticipate problems and solutions. The line between product idea and product launch is never a straight one. Investors want to know you have contingency plans for the most likely disruptions. These “what if?” assumptions show the quality of your thinking. Anybody can produce great spreadsheets with hockey-stick numbers; hitting them is the hard part.
• Focus on the investor-entrepreneur relationship. Smart startups understand that the relationship comes first. Numbers alone don’t make an investment. Building trust is the key to investorraising versus money-raising. Angel investing is a small world; word gets around about your integrity. So it’s imperative that entrepreneurs be truthful, transparent, and congenial in every aspect. Burning bridges with one investor can cut off multiple sources because of their extensive networks.
Angels are intensely curious, alert to the facts and fast changing trends that are shaping new markets like your own. Knowing about and understanding these changes make me a better investor. I appreciate founders whose pitches provide the following:
• We’re going to help educate you about our market.
• Here’s our take on what the world will be like in three years.
• Our research indicates the integration in these two markets so that …
It’s perfectly fine to go out on a limb if you can support your conclusions. That takes confidence and foresight, two qualities I certainly admire.
Fast Company asked its savviest readers to share some best practices for social media. Many of these also serve as useful guides to shaping presentations, pitching to angels, and even running a business. How does your presentation stack up on these points?
• Would an actual person talk that way?
• The consumer is out for himself, not for you.
• Have an ROI. Have an ROI. Have an ROI.
• Don’t make people do X, Y, then Z. Stick with X.
• Your fans own your brand.
• Everyone’s an influencer.
• If all you do is respond to complaints, that’s all customers will send you.
• As monetization attempts go up, consumer experience goes down.
• If you don’t see financial results, you wasted your money.
• Solve problems for people who talk about you, even if they don’t address you.
• Not everything will work, and that’s fine.
• Offer more value than you expect to get in return.
And then comes the ask, the point of the pitch in the first place. Salespeople call it the “bid for action.” There’s no sense in being coy. We all know why we’re here. Tell me how much money you actually want to raise. You’re looking for $500,000? Ask for it and tell me how long it will last.
You should be about done by now. I’ve probably heard enough to make a decision. Either I’m interested or I’m not. It’s better for you to make sure of my intentions since you do not want to lose precious time.
If there are some points I’m curious about, I’ll ask you additional questions. If you’ve done your homework and prepared well, there will be relatively few critical questions left unanswered. But angels like to see how founders think on their feet, so we will probably throw you a question or two. Some of us, unfortunately, just like to hear ourselves speak. So if there’s an opportunity for Q&A, you will certainly get it.
It’s time to wrap up. I hope I’m as enthusiastic and excited as you are. I love nothing better than the shared experience of hearing something great presented in a way that really makes sense. Make an emotional connection and conclude with a final pitch. You should make time for a concluding statement that ties it all together and hurls me into orbit with your startup at the center.
There are lots of ways to get me cranky when you’re pitching.
• Saying “unique” and “revolutionary.” As an old PR/marketing guy, I know nothing is further from the truth than saying something is “unique” or “revolutionary.” Let your audience be the judge after you’ve made your case and presented an exhaustive market analysis.
• Shooting from the hip. Angels hate BS. “I’d rather hear an honest ‘I don’t know’ than a desperate attempt to make up something on the spot,” says angel investor Alain Bankier. Other appropriate responses when you don’t know: “Let me get back to you on that” or “We haven’t resolved that yet.” And then get back to them in a timely and responsive manner.
• Using loose numbers. You have to know your numbers cold. Own the vital signs of your company. I want to understand in detail how much your product costs, the costs of every component, how much it costs to make it, as well as how much it costs to make a sale. You can’t punt on this or delegate. When I first heard the pitch from Tom Patterson, the founder of Tommy John Underwear, I was impressed by his command of the numbers and ultimately invested in his reinvention of men’s underwear. He understood his financials, margins, the P&L, the balance sheet. “There are good businesses and great businesses,” Patterson says, “but the great entrepreneurs are in total command of their financials. This task can’t be delegated. Anyone can have a great idea, but true entrepreneurs don’t ask others to do something they haven’t done themselves.”
• Inconsistency. If you tell me you expect sales of your product to be $2 million and then, 10 slides later, the number is $2.5 million, I’m going to wonder if it’s a typo, or maybe one number is gross sales and the other net sales. In any case, you’ve lost me. It doesn’t reassure me to worry about the meaning of the most basic numbers in your presentation.
• Confusing me. Anything that makes me scratch my head will stop the flow of the presentation. By all means, take me through all the steps, but if you leave out a step that may be obvious to you, you’ll leave me behind, and I’ll need to figure out the missing steps. Frankly, I don’t want to work that hard.
• Keeping a day job while running a startup. I want to invest in founders who have the confidence and commitment to put everything they have into the venture. Hedging your bets by keeping your job tells me that you’re not ready to accept the risks of a startup. I won’t think less of you for that. Having a steady income and benefits is a personal decision. But if you’re not ready to commit full time to the startup, I am not ready to invest.
• Sloppiness. I’m pretty hard on presentations with typos, misspellings, mistakes in addition, or a table out of place. I worry that if you can’t even get a presentation right, how will you run a company?
• Arguing between founders. It’s just so middle school to witness a pitch in which the founders are correcting each other or arguing among themselves. You’d be surprised how often it happens.
• Urgency. Dating and pitching have a lot in common. You can’t expect to turn a blind date into a marriage proposal in one go-around. Now, I haven’t dated in a long time, but as I recall, the point of a date is to get to know each other and determine suitability for moving forward. Promises matter less than the confidence that comes from just exchanging stories. So it is in the dance between entrepreneur and angel investor. I want to get to know you gradually and by talking determine for myself if you can deliver on your promises. What I want to see, more than anything else, is energy that burns bright. By all means, show me your commitment to success, but urgency is always counterproductive.
• Mistaking me for a customer. I’m a potential investor, not a customer. Don’t ask me to sit through a product demo. Too many entrepreneurs are so in love with their products that they want to evangelize about them instead of recognizing what they should be selling: the concept and the team. The product that I am buying is you and your team. The product you are so currently excited about will almost certainly be something else by the time you launch.
Howard Morgan, founder of First Round Capital, says it’s a basic mistake for entrepreneurs to confuse an investor with a customer. “When you are making your pitch, you’re selling multiple things,” Morgan advises, “but to investors you are making a pitch to buy your shares.” The clearer founders are about what investors are actually buying, the better they can craft the pitch about what it is they are selling.
• Nepotism. I’m not going to invest in founder teams that include boyfriends and girlfriends or lovers of any gender. Do I have to explain why? Next! I get nervous when I see relatives on the team, especially if they have invested in the company. Is your brother-in-law really the best developer available? Yes, you need a lawyer, but—as competent and reasonably priced as he may be—it shouldn’t be your father. Doing a startup is complicated enough without the added complexity of dealing with romantic interests or relatives on the payroll. I’ve seen such arrangements blow up and threaten entire enterprises. Keep it simple as much as you can. When you hire, cast the net wide to find the very best person for each role.
• Talking about “sales.” Sales are so last century. Nobody wants to be sold to. If you have business cards with the word “sales” on them, throw them away. You want to be on the same side of the table as your customer.
When startup entrepreneurs talk, angel investors listen. But what do angels really hear and think?
What they said. “We have an incredible, game-changing, transformational vision for the future.”
What we heard. “We have our heads in the clouds with little idea how to execute.”
What they said. “We haven’t finalized that data yet.”
What we heard. “That data doesn’t make sense.”
What they said. “We’re staying on message because our strategy is in line with our values.”
What we heard. “We like to talk about ourselves.”
What they said. “We are in it for the long haul. We are not looking for a quick sell.”
What we heard. “No one is stupid enough to buy us.”
What they said. “We’re pursuing a blue ocean strategy.”
What we heard “We don’t have a clue what our strategy is.”
What they said. “This is all very new and exciting.”
What we heard. “Do you have any advice? We could really use some advice.”
What they said. “Our financials are conservative.”
What we thought. “Even so, they’ll never make those numbers.”
What they said. “We’re ‘Facebook for X.’”
What we thought. “Great, yet another one.”
What they said. “All we need is a 1 percent market share, and we’ll all be billionaires.”
What we thought. “They have no clue how much customer acquisition will cost.”
What they said. “BigNameVC is really interested in us.”
What we thought. “Anybody can express interest. Who’s writing you checks?”
Almost no experienced investor will sign a nondisclosure agreement (NDA), so don’t ask. Doing so marks you as a rank amateur.
Instead of protecting your precious idea, you should be shouting it from the rooftops to everyone who will listen. This includes investors, of course, but also friends, family, neighbors, the hairdresser, and the guy next to you in line at Starbucks. Don’t worry about people stealing it. First of all, most people will think your idea is worthless. That does not mean your idea really is without value. It’s actually a good sign when your idea challenges the conventional wisdom. If everyone loved your idea, I’d tell you it’s not disruptive enough.
The risk of someone stealing your precious idea is essentially zero. Have you ever met anyone who is willing to drop everything they’re doing to copy an untested idea? Would you? It just doesn’t happen. People are too busy pursuing their own ideas. As for angel investors, we’re in the business of funding existing teams and ideas. We have absolutely no interest in building untested companies around the countless untested ideas that come our way.
So spread the word about your idea as widely as possible. Tweet and blog about it. By doing so, you get to gauge people’s excitement level. You get to refine your elevator pitch. You get to discover wrinkles and flaws you haven’t considered. You might even hear about a competing product that makes your idea irrelevant. If you do, consider yourself lucky. By being open with your idea, you’ve just saved yourself years of fruitless work and expense.