Did you know that running out of capital means the end of the road for around 29% of startups?
Raising capital is a key factor to your startup’s success – unless you have deep pockets. This means developing a good relationship with investors – something I have previously talked about here.
Once you’ve developed that relationship, and it’s time to ask for that all-important injection of capital, you need to showcase what you have to offer.
Investors need to see that you, the team you assemble and your product are a good bet that will bring in a good ROI.
That means you need to:
- Create an achievable business plan with a clear financial path
- Deliver an engaging pitch to investors that is both impossible to ignore and hard to forget
Let’s get started and cover everything you need to create a rock-solid business plan and deliver a show-stopping pitch to investors.
The Blueprint for a Rock-Solid Business Plan
Without a clear path to profitability, you’re going to have a tough time persuading investors to fund your startup. Moreover, there is statistical evidence to support creating a business plan:
“One study found that companies that plan grow 30% faster than those that don’t. Another found that 71% of fast-growing companies (companies that had over 92% growth in sales from one year to the next) have plans.”
Developing a business plan will prepare you to answer questions from investors on every aspect of your company.
Investors will also go over your financials with a fine-tooth comb to decide if your startup is worth a second glance.
Here’s what you should include in your business plan to give you the best chance of success with investors.
Here you should summarise the key elements of your business in one or two pages. It should include the following:
- The problem you are proposing to solve
- What your solution is and why it is new, different and better than the current solution (Unique Value Proposition)
- Your target market
- Your competition and your sustainable competitive advantage
- An overview of the management team
- Business Model Your business goals for the next one, three and five years
- Financial highlights
Here you are introducing the investors to your company and concept. You should include:
- Your company mission statement, vision and goals
- Information regarding your corporate structure
- Description of your industry and target market
- Description of your competition and why you are better
Products and/or Services
Here you should describe what you are selling and how you produce it. This is your opportunity to describe in further detail the problem your stakeholders have and how you are solving it for them.
This section should include information about your industry, target market, competition, and how you plan to make a place for your product or service.
To achieve this make sure you have detailed information on the following:
- Industry Description and Outlook – Detailed statistics that define your industry including size, growth rate, trends, and outlook.
- Target Market – Who is your ideal client? This data should include demographics on the group you are targeting including age, gender, income level, and lifestyle preferences. This section should also include data on the size of your target market, purchase potential and audience motivations. As well as how you intend to reach your market. Here is a great resource for some further reading on researching your market.
- Market Test Results – Here, include the results of the market research you conducted as part of your initial investigation into the market.
- Competitive Analysis – Who is your competition? What are the strengths and weaknesses of the competition? What are the potential roadblocks preventing you from entering the market?
The marketing strategy outlines where your business fits into the market and how you will price, promote, and sell your product or service. It relies heavily on your market analysis.
Outline how you will position your product or service and the brand identity you want to develop.
This section also covers the pricing strategy, the distribution of your product/service to customers – as well as marketing and promotional activities.
This is your opportunity to cover the daily operations of your startup such as production, quality control, inventory systems and so on.
It should also include the legal elements of your startup such as legal structure, insurance, permits, patents, etc.
Management & Organisation
Here you should detail your startup’s management team. This includes:
- Job titles
- Position descriptions
- Prior experience
“The perfect team as far as I’m concerned is three people: somebody who brings the resources; the person who’s focussed on the marketplace and the person who can deliver — CEO, CMO and CTO.” – Paul O’Brien – CEO of MediaTech Ventures.
Startup Expenses and Capitalisation
This section focuses solely on the capital you need to open your business. Including startup expenses, product development costs and overheads.
Here I wanted to take a moment to outline some examples of the documents needed to create a financial plan.
Please note that different industries have different accounting structures. For example, the financial documents of a lending startup are very different from a company that produces hardware.
I recommend taking a short accounting course on Udemy – alternatively, ask a friend who is knowledgeable on the topic.
Profit & Loss Statement
The profit and loss statement is a document that states revenues and expenses within a certain accounting period (a year for example).
It is created to understand the profit and losses that are incurred by the startup. There are many models for profit and loss statements – here’s an example of one model:
At the early stage of your startup, you only need this to prove that the core of your business will be viable or to identify the break-even point, for instance. In conclusion, I wouldn’t recommend going into too much detail on this at the early stages or you risk falling into an infinite loop of assumptions.
Your balance sheet is a statement of what the company owns, in terms of assets, and owes, in terms of liabilities and equity.
In a nutshell: equity + liabilities = assets. Here’s an example of a balance sheet:
Cash Flow Statement
The cash flow statement shows how changes in the balance sheet accounts and income affect cash and cash equivalents.
It also breaks down the analysis into operating, investing and financing activities. Here’s an example of how to calculate cash flows:
Finally, you should include any supporting documents that back up any assumptions and descriptions that you have outlined in previous sections.
Once you have your business plan and financials in place, it’s time to create your pitch deck.
An Engaging Pitch
When you pitch to investors, you’ll have between 10 and 40 minutes to do one thing.
Your pitch needs to sell investors on the idea that you and your startup represent an opportunity for them to reap significant returns.
For every 1,000 pitches an investor hears, they will fund only 100 of them. The first step in being one of the 100 is to compel them to open their wallets.
How to Compel Investors
Put yourself in the right room. That is to say, find investors who have money and an interest in your startup. If you can’t figure out a way to get a warm introduction with investors how can you figure out how to reach your customer?
You have to remember a pitch is not designed to raise money. It is just a way to get a “second date” with your potential investors.
A great pitch needs to answer two questions: “Why You?” and “Why Now?”.
What is it about you and your team uniquely qualified to execute this idea and why is it relevant now?
Those two questions alone, however, are not enough. Three unspoken questions need to be answered – and they have nothing to do with your presentation or data.
They have everything to do with the investor’s perception of you, your team and your idea.
The first unspoken question is “Do I think this will work for me?”
Investors need to see how your startup fits with the other companies in their portfolios. Furthermore, they need to know that they can bring something to your company – besides a cash injection.
“You want to keep investors who really know your industry up to date weekly. Genuine investors can help you and want to work on your success — they’re not just a check.” – Paul O’Brien – CEO of MediaTech Ventures.
The second and third questions they will ask themselves are all about you and your co-founder(s).
They are “Do I like you?” and “Do I trust you?” and the answers can make or break your chance of getting their backing.
To successfully get the coveted “second date” your pitch needs to have:
- A clear business plan as outlined in your Pitch Deck.
- Communicated through a compelling presentation filled with interesting stories and not dry facts
- Delivered with confidence, passion and clarity
Above all “Brevity is the soul of wit”. Communicate your knowledge, intelligence, wisdom and humour as succinctly as possible.
The Essentials of Your Great Pitch Deck
The goal of your pitch deck is to show the essence of your business in 10 to 15 slides – with as few bullet points as possible.
To get started, here is an outline of the slides you should include:
- Opening/Title Slide
- A summary containing your Value Proposition
- The problem your target market faces
- Your solution
- Your Product
- The Business Model
- Go-to-market Strategy
- Company Financials
- Competition & your unique advantage
- The Team
- Your funding requests & how you will use them
- Closing Slide
Feel free to adapt the above formula to account for specific questions your investors may have.
Before we move on to turning your pitch into a great story I want to give you a few final notes on your pitch deck.
Keep your pitch deck current. Presenting out of date information is harmful to your startup. Getting flustered during your pitch as you try to explain your way out of the situation is even worse. You will come across as unprepared as a result – and you won’t be taken seriously.
As I’ve mentioned timing is everything, and your pitch should be succinct. I would advise, however, that you prepare a second, more thorough, pitch deck to leave for potential investors.
It will provide them with an in-depth resource to explore at their leisure and learn more about you and your startup.
As I said before, your pitch deck is a tool to help you get that second date. Fill it with the best information to get you to that second meeting.
A Great Pitch Tells a Great Story
Unless your pitch stands out from the crowd potential investors will lose interest.
While facts and figures are important, they’re not enough by themselves. The fact is stories are far more memorable than statistics. As Plato once said, “Those who tell stories rule society” or in this case, investors.
When you talk facts & figures you are tapping into the left brain – the analytical side. Consequently exposing your flank for critique because the investors will already be doing their internal calculations to fact check what you are saying.
Conversely, when you tell a story people relax. You are instantly tapping into the investors’ right brains.
As a result, their imagination lights up and they instantly appear more engaged. This is because you are combining a logical connection with an emotional one.
This combination makes you hard to ignore – and more importantly hard to forget.
That being said, let’s separate your presentation into what every great story needs – a beginning, a middle and an end.
Note: Throughout this section, I’ll be using Revolut’s seed pitch deck as an example (Source).
“Never bury the lede.” – If you want your investors to remember something put it at the beginning of your pitch.
Investors are betting on you as much as your company, a great personal story is also a great way to open your pitch and engage potential investors.
This is where things get a bit more technical. Once you’ve built some rapport and engagement with your opening, it’s time to start building the logical connection while strengthening the emotional connection:
Your Unique Value Proposition – Your unique advantages in the sector, potential target market size and, if you have it, a proof of concept (your traction). Make sure your potential investors know you have something of value to offer and how excited you are about your company (remember to keep tapping the right brain).
Tell the story of your customers’ problem – Get creative with this, use a case study if you can. Explain in detail how your product, or service, will provide your customers with an innovative solution.
Demo or describe what your product does – Remember here that they are not buying your product, but investing in your company. They are buying your ability to deliver the product and make it profitable.
Describe your business (this is what investors are buying) – They want to know about your business model, go-to-market strategy and financials because, fundamentally, that’s what they’re paying for.
Recognise your competition – Investors want to know that you are aware of your competitors but not worried about them.
Introduce your team’s key members – Don’t be afraid to go into detail including background and professional achievements – it’s a huge trust builder.
Make (and justify) your funding request – Ask for the money you need. Immediately follow this up with what you will use it for and the milestones you will accomplish because of their investment.
Q & A – Open the floor to any questions your investors may have. If you have successfully engaged with your pitch, they will certainly have questions.
Your pitch’s conclusion should be a confident statement endorsing the potential of your company.
Don’t promise to boil the ocean, keep your goals and milestones achievable. Prioritise the information that goes into your presentation – in other words, keep it lean and relevant.
Finally, make sure your stories are effective at engaging and tapping into the right brain – so you can nurture the emotional connection.
Once you have your pitch deck in hand, it’s time to think about what you’re going to say once you step into the room.
How To Deliver an Engaging Pitch
Speaking publicly is always nerve-wracking, especially when the stakes are high. Remember when you write your presentation it should flow naturally and feel like a conversation.
Focus on taking people on a journey with you, this will keep them engaged in you and what you are showing them. If they are engaged and feel a connection they are more likely to say yes, as a result.
Here are some tips to have in mind to make you a more compelling speaker:
- Before entering the room, relax
- Plan your moments of certainty and keep them as milestones in your mind
- Own the room you are walking into with your confident energy
- As you pitch to investors make eye-contact with them
- Speak slowly – if it feels like you are speaking too slowly you are probably speaking at the right speed. We all tend to rush through public speaking because of nerves. Just say to yourself the Italian expression piano piano (slowly).
- Speak naturally – be aware to not get monotonous and vary your pitch
- If you move, move with purpose. Make decided choices and go from point A to point B
- No matter what happens, power through. If you mess up its not a big problem. Remember you know what you were meant to say – but the people you’re talking to don’t.
Preparation is key when you pitch to investors.
Firstly, create an achievable business plan with clear financials. Secondly, use the passion you have for your product and business vision to create a pitch deck that will engage investors.
When it comes to the execution of your pitch to investors, speak with confidence, tell the story with the support of facts and figures.
Finally, after your pitch, be ready to answer any questions they may have.
Good luck and thanks for reading.
Also published here.