If you want to help an entrepreneur get through a demo day or pick up a few seed investors, you can do it by covering the basics...
But if you want to help an entrepreneur raise serious money, you are going to have to dig deeper into your bag of tricks and address some of the advanced issues. These are the critical areas where pitches are almost always too shallow. Knowing which are the trouble spots and how to make sure they are covered is essential advice for entrepreneurs looking to raise serious money. Let’s go through them one at a time.
Explaining The Market Moment
To be credible, a pitch must answer the “why you, why now?” questions which provide context for the business. What has changed in the universe that makes this business suddenly not only possible, but a great idea? An entrepreneur must explain why they are the gal or guy to do it.
Detailing The Go-To-Market
An entrepreneur has to be specific about how they are going to crack their market. Selling is really hard, especially to certain types of customers. They are going to need to convince investors that they have a very specific and detailed plan or business model innovation that is going to allow them to acquire their intended customers affordably (relative to their lifetime value).
Assuming Fast Consumer Behavior Change
Making assumptions about how target customers' behavior is magically going to change has been referred to as "delusional economics." After the few early adopters, mainstream customers have incredible inertia. The power of the status quo can be immense. The arrival of the internet/wireless/mobile is not going to suspend the laws of physics and gravity in an entrepreneur’s industry. It is not safe to assume that if they build a more efficient clearinghouse / marketplace / trading platform / matching service, everyone’s behavior will instantly and automatically change. Convincing customers to buy from them is going to be hard and expensive. They need to explain what secret sauce makes it less hard.
Paying Insufficient Attention to Buying Priorities
Certainly someone will want an entrepreneur’s product. Unfortunately, their immediate addressable market is limited to the people for whom buying their product is a top priority. How many of them are there? Although a lot of businesses identify a real, legitimate problem for customers, they still fail because other higher priority problems gobble up customer wallet share.
Omitting Marketing Skills
When talking about their go-to-market, entrepreneurs either need to convince investors that they have the marketing experience on the team, OR that they know they don't and they plan to go get it. Everyone thinks they know how to market. Most don't. Entrepreneurs need to identify the marketers who can help them.
Building a Realistic Model
Most entrepreneurs totally underestimate what it will cost to achieve success. Investors have seen and experienced many business models and know it is always harder, takes longer and costs more than anticipated. It is crucial to really think through the necessary people, time and financial resources required, and to come prepared with a realistic plan. Entrepreneurs should use both a bottom-up and a top-down approach. Then sanity check it against benchmarks. Underestimating costs and showing an improbably fast time to big revenue and profitability doesn't impress people with the model – it highlights the naivety.
Assuming It Will Translate
Even if an entrepreneur can paint a credible case for their initial target market, don't assume that the next vertical, next geography or next customer segment will be as easy. Logic dictates that they are starting in the easiest place. By definition, any expansion will be harder and farther out of their comfort zone and experience base. They must be realistic about their expansion assumptions. Yes, their brand and momentum will help a little, but no where near as much as they think.
Engineering a Sustainable Competitive Advantage
Even if a company can fight to win a segment, if it cannot make any money at it over the long-haul, they’ve still lost. Too many entrepreneurs talk as if their market is standing still, when, in fact, any market worth tackling will always be evolving and growing more competitive. It is critical to talk about how they will defend their position, their pricing, and their margins against the inevitable competitive reactions. It might be intellectual property, it might be some kind of tolerable customer lock-in or switching cost, it might be a product roadmap that keeps their value prop more compelling over time. Whatever it is, they need to explain it, and the explanation needs to be believable.
Failing to Think Exit Scenarios Through
Most entrepreneurs don't think through their exit strategy adequately. If they succeed, who buys them? Ultimately this is the bottom-line for investors. Equity from investors is like a loan that the buyer of their company pays back. They need to talk in detail about the different classes of buyers, why they would buy the company, what they would value it for, what kinds of multiples they might be expected to receive, and what milestones they will need to hit to command those prices.
It is not easy for an entrepreneur to step back and look at their story objectively enough to spot where it is thin. But there are a few critical big picture elements that they simply cannot afford to blow past. As an advisor, your job is to make sure they cover the above topics adequately - this is the key to convincing investors that their company and team is one that just might reach exit velocity and escape rather than fall back out of orbit and burn up on the way down.
If you would like the opportunity to pitch to one of our syndicate please submit an entrepreneur application here or call us on 01 669 8525 to find out more.
This piece was adapted from an article published by Seraf Investor and was written by Christopher Mirabile.
Seraf Co-Founder Christopher Mirabile is the Chair of the Angel Capital Association and Co-Managing Director of Launchpad Venture Group, an angel investment group focused on seed and early-stage investments in technology-oriented companies. Christopher has served as a public company CFO with IONA Technologies PLC, a management consultant with Price Waterhouse's Strategic Consulting Group and as a corporate and securities lawyer with Testa Hurwitz & Thibeault.
Christopher's portfolio management skills and insights are born of experience. He is a full-time angel and an active member of the Boston-area angel investing community. Not only does he help manage the Launchpad portfolio of 50+ companies, but he has personally invested in over 70 separate fund-raising rounds in 40+ start-up companies and in addition to his direct investments is a limited partner in four specialized angel funds. Christopher is a board member, advisor and mentor to numerous start-ups, and a frequent panelist and speaker on entrepreneurship and angel-related topics. He also serves as an adjunct lecturer in Entrepreneurship in the MBA program at Babson. For these reasons he was named one of Xconomy's "Top Angel Investors in New England.