Guest post by Jeff Shackelford
In the world of entrepreneurship, the number of times each day that you have to describe your business can be overwhelming. In Kansas City, we’re lucky to have programs like 1 Million Cups, a weekly gathering of local entrepreneurs. These programs help knit together the startup community, publicize early-stage companies, and help startup receive and implement early feedback and advice.
These programs are wonderful in that they create a very visible practice stage—but the stage at 1 Million Cups is very different than the environment that companies encounter when pitching to private investors. We’re lucky to have access to resources in Kansas City that help connect early-stage companies with equity investors, like the ECJC’s Mid-America Angel investment network (MAA). But how can you ensure that you’re ready to make the transition from the 1 Million Cups stage to the MAA boardroom? Attending this week’s workshop at the ECJC, “Pitching to Investors,” can help (full disclosure: I’m presenting it), and I wanted to share a few quick tips that I’ll elaborate on in the training.
Your pitch should be persuasive, not just informational.
When presenting at 1 Million Cups, your goal (and your audience’s goal) is drastically different than it is when presenting to a group of potential investors. Programs like 1 Million Cups help you refine your story, which is an important part of any pitch. However, telling your story is the entire goal of your pitch at 1 Million Cups, while it’s only a device that should be used to augment your investment pitch.
When thinking about the difference between educating a crowd about you and your company and persuading a room of angel investors that you’re worthy of their time and consideration, think carefully. Ask yourself how the story you’re telling illustrates the strength of your team, the size of your market of the innovative nature of your product. Telling a story in a pitch to investors is important, but it’s equally important to recognize that it’s a means to an end.
You’re asking for something specific (money), in exchange for something specific (equity).
The famous 1 Million Cups question, “what can the community do to help you?” elicits all kind of answers. I’ve seen answers to that question ranging from Twitter followers to technical advice on purchasing equipment. While you might get some of those same things out of a pitch or a relationship with an angel investor over time, remember why you’re pitching. You’re asking for money in exchange for ownership of your company.
If you’re not comfortable with that exchange, you should consider looking at other ways to fund your company’s operations—seeking an SBA loan or a proof of concept grant (like Digital Sandbox) might be a better fit for you. From the investor’s side of the table, you’re looking for ways to make money in a short amount of time. In order for that to happen, an “exit” event must take place; an initial public offering (IPO), acquisition or stock buyback are all exit opportunities. At that time, investors can exchange their share of the company for cash by selling shares or receiving a proportion of a distribution. But at the end of the day, if you don’t envision giving up any ownership of your company, growing quickly, and/or selling your company, raising capital through equity investment may not be right for you.
To move forward, you have to be open and honest about your company’s financial health.
You very rarely (almost never) see a company asked specific questions about revenues, financial growth and projections. But before you pitch to investors, it’s important to fully understand and explain your company’s financials. Investors see many, many company pitches in an effort to find the best investments (a process called deal flow). On occasion, entrepreneurs wanting to pitch to a group of investors will ask them to sign a non-disclosure agreement (an NDA). As an investor, signing that many binding legal documents and potentially getting nothing in exchange is a losing equation.
To seek private equity investment, entrepreneurs have to be willing to share information about what, exactly, investors are buying in advance, without the protection of an NDA. While it’s probably not a great idea to share the internal numbers and inner workings of your company with the public in a venue like 1 Million Cups, it’s also important to recognize that a pitch for investment is a different environment with different expectations.
All that being said, there’s one important way in which pitching at 1 Million Cups and pitching to investors are similar: both are a learning experience. Just like it’s important to pay attention to the Q&A at 1 Million Cups, investors may have questions for you that will ultimately help make your pitch stronger. Look at each pitch as an opportunity to receive feedback and create a better, stronger pitch (and ultimately, a stronger company).
If you’d like to learn more about the specifics of what investors want to see in a pitch deck, what questions might come up, and how to communicate your company’s strengths, consider attending this week’s workshop at the ECJC. I hope to see you there.
Jeff Shackelford runs Kansas City’s Digital Sandbox, a proof of concept grant program.