Trying to raise money for the first time can feel like being dropped on another planet. To say that closing an investment is a big challenge for most entrepreneurs would be an understatement.
When investors are looking at hundreds of deals, what can you do in your investment pitch to stand out from the crowd? Here are a few key tips on how to pitch to investors that can give you the best chance of success. And if you want to learn more about Raising Money, check out our entrepreneur training program.
How to Pitch To Investors: 10 Messaging Guidelines
While business fundamentals are usually what dictates whether investors invest, your presentation and demeanor can have an equal or greater impact. You must present your business and team as the right opportunity and deliver your message with clarity, confidence, and creativity. Some things to keep in mind:
- The train is leaving the station—whether they’re on it or not. Act as if it is a matter of time that your solution will be a success. Portray that your offering will succeed regardless of whether this investor is smart enough to get on board. This is not to suggest that you should be arrogant. You believe in what you are doing. It was enough for you to leave your job, burn your savings, and sacrifice a normal life. Now is not the time to be modest.
- Never Act Like You Need Money. There will be times when you go into an investor meeting running out of money or when this investor is your only prospect. You may not even be able to afford the cab ride over. It doesn’t matter. When you walk into any meeting or take a call with an investor, never act like you “need” money. This shows an air of desperation and causes the investor to think, “If this is such a good idea, why are they out of money?” And, “If this individual is such a good leader, how could he let the business become underfunded?” I don’t care if you don’t have a dollar to your name, never act like you need money. You “want” money to take advantage of the market opportunity.
- Do Not Let Them See the Strain. It is hard to turn off the pressure and strain of being an entrepreneur. You must, however, turn it off when you meet with investors. When investors see this strain, it creates doubt about your ability to plow ahead. While you think the day you get capital will make things easier, investors understand that while things get better in many ways (e.g., hiring staff ), it also gets more complex. They want a leader who has staying power and when they see the strain on your face, it creates doubt.
- Encourage Investors to Talk to Third Parties. Third party validation is a useful tool to present to investors—especially if you offer before they ask. But you can also encourage investors to talk directly to customers, vendors, and employees and validate your success first hand. Companies who shy away from offering references or offer them begrudgingly are viewed with skepticism. Companies that offer them before they are asked are viewed as confident and capable of leveraging legitimate with true third party proof points.
- Realize You Are Always Onstage. As we noted earlier, you are always onstage. This is particularly true when it comes to investors. Every single interaction— a phone call, email, text message, meeting, interaction with staff —with or in front of an investor, is part of the data they will use to evaluate you as a leader. There is no “off the record” with investors.
- Ask for Enough Money. One of the telltale signs of inexperienced leadership is not knowing how much money your business needs to succeed. This is almost always true with new businesses, especially those that are based on new and unproven models. Investors want leaders who understand what it takes, ask for what they need, and know how to fight to get it. I know what you are thinking. If I ask for so much money before we are proven, our valuation will be too low and we will have to give away too much of the company. There is a way to manage this. Ask for more, and have a plan for less. If you are raising $3 million, you could offer the $3 million in stages—$1 million now and $2 million in one year. You communicate that your plan calls for a $3 million investment and that you are willing to take as little as $1 million if the valuation does not meet your expectations for the larger raise.
- Addressing the Future CEO. One of the most difficult issues that entrepreneurs face is what their role will be in the future. After all, you are the one that put all the time, money, blood, sweat, and tears in the business. How dare they question your role. Wrong answer. Investors are looking for leaders that know what a company needs and are candid about their desires, strengths, and weaknesses. There is a simple, standard answer that you must communicate, and, more importantly, believe:
“The future leadership of the company is critical to our success. Today, I act as the leader of the company. I have never been a CEO before, and when we get to the point to discuss leadership, I would welcome the opportunity to discuss what role would be appropriate for me and what is in the best interest of the business.”
This is a tough one and this by no means suggests that you won’t be running the show. However, investors have seen many businesses come and go and can smell CEO qualities a mile away. An individual who states that they will be CEO even if they are not qualified to do so undermines his or her credibility.
This not only causes investors to doubt the strength of the business but also the judgment of the leader. Talk about this topic openly and communicate that the criteria for the decision will be whatever is the best interest of the business. Your transparency will help diffuse a potential deal breaker for an investor.
Obviously, the fundamentals of your business are the key. But having the right messages can improve your chances.
Conclusion – The Best Way To Pitch To Investors
If you have never raised money before, doing so is an art. It requires various approaches to messaging, process and communication that compel an investor to say, “I want to invest in that company and that leader.”
The perspectives in this article may not be comfortable, but they will change the investment process from one that controls you to one that you control. While business fundamentals are usually what dictates whether investors invest, your presentation and demeanor can have an equal or greater impact.
You must present your business and team as the right opportunity and deliver your message with clarity, confidence, and creativity. Following these perspectives does just that, and allows you to put your best foot forward even when you feel like you are going backward.