Preparing a Pitch to Professional Investors

DPON-81-E June 2009

This technical note was prepared by Conor Neill, Lecturer, under the supervision of Professor Brian OConnor Leggett. June 2009. Copyright 2009, IESE. To order copies or request permission to reproduce materials, contact IESE PUBLISHING via the website, www.iesep.com. Alternatively, call +34 932 534 200, send a fax to +34 932 534 343, or write to IESEP, Av. Pearson, 21 - 08034 Barcelona, Spain, or [email protected]. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means electronic, mechanical, photocopying, recording, or otherwise without the permission of IESE. Last edited: 30/9/09 2-409-103 1

Pitching to Professional Investors

This is a technical note on preparing and delivering a presentation to investors for the purpose of raising capital for your business venture.

The standard pitch to professional investors is a brief, well rehearsed Microsoft PowerPoint presentation that might include a demonstration or professionally produced prototype. Such meetings do not last more than an hour.

Scope of this Note

This is not about entrepreneurship, development of business plans or how to market your product. This is about the preparation, rehearsal and delivery of a 45-minute pitch to professional investors.

The Pitch Matters

The pitch matters. A great pitch doesnt automatically close a deal. It is the first impression that you make. You can never again change that first impression.

Ben Yoskovitz, founder of Standout Jobs, says The pitch is what a venture capitalist uses to size you up. Most often its the CEO giving the pitch and theyre looking for personality, confidence, passion and knowledge. Theyre deciding, without really listening to every detail of what youre saying, whether or not they think you can lead your start-up to success. (Bens blog www.instigatorblog.com contains many good tips on raising capital and has inspired this author).

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DPON-81-E Pitching to Professional Investors

2 IESE Business School-University of Navarra

Nobody has gotten a term sheet just from their pitch. However, if you have a poor pitch its almost impossible to raise money.

David Rose, a serial entrepreneur and serial angel investor who has raised over $100m for various businesses, gives a great presentation about pitching at TED (www.ted.com/talks/ david_s_rose_on_pitching_to_vcs.html). A lot of the ideas in this note are inspired by his presentation.

The VC Question: Is this a Backable Person?

Nick Luckock, a seasoned venture capitalist, having spent time at Apax, Cambridge Place and now on the Board of Bluestone says professional venture capitalists are looking for one simple thing in the pitch: Is this a backable person?

What tells a VC that you are a backable person? Track record. Have you made money? How much money did you make last time?, Winners repeat. Nick says Most first time entrepreneurs assume that they know all the answers, but if you dont have a clear track record of making money for investors you must be prepared to surround yourself with those who have done it before. Great boards are made up of people who have done it in the school of hard knocks (not professors or McKinsey consultants, people who have made money as part of the leadership of a successful venture). Way too many entrepreneurs dont know how to ask for help. Use other people to your own advantage.

The pitch needs to cover how you are going to make money, not technology, not product, not idea, not market. How does it translate into making money? The worst presentations start with a product demo then stock company presentation.

Get Mentors, Get Referrals and Manage the Communications Process

Christopher Pommerening of Active Capital Partners says before you even begin fundraising you should have personal and professional mentors. Find senior people in your sector, preferably with 15 years more experience than you.

Get introductions to venture capital firms. Cold calls or blind mailings do not lead to meetings. You need a 1-2 page executive summary that you can send out before you will be able to receive a meeting invitation. Best introducers are your initial seed investors and your personal mentors. Search your contacts for a lawyer or accountant who has worked with a venture capital firm. Other good introducers might be entrepreneurs or existing investors in venture-backed companies. Franz Helbig of the European Venture Capital Institute says 25% of the deals we see are referrals and 75% are unsolicited; but over 95% of the deals we actually do come from referrals.1

1 Helbig, F. L. (1988) European Venture Capital Institute. Koln: Deutscher Wirtschaftsdienst John von Freyend Gmbh, 54.

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Pitching to Professional Investors DPON-81-E


Create your CRM tool for fundraising follow-up communication. Keep track of what you send out to which investors. Keep track of where you are with each investor and keep asking for referrals.

Eight Personal Traits that must come across

The single most important factor in presenting to professional investors for the purpose of raising capital is you. In 45 minutes you must sell yourself. People do business with people.

There are eight traits that you must convey to professional investors in order for them to reach into their wallets and put their cash on the table and into your business.

1. Integrity

2. Passion

3. Experience

4. Knowledge

5. Commitment

6. Vision

7. Realism

8. Being Coachable

The single most important thing that you must convey to the investors is integrity. Integrity is coherence between actions and values. If the investor feels that you might not be trustworthy there will be no investment. If there are any doubts about your reputation this must be overcome to allow the venture capitalist to focus on the pitch.

The second most important thing that you must convey to the investors is passion. You are changing the world, if you cannot get passionate about this, why will you be able to get customers, recruit a great team and bring suppliers onboard?

Investors love experience. They love to invest with serial entrepreneurs, somebody who has done this several times before. Can you show that you have run something before? Have you run a division of your company, a team, a charity event or a community project?

Investors love to see somebody with lots of knowledge. You are going to build the human genome, you must convey deep knowledge of the science and the people and players in the sector.

Investors love to see commitment. They want to feel that you will die protecting their money, fighting for it, fighting through to the very end. Will they see somebody who might surrender at the first big obstacle? Will they see somebody who has consistently stayed the game? John Osher, a serial entrepreneur who has sold several businesses, including Dr. Johns SpinBrush to Procter and Gamble for $475m comments, You cant really do anything significant without fully committing to it. A lot of people try to dabble. They think theyll do it part-time and see how it works out. If you plan to be successful, you have to commit.

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Show personal financial commitment. Is it already in or planned for the next round? Signal your commitment with actions.

Investors love to see, hear and feel your Vision. They want to see that it is clear and highly shareable.

Investors want to hear realism. They want big dreams tempered with a clear understanding of the real difficulties and challenges that lie ahead.

Investors want to get involved with coachable entrepreneurs. They are not just investing their money. They bring their experience and ideas and visions and will want to know that you are somebody open to continuous learning and coaching by those who have been there before you.

Preparation of your Pitch Toolbox

How do you do this? 45 minutes (where 20-30 needs to be Q&A) is not a lot of time.

There are 7 deliverables that you should prepare to support your pitch:

1. Executive Summary of your business plan

2. Introductory e-mail

3. Elevator Pitch

4. PowerPoint Slides

5. Handout

6. The Pitch Speech

7. List of venture capital companies whose investment criteria cover your business model, stage of business and funding size

1. Executive Summary

A 2-page summary of your business plan. Keep it short and focussed. The objective is to get the reader to pick up the phone. What will it take for your reader to pick up the phone?

2. Introductory E-mail

A 2-paragraph attention grabber that you can send to a venture capital professional after being referred to them or speaking directly to them. Do not expect results from blind mailings. The objective is to get the reader to pick up the phone. You dont have to sell the business, just enough so the reader wants to know more and to get to know you.

3. Elevator Pitch

Distil the essence of your business concept into a 30-second elevator pitch, the answer you would give if somebody standing next to you in an elevator asked what makes your business special. Practise this pitch lots.

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Your elevator pitch should contain:

Grabber

Open your pitch by getting the Investor's attention with a grabber", a statement or question that piques their interest so they want to hear more.

150-200 Words

Your pitch should last no longer than 60 seconds.

Passion

Investors expect energy and dedication from entrepreneurs.

A Request

At the end of your pitch, you must ask for something. Do you want their business card, to schedule a meeting, to ask for a referral?

4. Slides

I would recommend the following 13 slides to support your speech.

1. Company logo

2. Business overview (2 sentences)

3. Management team

4. Market

5. Product (what are you selling?)

6. Business model (how do you make Money? per unit of X)

7. Strategic relationships

8. Competition

9. Barriers to Entry

10. Financial overview (3-5 years, simple, key drivers)

11. Use of funds

12. Capital and Valuation (Xm at Xm company valuation, who else already in, you personally how much?)

13. Company logo

Your presentation is not your handout.

Your slides serve to support your speech. They are a support. You should be the centre of attention. You must connect to the audience.

A good presentation has only short bullet points. A better presentation is just headlines.

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5. Handout

The handout must stand alone. You will not be there to answer questions so it needs to be thorough.

Have important documents, such as your companys 12-month operating plan, your cash flow projections, a customer reference list and a current capitalization chart available for review.

6. The Pitch Speech

Content will follow the slides, but I would suggest four well prepared parts that you can deliver whilst leaving the first slide with your company logo on the screen.

1. 10-30 seconds grabber Statistic, personal story, quote an expert grab the attention and create the right emotional environment for your pitch. Talk about the first Aha! moment when the business idea became clear to you, or

2. What is the market Example of the problem you will solve, typical customers, where we find them, why they buy and what is the value of the market in 3-5 years time?

3. Validations Things that show that its not just you that believes.

Prizes, awards Others who believe

4. Believable Upside Investors need to see how they will make money in this deal and how much. It needs to feel attainable and feel like the downsides are well managed.

Delivery is hugely important the investor is responding more at this stage to an intuitive feel that will either lead to a detailed analysis of the business model, market and team or to a polite rejection of your pitch.

Do not look at the screen. Do not read your speech.

The investor needs to see a person who is capable of leading a fast growth company, of closing major account sales, of interacting with the press. Do you look like this? Who do you know who does look like this? Why?

Great presenters practise a lot. When you get the chance to make a first impression with the key VC who can make your business, dont let it be the first performance of your pitch.

7. List of Venture Capital Companies that Meet Your Investment Profile

It is important to define the criteria for your search. Venture capital companies invest in specific industries, types of businesses, size of investment. Dont waste time on VCs who clearly do not invest in your type of business.

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How Not to Raise Money

1. You start weak. You havent rehearsed your opening line, or grabber.

2. You transmit no passion. Your nerves and lack of rehearsal kill you. You talk about skills to sell hundreds of millions to Fortune 500 companies, but we cannot believe you.

3. Your PowerPoint would be better as a Word document.

4. You read every slide. Word for word.

5. You think anybody who doubts your idea is an idiot.

6. You explain that your team of recent MBAs, interns, part-time consultants and programmers is world class.

7. You dont know the numbers, the market or details of your customers. The numbers dont add up. Internal inconsistencies (slide 1 says 10m gross revenue, slide 4 says 14m turnover).

8. Investors hear something that they know is not true (we have no competition).

9. Your logic is too complicated. The listener is forced to think hard to connect your assumptions with your conclusions. The investors hear something that they do not understand.

10. Typos, errors or general sense of lack of preparation.

Have Patience

Get ready to hear no plenty of times. In general, venture capital investors will turn down 95% of the deals they see. This might be because they have already invested 100% of their fund, it might be because the deal is outside their investment criteria, it might be that they just dont have bandwidth at this time or it might be because you have presented poorly, or you have an unsound business plan.

Recommended Resources

http://www.instigatorblog.com - blog by Ben Yoskovitz with some great experiences on raising capital.

http://www.ted.com/talks/david_s_rose_on_pitching_to_vcs.html - a great talk by David Rose specifically on pitching to VCs.

http://www.slideshare.net/canaanpartners/canaan-entrepreneur-pitchbook-presentation - a short slide presentation developed by a VC to reduce the number of bad pitches he would hear from entrepreneurs.

http://venturehacks.com - a blog with tips on start-ups by two guys with experience.

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Economy & Finance

Preparing a Pitch to Professional Investors