Entrepreneurs don't have to be pitch perfect, but passion, projection of strengths and awesome products are essential
Business angels and venture capitalists and business angels play a vital role in new business creation, providing capital and access to a powerful resource network and enabling thousands of entrepreneurs to realise their dreams of creating and growing new ventures.
But they don’t make investment decisions lightly, and entrepreneurs hoping to secure some of their cash must deliver the Holy Grail of business funding; the killer investment pitch. But what exactly is it?
Virgin founder Richard Branson has invested in around 40 start-ups in recent years. In his view a pitch should ‘short, to the point, and fun to deliver’.
He says: “Keep it tight and simple. Explain what your company does and how it will change business for good, and highlight the strengths of your team to make it happen. Do this with an entertaining, unique and quick delivery, and you should make a lasting impact.”
Many of his own funding decisions were based on the outcome of micro pitches. One of the best examples Branson can recall was Igor Ruberts of Boxhug, winner of this year’s Virgin Media Pioneers Pitch 2 Rich competition.
He said: “It took him two minutes to explain how his storage company Boxhug worked, how it could improve people’s lives, and how it could scale. Then he gave everyone on the judging panel a hug – a great way to end his pitch!”
It takes a certain skill to be able to demonstrate that level of knowledge of your business model, its financial architecture, and target market in just two minutes. Yet the average length of a funding pitch to angel investors is ten minutes, still not a huge amount of time to cover the essentials in enough detail to satisfy a potential investor. However, many are not looking for perfection.
In theory, a killer pitch consists of many different aspects, says Christoph Janz founding partner at Berlin-based early-stage VC Point Nine Capital; an experienced and well-rounded team, a large market opportunity, a proven product, scalable customer acquisition channels, clear competitive advantages.
“In reality, at the seed level, which is where we invest, almost no start-up ticks all these boxes,” he says. “However, as former general and secretary of state Colin Powell once said, ‘you hire for strength and not for lack of weakness’.
Similarly, Point Nine Capital doesn’t look for the ‘perfect’ pitch, but for awesomeness in some areas; typically some combination of a gorgeous product, enthusiastic beta users and extremely passionate founders.
Janz says: “One stand-out pitch I recall, which led to an investment from us, came from Mambu, a cloud-based banking software platform. Included in the pitch was the fact that Mambu enables financial institutions to provide banking services to the billion or so people on the planet who don’t have a bank account, and could therefore have a huge beneficial impact on the lives of tens of millions of people.”
However it is often the deal-making activity of venture capitalists that receives the most interest. VCs receive thousands of business proposals every year, yet only invest in a few businesses, in an intriguing a decision-making process that Jeffrey Petty and Marc Gruber, academics from the University of Lausanne in Switzerland, set out to investigate.
They analyzed 11 years of contemporaneous deal-related data from a relatively small European VC firm that focuses on investing in companies within a specific high-tech, high growth industry. During this time frame the firm received 3,631 proposals and made 35 portfolio investments across two funds, at an average acceptance rate of one per cent.
Among the key conclusions from the research was that ‘no’ was not necessarily a definitive rejection. In total, 438 proposals were submitted more than once, with the acceptance rate for resubmissions approximately the same as for original submissions.
A surprisingly high 10% of the 3631 pitches were classified ‘dead’ because the VC firm did not have the opportunity to pursue them. Around half failed to respond to the VC’s requests for more information, and the rest simply appeared to have changed their mind about VC funding.
Product and service-related criteria were a key reason for rejection, but rarely the management team.
“You can always bring in a management team,” says Gruber.
The most important criteria for deal rejection were VC fund-related. Many viable pitches failed because of VC perception that evaluating, monitoring or managing the deal would take too much time.
So what can entrepreneurs take away from Petty and Gruber’s research?
“If the VC has shown any interest at all in the proposition, the entrepreneur needs to stay in touch with the VC and build a relationship. They should not be afraid to resubmit a proposal at a later date,” says Petty.
They should also do due diligence on the VC firm and tailor a proposal to the firm’s portfolio strategy at that point in time.
“Two firms with similar investment strategies may view the same proposal differently because they are focused on different criteria or are at different stages in their fund’s lifecycle,” adds Gruber.
In a nutshell, a killer pitch is one in which the underlying message is crystal clear, says Andrew Morris, Chief Executive of the UK Academy for Chief Executives.
He said: “This venture is the result of creative thinking, validated by thorough research and supported by cautious forecasts, all delivered by the most committed professional team in the business.”
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