How to Sell an Idea to Investors
January 13, 2020
January 13, 2020
Are you sitting on the next billion-dollar idea? You could be sitting there for a long time unless you have the capital to turn it into reality.
Venture capitalists (VCs) are unique people. Entrepreneur and prominent investor David B. Lerner once said that VCs are just like Sherlock Holmes. Why?
- They have a sharp eye for detail
- They are avid risk takers
- They have innate curiosity and incredibly high standards
- But, they want the companies under their wing to succeed, genuinely.
With all that said, they can’t cater to every idea that comes their way. They end up turning many of them away.
Brief Overview of the Venture Capital Market
While seed stage deals are increasing rapidly, funding in very late stage rounds remains below the all-time high of $87.4 billion seen in Q2 2018, according to Crunchbase. The term “seed” refers to early investments, companies that need support of an investor before it can generate any cash flow of its own.
Of course, the number of venture deals closed and the total venture dollar amount are two very different things. Deal volume can be interpreted as the velocity of the global venture market. Similarly, total dollars invested in these deals can be thought of as the weight of these global venture deals.
Early estimates reveal that global venture deal volume could have been up 9.9% in Q3 2019, from the same quarter in 2018. This means that despite a subdued economic climate, investors are interested in funding small start-ups.
We don’t want to scare you. Your ideas could take the world by storm, but you need to sell them to an investor first. And, investors aren’t that easy to win over. So, let’s work on how you will pitch your idea in a way that captures and holds their interest.
Here are some things to keep in mind while preparing your presentation.
Don’t Bore Them
This is something we have learnt from watching entrepreneurs pitch their ideas. It takes less than 2 minutes for investors to tune out or want to know much more. You have even less time to capture their attention. Everyone loves a good story. Practice those story telling skills you might have acquired with your kids or nieces and nephews. If a five-year-old can understand your idea, a bunch of investors surely will.
- Repetitive information
- 30 extra slides (it’s not a college lecture!)
- Bloated figures
- Everything you’ve done in the past few years, including bathroom breaks
- Random pictures with no facts
- Philosophical quotes
Investors scan thousands of pitches each week. They don’t have either the time or energy to look into every detail on your slides. While it might not be fair, it’s the truth. So, tell a story that is authentic and personal to you.
Know Your Numbers
Something that never becomes irrelevant is cash flow. How well do you know the market? How soon can you repay the investors? How much do you understand about product valuation? Do you have the discipline to follow through your projected numbers?
Remember ABC’s hit show Shark Tank? Some lucky investors pitch their businesses to a panel of 5 “sharks,” highly successful businessmen turned venture capitalists. The show was almost like a 60-minute MBA course. It offered plenty to learn. For example, check out some questions these sharks asked.
- “Will I get paid back with a premium for the risk I’m taking?”
- “What are your sales?”
- “What does it cost to make your product?”
- “What is your marketing budget?”
- “How does this business scale?”
- “How much debt do you have?”
- “Who are your competitors?”
- “Why such a big valuation for your product?”
If you thought “scumbag Kevin” was mean, brace yourselves, this is how investors talk. They want to know if a small business owner understands the concept of gross margins, which impact profitability. Irrespective of whether you get funds or not, you should be clear about these figures for your own good.
Design a Powerful Pitch Deck
You need clean and modern pitch decks. Investors agree that a good design has a positive impact on fundraising. The first step is to identify designs that are relevant to your business sector. For instance, most tech companies love the colour blue, whether it is for their logo or their presentation. Blue is the colour of success, depth and stability. Considering that internet start-ups still occupy the highest percentage of VC funding in the United States, as of Q3 2019, they must be doing it right.
Pick a professional template, without those cutesy elements. At the same time, consider using interesting typefaces and illustrations. Your presentation should reflect your product personality. You need to make the investors see the pride you have in your work.
A good way to bolster your confidence is researching about your potential investors. What kind of investments have they made in the past? Are they tough taskmasters? Are they humble? Try to remember that some of them might have been in your shoes not so long ago. To help them understand that their investment can help unlock your potential, you need to speak their language.
Starting your own business can be hard but getting the perfect pitch deck doesn’t need to be. Speak to us via e-mail or live chat today to know more.