Key Takeaways:
There are many factors that are unfavorable to investors seeking funding, including issues with the contact method, pitch, founder(s), business, or the environment.
Before an entrepreneur delivers their investment pitch, they may have already made fundamental mistakes, so it is important that they learn the process well.
MACH37 can provide resources to help stop fundamental mistakes that startups make in their journey to get funded.
Introduction
The popular TV show, Shark Tank, has brought the world of investment pitches to everyone’s living room (1). Gone are the days when investment pitches were reserved for secretive back-room meetings. Anyone who watches Shark Tank can start to pick out what makes a pitch good or bad; however, those pitches are made for TV where everything is heavily edited and filtered. So, what are investors looking for out in the real world?
We researched opinions from actual investors on the good, bad, and ugly elements of investment pitches. While this list is by no means complete, it highlights many of the common points between sources.
The Search for Investors
In the grueling search for life-sustaining funding, entrepreneurs can get desperate. As a result, they may begin reaching out to VC firms or Angel Investors with cold calls or emails. But the vast majority of these efforts are futile. The reality is that investors receive more of these communications than they can handle, so they largely rely on their network of connections to introduce them to talent (2, 8). Therefore, entrepreneurs should not cold email and should instead focus on building personal connections within the industry to secure more organic introductions to investors (7, 8).
Let’s say a founder makes five connections with industry professionals who each have 50 close investor connections of their own. The founder is now equipped with 255 industry connections–a number that compounds exponentially as more degrees are considered. Instead of pouring time into cold calls and emails, entrepreneurs should focus on building a tangible network.
The Pitch
Once an entrepreneur is given the chance to pitch their ideas, they must capitalize on the opportunity. For one, they should carefully schedule the pitch to avoid proximity to holidays and vacations (2). Additionally, pitches should be kept as lean as possible–even if there are a lot of important things to present, investors will likely lose interest if the presentation is too long (7). It is also important for a founder to consider context and audience to cater their pitch to the interests of the people across the table (7). Lastly, if possible, a demo or concept video should be showcased to inspire the investor (3, 7, 8, 9).
Team Goals, Character, and Background
Investors, just like anyone else, want to do business with good, trustworthy people while contributing to meaningful projects. Many VC firms are shifting to a morally-conscious approach, so an investment pitch should showcase a caring attitude toward the startup’s impact on society and the environment (2).
Investors also want to see a healthy balance between confidence and humility (7). Every startup needs to exhibit confidence in its mission and the team they have, but a startup that believes they have zero competition is wrong. There are always other products or services that can grab the attention of consumers (2, 7). After all, every product and service competes for the limited monetary resources that consumers have to offer.
Investors care about the management team (7, 8, 9). To that end, founders should pursue education, both informally and formally, that will boost their knowledge of their industry and useful areas like logistics and manufacturing. When investors decide to back a company, they sometimes invest in the team more than the idea itself. Investors who see a well-educated, well-informed management team will be much more likely to consider funding.
Bidirectional Fit
The average relationship between an investor and entrepreneur lasts longer than the average marriage (2). If the personalities or goals of the two groups are similar, then both sides may see better ROI; if not, both sides may suffer.
In their interactions with investors, entrepreneurs should seem positive and motivated. Investors not only want to make money but want to save time doing so. If an investor feels that you are friendly, ambitious, and easy to work with, they are more likely to trust you with their money. For investors, an extra $100,000 may not be worth the headache of working with a difficult company.
This consideration should not extend in one direction. When searching for the right investors, many entrepreneurs fail to consider that VC firms and Angel Investors are not only useful for their money; the connections and experience harnessed by seasoned industry experts should not be discounted (8). Many times, investors have valuable knowledge and the connections needed to boost growth. If possible, founders should consider those extra factors in deciding which investors to work with.
The Business Itself
On a more basic level, the foundations of the startup must be strong. Investors caution against ideas that are limited in scope (2). Instead, they want to see something big--they want to see dollar signs filling the air around them. Amazon initially sought to sell books online, and Alibaba started out only connecting exporters to international companies (4, 5). In the same way, ideas can start small, but entrepreneurs need to brainstorm how their solutions could expand.
When pitching their company, entrepreneurs need to have the numbers or interest to back up an evaluation. Investors may ask for annual revenue, YoY revenue growth, or a quantitative plan for the incoming funding (1, 8, 9). Some of the most important figures are concrete sales or demonstrated interest in the item, which showcase the desire of consumers to use your product or service. For example, at the publishing of this article, the Tesla Cybertruck has never sold a physical unit. But the estimated 1.5 million people who have signed up for the waitlist demonstrate enough interest to convince nearly anyone of the product’s market validity (6).
Investors may also be concerned about the competition (8). What/who is your company’s biggest competition? What are their sales numbers? How do you plan to out-compete them? Even if a company is aware of its competitors, it must have rigorous plans to out-compete them.
Humanity of Investors
If all of these tips don’t help to get your business funding, there may be factors that you simply cannot control. All investors are human and therefore can make mistakes themselves; their decision-making is not always reflective of your company’s true value or potential.
For example, in 2011, Shark Tank investors passed on Shawn Davis' Shrimp Burgers (10). After the episode aired, Angel Investors contacted Davis and invested in his company, CBS Foods. Within one year, sales increased by 16,600%, and the company is doing fantastic to this day.
Conclusion
If building a startup was easy, everyone would do it. While acquiring funding is necessary for nearly every company, it is not a one-size-fits-all process. A founder’s journey is unique and there are many lessons that can be learned from the difficulties of getting funded. If you find none of your strategies are working, it may be time to find help at an organization like MACH37. We have a devoted accelerator program for early-stage companies that are developing cyber-related products and services. MACH37 targets help to those who are ready to take their business to the next level and have the drive to do so. In our cohorts, startups can begin expanding their networks, exploring key business approaches, and learning strategies for acquiring funding. We encourage those interested to apply here to be part of the change that MACH37 represents.
Who Are We?
VentureScope works with creative entrepreneurs, venture capital investors, and large private and public sector organizations around the world that are trying to solve interesting problems. Our team has extensive and unique experience launching new business ventures, investing in promising startups, running startup accelerators, and providing strategic innovation and general management consulting services to large private and public sector organizations. We’re on the pulse of emerging and over-the-horizon technology and are tracking their growth and development against important industry problems to inform our deal flow and give you exceptional advice. MACH37 is our start-up accelerator designed to facilitate the creation of the next generation of cyber product companies.
References:
(1) https://abc.com/shows/shark-tank
(2) https://www.youtube.com/watch?v=IK7HkSp1KBI
(4) https://www.businessinsider.com/jeff-bezos-amazon-history-facts-2017-4
(5) https://www.bbc.com/news/business-29077495
(9) https://ashrust.medium.com/3-common-fundraising-mistakes-89a33ff65512
(10) https://www.sharktanksuccess.com/chef-big-shake-update/
(11) https://uploads.dailydot.com/d97/c0/jaws-brian-hebets.jpg?auto=compress&fm=pjpg (cover image)
