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Wednesday, April 18, 2007

Practical thoughts on Pitching

When you are raising funding for your start-up, you will have to make a pitch about your business proposal to a group of angel or VCs investors. This post is not meant to give you tips on the complete content and style of the presentation, there are plenty of published advice already and I have posted on a few times in the past as well, which will describe what key information is required,In summary though, your presentation should answer the following questions:
• What are you going to sell?
• Who will buy your product or service?
• What is the potential market size?
• What is the average selling price?
• How are you going to sell it?
• Who is your competition?
• Who are the team members that will make all this happen?
• What are the financial projections and exit possibilities for the lenders?
You should not require more than 10 to 15 slides for this, three of which should purely focus on the financials projections for three years. First of all, you should mentally prepare yourself by knowing your business proposal inside out – this will not only build confidence in yourself and the presentation, but also invite the appropriate response. Although, it is a good idea to rehearse the presentation, do it with someone you are not close to, as they are more likely to be honest and straight with you. People too close to you may not give you the appropriate, direct feedback you require, just because they may be trying to protect your feelings and so keep your confidence level up. Try not to read from a pre-prepared script, be natural and be yourself.
You will be asked a lot of questions, so have the information handy in an appendix, but do not present all of it.
There is no harm in requesting that you are allowed to quickly run through your presentation without questions first, followed by the Q & A session. This will only work if you quickly roll out your presentation in as short a time as possible – 10 to 15 minutes maximum – so there is enough time for questions and discussion. In theory, the vast majority of the questions should have been answered within your presentation.
When an investor continually badgers you with questions on every point, more often than most, they are testing the individual presenters ability to withstand pressure rather than the accuracy of the answers. When asked a question, first of all learn to listen to the question and understand the question. Try and not begin your answer with a lot of euphemism like, “I am glad you asked the question, this is exactly the reason why we are pursuing blah blah technology.” Instead, try and answer the question as directly as possible. You will have very limited time, so make the best use of it and get straight to the point. Some Europeans consider this style too brash, but it is becoming quite common now. If you do not know the answer, either say you will get back to them with the answer later on or just plainly admit that you don’t know; that way you will be measured for your honesty and sincerity rather than some woolly non-answer.
Sometimes, when entrepreneurs want to present themselves as a team, the team decides to split the company presentation between two or three team members as a set of synchronised speeches. This kind of presentation is out, as it would be very easy to lose synchronisation of key information. It is better to for two separate presentations with a natural split, like the finance part and the product technology section.
Two people presenting at the same time can be confusing, as the investor has to carry out an additional mental calculation as to who is going to be in charge when the chips are down.
You are also being measured in terms of your ability to articulate your “idea” or “proposition”, as they would expect you to do this to your prospective customers, partners and employees. Try and minimise the underlying technology and its finer workings, and instead focus on what customer problem you are going to solve and how this will translate into dollars.
Spend time understanding the basics. Understand the basic financial terms and the differences between them, e.g. sales, revenue, cash flow, burn rate, breakeven. If you don’t know them, find someone who could give you some tuition. If an investor is going to entrust you with their cash, they need to feel comfortable that the person has a fundamental grasp of the basics; they don’t expect you be an expert accountant, but they do expect some minimum knowledge.
The subject of initial valuation is very tricky and sensitive. It is not appropriate to openly lay out your cards at the initial presentation, unless, the investor is serious about the offer. In that case you could make valuation discussions into a second part of the meeting. Be realistic about your company’s initial valuations and also offer a realistic equity position at seed stage and R1. At later funding stage (R2, R3), professional advisors and early investors will ensure that the valuations are more realistic.
Remember your company is worth almost zero when it has no customers or no product or IP. So sometimes, being humble may work in your favour. The investor is trying to minimise the:
Technology risk:
Market risk:
Operational risk:
so try and provide any information that helps them mitigate those risks.
Although you should use each presentation session as useful feedback, try and not paste all the feedback back into the presentation, as this will look very dull and unstructured. Use the feedback information to emphasise key issues verbally.
And lastly be firm in your proposal and belief. Do not get de-motivated after a few rejections, as for every NO you get, you are getting closer to a ‘yes’. It is just that sometimes it takes a little bit longer to get to ‘Yes’.

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