Small Business Entrepreneur Blog

Truth to be said I’m not an expert on investor pitching. I’m all pro self funding, but yes sometime you need some outside cash, especially if the business you are planning to start requires larger funds.

Scott Gerber from Entrepreneur.com had an interesting article on Investor pitching -which I enjoyed because is not the regular theoretical article that say more or less the same thing and then leaves you unprepared. The article starts by describing a pitch failure: how they tried to get $15 million without selling a single product and they failed.

And, as I learned on my own, if everything goes right, you learn little. When it goes bad, your mind records everything and turns it into a source of knowledge.

The article talks about 6 essential steps in pitching an investor. As usual I will add my comments:

• An elevator pitch is vital. Well, I’m watching from time to time a TV show where people come to pitch a group of investors. I would say about 90% of the pitches fail because the entrepreneur fails to explain shortly what is his business about, why it does need the money, and how it will make money for the investors. You know what they are doing? They come with a 30 pages Powerpoint, which they realize it’s too big and filled with un-important stuff the moment they open it. You can see that from the way they are turning slides, going fast over some.
• Inspire confidence with facts, not fiction. What Scott is saying is that when you pitch someone for money you should first show that you sold your first product, cashed some money in and generally everything works. I remember I’ve been pitched once to invest some money in a product and the pitch went and said: “nobody did this product before. That’s why we are sure it’s going to be successful when we will start selling.” I didn’t not invest.
• Have a grasp of reality. Meaning that the income projections should  be realistic. I’m amazed on how entrepreneurs usually make their pitches: if we just get 2% market share, then we will be reach and all go home with $100 million. If you remember that each entrepreneur pitches these investors with the same projections and way of estimating revenues you will realize how throwing some sense and reality in your projections could actually help win the pitch.
• Prove that you are a fiscally responsible manager. Spend like your spending from your own pocket – nobody wants to overspend, especially in these times of crisis. The investors will want to know how they money are spent, and for sure they aren’t going to buy you a Porsche.
• Demonstrate that your business can crawl before you say it can walk. A proven business record, and wish to invest in one product line it’s always better than expanding out of control. Usually you first want to see it works, and if it does, it’s not a problem to expand.
• Choose not to be the smartest person in the room. If you feel like you know everything and the investors are a clueless source of money, then you are wrong. They might now know the business in-depth or might not fully understand the very technological aspects of a business. But remember something: they have a feeling of what could fly and what it doesn’t. In fact this is what put them into the position to be pitched – they have a good sense of good businesses and sometimes that’s all it takes.

Well, Scott said everything better than I could ever say it in the original article.

I would add some ideas of my own:

• Never pitch for to little money. If you only need a small amount, maybe you shouldn’t pitch investors but banks. Simply put, investors don’t look for businesses that will bring them $50k in the next 3 years. It doesn’t worth their time (of course, unless the investor is your mom)
• Speak with someone that did a pitching before. The insights you could get from an entrepreneur that have pitched before, successful or un-successful will teach you what to expect, what to say and what to avoid. It’s far better than reading any book.