4 Steps to Pitching an Investor
So, you’re ready to take your company to the next level. You’ve gotten some users, some press, and some great feedback—but you only have a month's worth of cash in the bank, and if you don't raise money soon, you won’t be able to go much further.
You need to sell others on your idea—and fast. That’s where the two-minute pitch comes in. It’s not an elevator pitch or a high-concept pitch, it’s the first step in building a relationship with an investor. It’s what convinces someone to take a meeting, where you can then present the details of your company over 30 minutes or more.
Two-minute pitches demand detail, but in the style of a runway show: Showcase the best, cut the rest. And we’ll walk you through exactly how to do it.
1. Have a Concrete Ask
First things first: Know what you want from the investor.
To get to this, work backward from a goal. Evaluate your company's key metrics (like revenue, users, engagement, or media coverage) and envision where you'd like to be in 6-18 months. For example, "increase daily sign-ups to 1,000 per day." Don’t worry about precision, necessarily—you should be more concerned that you're measuring the right things and have a handle on the company's growth.
Next, open a spreadsheet and estimate what resources you'll need to achieve your goal, like new hires, paid and earned media appearances, or better web hosting. Determine how much cash you'll need to obtain the necessary resources. Think ballpark figures—you're determining whether you need $250,000 or $500,000, not splitting hairs over individual dollars.
Finally, determine the type of security you're offering: Will investors get shares or a convertible note? Raising a convertible note usually makes the most sense in the beginning, but talk to a lawyer about the details. Sophisticated investors won't take you seriously unless you understand the basics of each of these options, so hit Google or ask a friend if you don't.
Then, you have your ask: "We're raising a $500K convertible note to increase our sign-ups to 1,000/day and hire three new team members." Being specific communicates that you've got your spending and metrics under control, both of which are critical to building a business.
Of course, remember that investment is an ongoing negotiation and you can offer a different deal to each person. It's normal, and in fact expected, that if there's a healthy appetite for the deal, the terms might change. In that case, you can always change your story and ask as things develop.
2. Identify Socially Proximate Investors
Don't bother sending an unsolicited business plan to an investor you don't know. They won't read it.
Instead, leverage your social network to reach investors. Do you know any investors personally? What about early employees or founders of high-growth companies, or their lawyers, accountants, financial planners, or other professionals? Do your friends or family know any of these people?
It's better if you let the person who knows the investor introduce you (either in-person, or via email), but if you're pressed, you can introduce yourself as a friend of the other person ("Hi, my name is David Albrecht, and you funded my friend Sarah's company, BeMoreAwesome”).
Another option is AngelList, a social networking website that connects early-stage entrepreneurs and investors and automates much of the introduction/referral process.
Most importantly, be clear about the types of investors you want to target. Venture capitalists are professional asset managers who commit funds on behalf of their clients; angel investors put their own money at risk for their own personal profit. The minimum participation from a single venture investor is $500K-$1 million, so asking for $10,000 is a waste of time (as is asking an angel that's known to make two $50K investments per year for $500K).
3. Understand the Investor's Needs
If you want to get investment, you need to tell the investor what he wants to hear: assurance that he'll earn a good return. To answer this question, every investor wants to know about:
The Problem: Your company should be solving a rational need (like “saving money”) or an emotional one (“keeping my family happy”), that is felt by a large number of people.
The Solution: Immediately afterwards, you’ll need to show how your company uniquely solves the problem. What product or remedy have you created, and how will you reach your customers to tell them about it? Remember that the best solutions don't require excessive persuasion or behavioral change—people should find them easy to implement (and want to do so).
The Team: Just as important as the idea is the team who’s working on it. Investors will want to know all about your co-founder relationship (founder issues are a leading cause of failure for start-ups), previous accomplishments, and why you’re the right team for the problem. For example, Zipcar was founded by two women who met while taking their children to daycare, and their friendship, complementary backgrounds in management consulting and academia, and a husband capable of building the early prototype made them the right team for Zipcar.
Traction: Finally, no matter what stage you’re at, investors will want to know what progress you’ve made so far. Whether it's revenue you’ve brought in or users you’ve attracted, you’ll need to show that your model has accomplished something so far to prove that it has potential for more.
4. Communicate and Make the Ask
Once you've figured out what you need, identified key investors, and prepared your pitch, it’s time to get out there and give it. You should concisely sum up your company—including the problem, solution, team, and traction—and end with what you’re looking for, as well as a request for a meeting. Try:
My company makes it easy for anyone to put well-designed display advertising on their blogs. We've surveyed over 100 publishers, and confirmed that ease-of-use is a huge problem when getting started with display ads. (Problem) Our product is in late beta and we’ve received over 500 sign-ups in one day. (Product, traction) The founders have known each other for over a decade and collectively have 20+ years of ad industry experience. (Team) I hear you have a lot of experience in ad tech (industry) and are looking to commit about $100,000 in the next few months.We're raising a $500K convertible note to increase our sign-ups to 1,000/day and hire three new employees. If you're interested, I'd love to have you as an investor in our round. Can we talk later?”
Of course, you’ll put your own spin on it for each investor, but these are the basics that’ll get you started—and hopefully in the door for that meeting.