We get allot of requests from early stage startups for help with their business plans, pitch decks, and seed/angel funding. While we at Align have a pretty high batting average getting our clients the funding they need, not everyone gets funding.
Even when fully prepared, 95% of angel venture investors pitched by startups will decline to commit an investment.
That seems really daunting, we know. But, it’s a numbers game. It means there are 5% of angel or seed investors that will be willing to invest. So, what do those investors want to see to get funding? That’s the million dollar (literally) question!
Can You Do It and How Will You Do It?
Every startup that pitches an investor has the “best” idea. It’s “disruptive” and “never been done before” among many other over-used descriptions. They don’t care. They just want to know the basics: who, what, where, when, and how. The most important being the HOW. They want to know WHAT you are developing (product or service or both), WHO your leadership is, WHERE is your target market and customer, HOW will you execute, and WHEN will they realize a return? Oh, and they also want to know exactly how you are going to use the money they give you.
It’s a Partnership
Yes, you need the capital. But you also need to make sure you’re pitching to and partnering with the right investor for the stage you are in. If you are idea or early-stage, don’t waste your time going to late-stage investors or funds. Do your research and ensure your pool of target investors lines up with your current life cycle stage, your industry, and that they have resources and expertise to bring to your organization beyond just the capital. And if that seems daunting to try and research on your own, no worries, we can help you with that.
We encounter many founders that have watched too many episodes of Shark Tank and Silicon Valley – and they don’t realistically evaluate the valuation of their company. Early-stage founders and investors are extremely sensitive to valuation as it significantly impacts returns for all involved. And founders’ ego tend to not want to give up too much of their “ownership.” Valuation is based on value. What value have you created? Be able to outline in detail your value – based on market traction, momentum, IP, operating trends so far, financial metrics, etc.
Early stage investors are backing the idea and the management team. They’re betting that the management team can execute. Leadership ability, technical aptitude, prior experience, salesmanship, ambition/passion, ability to be coached, and many other attributes are things that investors will evaluate in the management team. They look for A-players. If you don’t have them, get them before you start pitching. Or, at the very least, have them committed to join pending the funding (if budget is your issue). The management team is where most deals fall apart. Investors that don’t feel confident in and excited to work with the team, they won’t invest. No matter how good the idea is.
Market & Customer
Who is your customer? It is amazing how many startups can’t answer this question succinctly. (If you can’t, call us. We can help you). Clear definition of product/service-market fit is critical. Investors want to know who will consume your good or service, and how will you get the product/service in front of them to grow volume? Pricing and distribution are components of this strategy as well – make sure you know what you are selling, for how much, and how you’re going to sell it. This is paramount because it determines the trajectory of the hockey-stick. Investors are looking for the hockey-stick – when will the market adopt the product/service and when will revenue take off?
Lastly, you need to articulate how you’re going to support this growing company. First, start off with explaining how your’re going to use the investment. People, IT, marketing, advertising, etc, etc. By line item – where will the funds go? Then illustrate how you will scale the infrastructure of the business in parallel with growth. They want to see the cash burn to break-even and beyond. HR, Finance, Technology (development and support), operations, customer service, and all other applicable support areas need to be defined. Here’s a free tip: try to make as much of those costs variable and in line with revenue as possible. Fixed costs = cash burn. Then you’ll be raising money again really quickly.
So, if your business plan, pitch deck, financial plan, etc all contain the above key items, you’re likelihood of receiving investment subscriptions is much higher. Nothing’s guaranteed, but you’re far more prepared than others who don’t put the time into those details before they start the roadshows. And again, if you need help, just call us. We’ve done LOTS and LOTS of pitch decks and facilitated many, many management presentations, so we know where you’re going and what you need.