Have you ever wondered about how many startups actually manage to get funded? Fundable estimates that less than 1% startups are successful in roping in angel investors, and a miserly 0.05% garner funding from VCs. While this may seem extreme, anecdotal evidence suggests that for every 10 investments they make, VCs evaluate about 1,200 proposals.
With such improbable odds, you want to give your start-up every competitive edge you can when applying for funding. Writing an effective investor pitch is one method to stand out from the competition and overcome the hurdles.
Understanding the criteria or parameters that influence investment decisions is the key to creating a successful pitch. While each investor's investment thesis ultimately determines the outcome, investors as a group have some expectations in common. Each individual aspect will be given a different amount of weight, but the sum of all these factors will ultimately affect their choice.
In order to assess your potential, let's first take a look inside an investor's mind and decipher the questions they are asking themselves before you begin to write the presentation. Your chances of leaving with an investment are very good if you provide them the answers right away in your pitch deck.1. Does your idea / product / solution solve a real problem?
- What problem are you going to solve?
- Is the problem real?
- Who has this problem?
- How prevalent is it?
- Will people pay money to make this problem go away?
This part of your pitch will resonate if you tell real customer stories. If you came up with the idea because you yourself faced a problem or you saw someone struggling with this, then do tell the investors. A personal story is essential to selling and building faith in your idea / product / solution.2. Is your idea / product / solution the "Right Solution"?
- What is the opportunity / promise in your idea?
- How many other approaches have you evaluated?
- What are the other solutions available in the market?
- What makes your solution better than the others?
Example: Ventureast, one of the pioneers of venture funding in India, prefers to invest in businesses that scale and grow rapidly, leveraging their unique competitive advantage. For them to fund your idea / product / solution, you have to convince them that it is a real game changer.3. Do market dynamics support growth?
- How big is the overall market?
- Which segments of the market are you targeting?
- Are you making realistic projections / estimates about addressable market and your share of market?
- Do you have a plan to capture market share?
- Who is your competition?
- What is your plan to out-score the competition?
Example: Zodius Capital, which has funded such successes as bigbasket, pepperfry and zivame, has consistently chosen to invest in Indian businesses that are capable of disrupting existing markets or creating entirely new markets.4. What makes you and your team the right fit for this idea / product / solution?
- What background does your team possess?
- Do you have a successful record of transforming ideas into revenue streams?
- Do you have special knowledge or skillsets in the domain?
- Are you aware of the micro-trends that influence / drive the industry you are in?
- How committed is your team?
- Will you be willing to take direction and pivot if the business needs to? In other words, are you coachable?
- Will you make compatible partners? Are your philosophies / values / approaches in tune with each other?
Example: Ashton Kutcher, who invests through his venture capital firm A-Grade Investments, is clear that a great idea by itself does not lure him. To pique his interest, the founding team must understand their industry thoroughly, be resilient and be the kind of people whom he would like to hang out with.5. How strong is your execution muscle?
- Can you show traction? What gains have you already made - sales figures, # of users/sign-ups, conversions from free to paid customers, repeat purchases etc.?
- What is your revenue model? Are your financial projections healthy?
- What are you doing to acquire customers? How much does it cost?
- What is the lifetime value of a customer compared to the cost of acquisition?
- Are you forging any partnerships or ecosystem to fuel your growth?
Example: Vanessa Colella of Citi Ventures believes in the power of execution, and its ability to separate the truly successful people from those who are smart, but can't make it. If you have an idea that others have had, but know how to execute brilliantly, you have a good chance of getting funded as well.6. Do the rewards justify the risks?
- Is your business in line with their philosophy and approach? How aware are you of the potential risks - regulatory, legal, copyrights, patent infringements, liabilities etc.?
- Do you have a plan to mitigate risks?
- Is the idea/solution/product on trend? What are the chances of a better or more advanced solution disrupting the market?
- What is the exit path? How (and how much) will the investor make a return?
Example: Sequoia Capital's Shailedra Singh defines his job as backing an underdog against the Goliaths of industry. He tries for a high success ratio by taking calculated risks and being willing to accept occasional failures; while also taking a 10-15 year view on investments.
There you have it - a mind map to navigate the investors' thought process and pre-empt their reservations. Keeping this framework in mind, you can craft a pitch deck that helps to persuade the investors (angels as well as VCs) that you have a potentially successful startup, and one that is worthy of their funding.
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