Make Your Financing Pitch Sizzle
If you're a South Park fan, you'll remember the episode called the "Underpants Gnomes," in which gnomes have built a business based on stealing underpants from the residents of South Park. When the kids finally catch them and ask why they are doing this, the gnomes say it's all part of their business plan. "What's your plan, exactly?" the kids ask. One of the gnomes fires up a PowerPoint presentation to outline their three-phase approach. Slide No. 1 says "Steal Underpants." Slide No. 2 is blank. Slide No. 3 says "Profit!"
I cannot stress how many business pitches I've seen like this, where Phase One is "create widget," Phase Three is "profit!" and the crucial Phase Two is a complete unknown. See the info on my pitch critique worksheet at the end of this column to make sure your pitch is complete.
Let's say you have a capital acquisition strategy (see BusinessWeek.com, 1/22/07, "Rules for Raising Capital") and an advisory board (see BusinessWeek.com, 2/1/07, "Don't Go It Alone: Create an Advisory Board") to boost your credibility. You need two more things: a sizzling pitch and a variety of funding sources. In this column we'll nail your financing pitch, and I'll address financing sources down the road.
Roping Them In
I'm assuming you've already created a killer business plan, which will yield your executive summary and financing pitch. Your business plan will be about 20 pages, covering all aspects of your business. Put in the hours to make it perfect, because you'll be repurposing the business plan's content in sales presentations, marketing collateral and white papers, recruiting pitches, and your Web site. Your executive summary is a two-to-five-page bottom-line version of your business plan, a riveting bulletin from the front line that primes investors to read on.
Few people will want to pore over the whole plan—this is why you've got to rope them in with those first pages and establish that you're a savvy, trustworthy person with a substantial idea before you lay out all the details. The financing pitch is 10 to 15 PowerPoint slides extracted from the executive summary. This is the distillation of your business, which you'll design to deliver in about 20 minutes for attention-span-challenged people (see BusinessWeek.com, 9/12/06, "Grab Your Audience Fast") and (see BusinessWeek.com, 12/5/06, "Presentations with Something for Everyone"). You'll likely need the pitch in document form, too.
As a former venture capitalist, I've read tottering towers of financing pitches and project proposals. Often the pitches were for products or services that no one truly needed, or projects that weren't cost-justified, or worse yet, fabulous ideas presented poorly. To stand out, your pitch needs to be concise, compelling, and complete.
1. Be Concise
A concise pitch provides a simple explanation for why your business or project is a great idea, and how you'll execute the steps to pull it off. The pitch must explain your company in such a crisp way that the money contingent won't be able to put it down. You must convince them that you have a sound execution strategy and pragmatic tactics for making your vision a reality.
The key questions financiers want you to answer are:
Have you hired the right people?
Can you build/deliver your product or service? Will it fly?
Are you chasing big enough markets and can you reach them?
How much will it cost us to build this business?
You won't be able to eliminate the financial risk completely, so focus on showing how solid your people are, how exceptional your product or service is (and why), and how huge the markets are that you're going after (plus how you'll capture them). You must define your current and potential competitors, too, in honest, realistic terms.
Remember: Your pitch needs to reduce the financier's fear of risk and increase their greed for gain. That's what it's all about.
2. Be Compelling
A compelling opportunity is the one that has the right deal, with the right price, at the right time, with the right product/service, and the right team. Compelling deals always get financed with favorable terms. To uncover your "compelling quotient," answer the following questions:
What, exactly, is compelling about your business (your products/services, team, unique approach, intellectual property, etc.)?
Does your product or service clearly define and address a painful problem (or, in some cases, a key social trend)?
Has your team had prior startup success so investors know they're betting on a proven pony?
Do you have high-profile advisory board members?
Have you already attracted customers, either paying ones or those who've signed on for a free trial?
Are your financial projections aggressive but realistic?
Are your target markets tangible and accessible?
Could your product or service lead to an expanded line of additional offerings?
Have you built solid strategic partnerships?
Do you have diverse and low-cost sales channels?
Does your product or service have the kind of sex appeal that will make everyone in your target market want it?
3. Be Complete
You must have a trusted third-party review your pitch to ensure it addresses the high-level issues a financier might have. "Friendly fire" feedback is essential before you pitch to the potentially less friendly financiers. Ask anyone who can help—your startup-savvy attorney, advisory board, mentors, friends who have expertise in the specific market you are addressing or in business overall—to punch holes in your pitch.
Give them a list of questions to answer, such as: What business do you think we're in? Is it interesting to you—why or why not? Were you to consider investing in it, what additional information would you need?
This is a time to lay bare any wobbly aspects of your pitch, when you've got time to fix them. If you charge ahead with an incomplete pitch, such as one that lacks financials, or a marketing or sales strategy, you'll look either unprofessional, fly-by-night, or both. Be complete—it will help you gain the trust of all you pitch to.
Pitch Critique Worksheet
Want to submit your financing pitch for me to critique? Complete the worksheet below and e-mail it to me. If you're selected, I'll critique your pitch in a future column.
Use this worksheet to ensure that your financing pitch is complete. Then, if you're interested in having me critique your pitch, e-mail me no more than three pages' worth of the following information. Be sure to include the term "Pitch Critique" in the e-mail's subject line.
By submitting this information you agree to have it disclosed in my BusinessWeek.com SmallBiz column.
1. Company Overview. A few sentences describing your company's purpose/goal.
2. Pain. A few sentences describing the specific market pain you will reduce/remove.
3. Solution. A few sentences describing what your solution is to the market pain, plus high-level description of how it works.
4. Company info. Location, when founded, number of employees, short bios of key team members on staff and board of directors/advisory board, if applicable.
5. Financial info. Funding history if any, total money sought, source of dollars sought: venture capital/angel investors/loans/grants/etc, anticipated use of funds, last year's revenue, three-year revenue forecast, monthly burn rate, projected cash flow positive date.
6. Product. Short paragraph explaining the status of your product: complete and in production, in early trials, etc.
7. Defensibility. A few short paragraphs describing how your intellectual property or market position will be protected from competitors, how you'll mitigate risk for financiers.
8. Competition. A few short paragraphs describing your current and future competitors.
9. Business model. A few short paragraphs describing how you'll make money and grow your business.
10. Key milestones. A timeline of the deals/achievements that are accelerating/will accelerate your company's growth. Be specific in describing the stage these deals/achievements are in currently.
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