Connect with us

How to Guides

The One Question You Must Be Prepared To Answer When Pitching Investors

It’s a weirdly hard question to answer, especially when pitching your company.

Entrepreneur

Published

on

158-the-one-question-you-must-be-prepared-to-answer-when-pitching-investors

When you’re a VC, your job is like drinking from a fire hose. You have a constant stream of business plans and pitches coming at you. There’s no way to get through all of them.

So you start looking for shortcuts, quick little glimmers of magic that tell you this idea is worth paying attention to. Is it an amazing management team? Proprietary technology? Exclusive contracts? Is it the first mover in a totally new space?

The magic: That’s what a VC wants to see. And yet, entrepreneurs always want to tell you everything about their business. They are excited, passionate. They’re in love. I was an investor for 12 years, and during pitches I wanted to grab these people, shake them and scream, “Just tell me the one thing that makes your business special! It’s not that hard!”

Related: How To Build A Winning Investment Case To Hook Investors

Then I left investing in 2008, started a company myself, got in front of a VC… and made the same mistakes. I couldn’t stop rambling on about Kwippit, my image-amplified messaging app.

Get to the point, quickly

I was so consumed by my own story that I missed the VC’s body language. He looked tired, his eyes were glazed and he kept looking at his watch and taking notes from his assistant. He’s just busy, I thought. Hang in there; a few more slides and he’ll really perk up.

Now, finally, I understood why founders kept making the same mistakes in front of me. Entrepreneurs are like proud parents bragging about their kids. It’s hard getting to the point – whether pitching an investor, potential partners or clients. And that meant I kept blowing deals.

Luckily, one investor invited me back to meet with others on his team – but before I came, he advised me to get to the point earlier than an hour and a half into my pitch.

Lead off with the meat of the subject, he said. I blushed. I was embarrassed. It’s the same thing I used to tell people. But now I knew exactly what to do.

Related: 3 Actionable Insights To Make Your Investment Pitch Perfect

I grabbed a pencil and a sheet of paper and wrote out bullet points:

  • Large market opportunity
  • A differentiated strategy
  • The right product
  • Attractive monetisation opportunities
  • Opportunity to build a barrier to competition.

I went in with my new pitch. It didn’t take long, and it went well. And it’s gone well ever since. The first five entities we pitched signed on, and Kwippit is growing and growing.

Related: When Attracting Investors Go Ugly Early

The lesson I learned is invaluable.

Investors want to know so little, and they aren’t going to change, so it’s incumbent on the entrepreneur to digest their own wealth of information, their boundless passion and their countless hours of hard work into a couple of nuggets of gold and drop them into a VC’s lap.

I’m still refining my pitch; I know it needs work. But I’ve come to believe that the key, like most things in life, is balance. One nugget is too few – but all the nuggets are too many.

This article was originally posted here on Entrepreneur.com.


Related: How to Pitch Your Idea to An Investor

Entrepreneur Magazine is South Africa's top read business publication with the highest readership per month according to AMPS. The title has won seven major publishing excellence awards since it's launch in 2006. Entrepreneur Magazine is the "how-to" handbook for growing companies. Find us on Google+ here.

How to Guides

How Investors Choose Who To Invest In

Why entrepreneurs tend to focus on the wrong things when pitching to investors, and what investors are really evaluating instead.

Allon Raiz

Published

on

business-investors

The hypothesis of my book Lose the Business Plan was that great businesses are not determined by Excel spreadsheets and the all too predictable J-curve, but rather by the entrepreneur or entrepreneurial team and their ability to see opportunity, navigate obstacles and make things happen.

The truth is that entrepreneurs focus on the wrong side of the coin when meeting with an investor. They focus on the deep detail of the business plan and concentrate on justifying assumptions, predicting and overcoming objections, and emphasising market potential. Yet it’s my experience that the real decision on whether or not to invest in a company is more heavily weighted towards the entrepreneur or team rather than the business plan itself.

Once the ‘numbers’ stack (in other words, the business model makes sense) and the risks have been considered and appropriately mitigated, then the real decision-making can begin. The final decision comes down to four important characteristics of the entrepreneur himself or herself.

1. Is she honest?

You may have the best business plan in the world and you may have mitigated every possible risk but, if you are not someone the investor can trust, no deal will be made. I find that entrepreneurs often underestimate the importance of their reputations and, in today’s connected world, it’s so quick and easy to reference someone’s character.

Related: A Comprehensive List Of Angel Investors That Fund South African Start-Ups

Entrepreneurs who think about the short game and make morally questionable decisions for the prospect of quick profits generally find themselves in an ever-diminishing circle of people who will do deals with them. Your reputation is everything and you should guard it at all costs.

2. Does she work hard?

I am still not resolved around the cliché that you should work smart and not hard. (Perhaps I missed the memo or was asleep during the lecture that demonstrated how this is possible.)

In a world that is changing at an astonishing rate, in an economy that is becoming more and more competitive and in a business environment that is becoming ever more complex, it’s hard work to remain relevant and ahead of the curve for any extended period of time. Every quarter sees a new trajectory that needs to be investigated and navigated. In my opinion, this requires not just smart work but hard work, too.

It’s certainly true that investors like to invest in entrepreneurs who will take their investment seriously, who take their businesses seriously, and who are on top of their games.

3. Is she smart?

Smart does not always mean book smart but it definitely means street smart. It means having the ability to read a room, to see an opportunity, to learn new skills quickly and also being able to apply new learning’s to the business.

Investors look for investees who show agility when adapting to feedback from the market, from their competitors, from their staff and more.

4. Is she ambitious?

Investors do not like investing in ‘mom and pop’ operations. They seek the highest return on investment and that comes from businesses that can scale profitably. Scale is always relative to the investor’s perspective and not your own.

An investor with a couple of hundred thousand rand to invest will have very different expectations of the size of business he or she would like to invest in compared to another investor who has tens of millions of dollars. It’s important for the entrepreneur to authentically resonate with the level of ambition of their prospective investor, and be able to express that ambition through a coherent and cogent vision, as well as a plan to achieve that vision.

Remember, no one starts out as the ideal investee. It’s something that is built up over time and requires constant maintenance and curatorship. It’s essential to continually work on your reputation, to ensure that you are up to date with your industry, and to reassess your level of competence in your market. This is the only way to make sure you become and remain an ideal investee to a potential investor.

Read next: The Investor Sourcing Guide

Continue Reading

Company Posts

Are You Struggling To Find Financing For Your SME? Try Alternative Finance

If you don’t qualify for traditional funding or if it isn’t the right fit for your SME why not explore alternative funding? We specialise in alternative financing options by providing in-depth and custom plans for you and your business needs.

Spartan SME Finance

Published

on

spartan-alternative-finance

Vital stats

Alternative Finance is finance beyond the traditional – it is defined by the financiers’ area of specialisation – by what they specialise in, whom they serve, and how they provide their funding. It does not replace traditional finance but rather functions as a complementary and additional form of funding.

Alternative financiers are specialists – they focus on a particular need and on a specific audience. As a result their ‘how’ is customised to deal with their chosen target market and for this targets unique needs. This applies to the funder’s processes and to their level of flexibility around things such as collateral.

An example of this is that a SME may have an existing R1 million overdraft (their traditional finance) secured by R 1.5 million collateral but suddenly they need R5 million for some kind of contract or bridging finance – they need it fast and don’t have that extent of collateral.

The traditional funder cannot provide what they need, their process is too long and their flexibility is too low. An alternative financier providing bridging finance and specialising in SMEs is ideally positioned to fill this gap.

One of the most significant differences between a traditional funder and an alternative financier is in their process. In the case of the alternative financier, they have often chosen to deal exclusively with a particular customer base, for example SMEs. As a result, this funder has both an affinity and contextually relevant empathy in working with SMEs.

Not only do they speak the same language the funder also has an appreciation for the time and material constraints of the SME and has developed their processes to cater to this market. This applies most notably to the turnaround time of the funding need and to the assessment aspect – where flexibility around things such as collateral is vital in making the finance happen for the SME.

A traditional funder is unable to meet the deadline of a bridging finance need, submitted on an urgent basis, where the finance is needed as soon as 2-3 days from time of application. A specialised or alternative funder is able to do exactly this. A traditional funder is also unable to find creative methods in solving the SMEs lack of high-value collateral in applying for finance.

This SME has generally already used their high-value collateral for traditional credit facilities but now needs funding for growth or resolution of a temporary cash flow challenge. An alternative financier is able to look at such an application in a different way, and has most likely already established alternative ways to make this happen for the SME.

Related: 5 Key Questions To Answer For Raising Funding

Continue Reading

How to Guides

Ways To Raise Capital To Expand Your SME

John Whall shares some of his insights about raising capital, despite tough economic conditions.

John Whall

Published

on

raising-capital-for-small-business

Times are tough, we all know that. As revealed earlier this month by StatsSA, South Africa is in a recession. But as history tells us, recessions don’t last forever and as a business owner you need to stay focused and continue to look for ways to grow your business, because business growth means economic growth.

John Whall, CEO of Heartwood Properties has been in the business of commercial and industrial property development for many years. He has experienced more than one recession in his professional career. In order to expand, companies can raise capital in two main ways, through debt or equity. Debt involves borrowing money, while equity means to raise money by selling shares in the company.

Whall shares some of his insights about raising capital, despite tough economic conditions.

Debt Financing

Bank funded expansions are a very common option for many SMEs. The one thing you must consider is that it could limit you in terms of how much you can borrow based on your credit history and available assets. You will also be liable for repaying the full loan plus interest. Right now, interest rates remain the same, but it may increase in 2019. Debt if used correctly and not to aggressively is a great way for SMEs to grow and expand, however debt should always be used conservatively and the business owner must ensure that the cash generated by the business can easily repay both the interest and the capital to the bank.

Related: Seed Capital Funding For South African Start-Up Businesses

Government funding

The South African government supports a number of funding programmes to encourage the growth of small, medium and micro businesses in South Africa. You can contact Department of Trade and Industry (DTI), SEFA, NEF,  Khula Finance Enterprise.

Crowdfunding

Used in the startup phase mainly, this form of financing uses your network of friends, family or acquaintances. The Internet is used to spread the word about your campaign to reach larger amounts of people. Equity-based crowdfunding has become a popular alternative for startups who don’t want to be dependent on venture capital investors. This has proven to be very effective in developed markets.

Equity Financing

If you require more capital than you can raise or borrow yourself, and you want to avoid aggressive debt funding then you may want to consider equity funding. This can open up a number of avenues that will offer you capital to grow your business. Very popular amongst startups are angel investors and venture capitalists.

Angel investors are people (business owners) who contribute their time, expertise as well as their own personal finances and in return expect to own a share of your business and receive a share of any future profits.

The opposite are venture capitalists and private equity investors, who are investment companies or fund managers who provide very large sums of cash in return for part-ownership. These type of investors do usually have a say in the management of the business and also agree to a five to seven year exit plan for their investment. This type of funding suits a business who needs a once off equity investment, but does not continuously need to raise capital to grow the business. The election of the investment partner is critical for the business owner and their medium to long-term strategy for the business must be aligned.

Related: 3 Mistakes To Avoid When Running A Crowdfunding Campaign

Going public

Established businesses usually do a public listing to raise ongoing capital in hope of expanding. Not only does this help to strengthen their capital base but it makes acquisitions easier, ownership more liquid for shareholders and allows the business to continuously raise capital to grow. Up until two years ago, the only option for a company to list publicly was through the Johannesburg Stock Exchange (JSE), which required a minimum capital amount of R500 million for a primary listing.

In 2017, the Financial Sector Conduct Authority (FSCA) issued four new exchange licenses in South Africa, all of which are already operational, which is not only providing an alternative to the JSE but is also offering opportunities to smaller businesses and driving down the costs of listing and share trading.  One of these new exchanges is the 4 Africa Exchange (4AX) whom Heartwood Properties is listed with. They are the only exchange apart from the JSE which is licensed to trade across all asset classes, including both equity and debt as well as special-purpose vehicles and real estate investment trusts.

4AX is ideally suited for unlisted companies with a market capitalisation of up to R10 billion wishing to list. This, however, is not to say that this is a ceiling on the size of the company seeking a listing. The exchange has aimed to make the listing process more streamlined and timely while fully complying with its licence and the prevailing legal framework. Its listing requirements are less onerous and more cost effective than listing on the JSE, making it a viable alternative for smaller and medium sized companies. The other exchanges to consider include: ZAR X, A2X, and Equity Express Securities Exchange (ESSE).

Continue Reading
Advertisement

SPOTLIGHT

Advertisement

Recent Posts

Follow Us

Entrepreneur-Newsletters
*
We respect your privacy. 
* indicates required.
Advertisement

Trending