Pitch Perfect: What Makes for a Successful Investment Pitch?
There are no shortage of confident soundings on this topic - Google will provide you with 84,000,000 in 0.53 seconds and bookshops are groaning under the weight of the guides about how to build the perfect business. But for all the media saturation - even television has Dragon’s Den and The Apprentice - the formula for winning investment remains elusive.
Fundable, estimates that less than 1% of startups are funded by angel investors and only a tiny 0.05 percent are funded by VCs. The 57% majority are funded by personal loans and credit, and 38 percent receive funding from family and friends. For some it will be mix of all options. So even if your idea for a start-up is sound, your figures and projections unimpeachable and the business case water-tight, you may still be struggling to secure investment from any source.
“It’s not scientific but there are three types of people we’re looking for in any pitch. Either an entrepreneur with a proven record, someone with significant professional experience, or thirdly, exceptional academics. ”
Blueprints vary, but most successful investors will have guiding principles which inform their decision making. Matthew O’Kane, CEO of Nexus Investment summarises: ‘It’s not scientific but there are three types of people we’re looking for in any pitch. Either an entrepreneur with a proven record, someone who has made money themselves and, crucially, has already exited because the goal is always to move on. Or, someone with significant professional experience, say 10-20 years, a person who knows their field inside out and has the skills relevant to the industry they’re looking to enter. Or, thirdly, exceptional academics. I don’t just mean clever, but someone who has across-the-range credentials. For example, one of our investments is a health company started by a guy who not only trained in medicine and worked as a GP, but then went back to university to get his MBA.’
Nexus Investment has grown at pace but It would be misleading to assume that investors are driven solely by phenomenal growth. For O’Kane there are other considerations: ‘A large part of ultimate success is not just how much money you have made, but have you helped to grow something with top-line revenues which has created jobs? Has something good come out of it?’
“Their carry has to be linked to impact metrics and we have to share the same values.”
Because increasingly investors are looking for more than profit. Ethical organisations screen hard for what is termed ‘impact investment.’ Zoe Peden, founder turned investor at Ananda VC, has strict criteria for assessing the likely impact of any start-up. Founder of mychoicepad.com, the learning app for children with learning disabilities, Zoe is passionate about start-ups having positive social, health, educational or environmental impact and expects to see their Theory of Change at any pitch. ‘We want to see how they are going to progress their business and look for 3 key KPIs related to business growth and impact. Outputs along the way, indicators to eventual change and short, medium and long-term forecasts. Their carry has to be linked to impact metrics and we have to share the same values.’
“Every investment decision we make is in the best interests of the company so we can be flexible with investment time horizons”
Each investor will have their own agenda or business model, but the market is more nuanced than the stereotypical three or four year deadline to exit. Some investors really want to help you grow over the longer term. Founded in 2011 to plug the funding gap left by the financial crisis, BGF has a typical fund structure of 7-10 years. Analyst Rowan Bird explains, ‘Every investment decision we make is in the best interests of the company so we can be flexible with investment time horizons.’ And what kind of pitch impresses BGF to make that kind of time commitment? ‘The pitch needs to be very clear and concise and we’re looking for the 4Ts: Total addressable market, Technology differentiation, Traction and Team. A strong pitch will address all of these and will convey an understanding of the business and the wider market opportunities.’ Curious, I asked Rowan if he had ever taken a punt on someone who had delivered a terrible pitch but had a great idea. He smiles, ‘We get the occasional academic spin-out who doesn’t fully understand the commercial environment but has a life’s passion, particularly around innovative tech. What swings it is the passion and those people we can help build a structure around.’
So, what are some of the moves successful entrepreneurs have made to secure funding and their company’s future? Oleg Giberstein is one of the founders of Coinrule, a crypto trading platform which seeks to empower smaller investors to take on the hedge funds at their own game. He admits that some of Coinrule’s success was down to timing. ‘We lost a big chunk of funding just when lockdown came into effect and for a while we weren’t sure if we would survive. But lockdown was good for us, people were at home trading and we started to gain some traction. But what really changed everything was being admitted to Y Combinator (prestigious accelerator for early stage start-ups) in May 2021. The timing was perfect. After two years of struggling it completely turned things around.’
You can anticipate good times to enter a market but often timing is a happy accident, one determined by a good measure of luck. Happenstance plays a bigger role than many business experts would like you to believe. Getting your pitch in front of the right person on the right day can be the difference between sinking and swimming.
“The investment process is a sales process, investors want to buy a share of future success (via equity in a startup) for capital and founders want to sell a slice of the promise of tomorrow, for cash today.”
WhiteCap’s Steven Hess has coached many entrepreneurs into successful ventures and believes that the critical skills required, the alpha, or the art if you like, is empathy “find out what an investor wants and if you can and its credible, give it to them. Often a founder can be so caught up with his or her own story, that they forget to listen to others, or consider objectively the external criteria used to evaluate them. The investment process is a sales process, investors want to buy a share of future success (via equity in a startup) for capital and founders want to sell a slice of the promise of tomorrow, for cash today.”
Steven has developed a system that he uses for coaching founders and sometimes investors on better pitching:-
1. Opportunity - a clear, compelling and exciting articulation of the growth opportunity, maybe one that others haven’t found or has hitherto been difficult to exploit.
2. Idea:- an idea that is unique, distinctive and sustainable over time.
3. Team:- the confidence to believe that the solution and the team can keep delivering. Do they care?
4. Price:- A fair comparative valuation to balance the risk.
5. Risk:- Balanced consideration of competitive and operational risks.
And of course, you need determination and resilience, that ability to keep going even when all seems lost.
“Luck is what happens when you don’t give up.”