The process of pitching to investors

Often first-time entrepreneurs underestimate the time it may take to raise funds for your startup. 

Unless you get seriously lucky or have easy access to a number of investors, it is prudent to estimate anywhere between 3 – 6 months to get funded. And that is if you have a good plan and a great team.

Well, its relatively easier with angel investors and much easier with angel groups like the Angel Investors Consortium. That’s primarily because they invest smaller amounts in a wider range of companies but also because individuals are making decisions and hence do not have to go through more complex processes of VC funds.

Here are a few steps that are involved and approximate time it could take with angel investors:

Step 1	Identifying the right investors	2 weeks
Step 2	Getting the first meeting, including time taken for trying to reach someone to get meetings set up	1 - 2 weeks
Step 3	Meetings with the evaluation team	1 week
Step 4	Presentation to Investment committee	2 weeks
Step 5	Term sheet	1 week
Step 6	Term sheet agreements	1 week
Step 7	Due diligence and signing of documents	1 – 2 weeks
Step 8	Funds hit your bank
Total time		9 - 12 weeks

Here are a few steps that are involved and approximate time it could take with institutional investors:

Step 1	Identifying the right investors	2 weeks
Step 2	Getting the first meeting, including time taken for trying to reach someone to get meetings set up	2 – 4 weeks
Step 3	Meetings with the first layer of filtering	2 weeks
Step 4	Meetings with the senior layer	2 weeks
Step 5	Internal presentation to Investment committee	2 – 4 weeks
Step 6	Term sheet	1 week
Step 7	Term sheet agreements	2 weeks
Step 8	Due diligence	2- 4 weeks
Step 9	Signing of documents	1 week
Step 10	Funds hit your bank
Total time		16 – 20 weeks

And these are fairly optimistic timelines with the investors who finally fund you. There will be several you would meet who may, out of genuine interest to invest, progress the discussions but may not conclude the deal for several reasons. And there will also be many who may decline to invest in the first meeting itself but still it will have taken 4 – 8 weeks to get the “No” as an answer.

Given the lengthy process, the entrepreneur should try to be selective about which investors they should approach. Investors, especially VC funds are clear about the kind of companies, the stage and the domains they would invest in, and that information is usually available on their websites.

One of the first things that entrepreneurs need to do is make a shortlist of who the ‘right’ investors would be.

• To begin with, you need to decide if you are ready for angel investors or for VCs. Click here to know more between VCs and Angel Investors.

• When applying to investors, check their websites and see if they have invested in businesses similar to yours and if your domain is within their interest areas. E.g. if you are a life-sciences company, there is no point in approaching investors whose focus areas are Mobile & Internet and Consumer Businesses. 

• Check if there are synergies between any of their portfolio companies and your business, and if there are, then evaluate highlighting the same during your presentation.

• From among the many people at the VC, identify who in their team is more likely to be excited about your idea. This is easy to find because most VCs will have profiles of their team members, including details of which companies or domains that person is involved with.

Once you have identified the investor, and the person who you are going to connect with, try seeking an appointment by making a call to the office. Most likely, you will be asked to send the presentation to a generic mail id used for receiving business plans. Well, this is not something that you can always avoid. The truth is that investors get so many calls and mails requesting for meetings that it is almost impossible to accept all requests.

In most VC offices, business plans received will be reviewed with some level of seriousness, though most probably by the junior most executives who may not necessarily be experienced at taking a gut feel call on what seems like a good business case. If you are lucky to get past this stage, you will be asked to come and meet an associate. And that’s just fine. This is the first line of filter in a VC fund and an associate is expected to do a thorough evaluation based on their internal criteria, and then if and found suitable, are expected to move the deal up to a partner who can decide if the deal is to be presented to the investment committee.

If you pass the first line of filter in a VC fund, and this can take a few meetings, you would have to present to the next level. This round, depending on the interest of the fund, could take a few meetings with revisions and discussions on strategy, scale, funding needs, etc.

Once there is broad agreement on key areas, and if the deal fits into the internal criteria of the fund, the deal will be discussed at the investment committee meeting where the terms of the term sheet will be outlined.

After presenting the term sheet, the entrepreneur is expected to run it past someone who knows the legal stuff around term sheets…. And when you ask someone’s opinion, the person feels it obligatory to suggest a few changes. It then takes a few meetings and discussions to finalize the term sheet and sign off.

NOTE: some VCs would discuss the terms of the term sheet offline over meetings and dinners, and therefore the draft presented to the entrepreneur on which there is an informal agreement on key points like valuations, control, vesting, rights and downside protection. However, the time taken would still be approximately be the same.

Once the term sheet is signed off, the due-diligence will start. Also, the startup may have to complete some tasks as part of the ‘conditions precedent’ and that could be things like filing for patents, getting an independent director on board, getting customer contracts signed, etc.

After all this is done, the final signing of the documents and receiving the cheque are the logical next steps.

5 mistakes to avoid when pitching to investors

With most VCs, you will get just one chance to present your business case. VCs are usually a skeptical lot because they see a lot of bad presentations.

Here are some mistakes to avoid when pitching to investors

• Poor assessment of the risks in your venture: All businesses have competition. VCs are not looking for businesses without risks… in the businesses they are interested in, they are looking for teams who understand the risks and have a plan to manage the risks.

• Poor assessment of the competition or assuming that there is no competition: If there is no one else doing what you are doing, how are the consumers currently solving the problem? E.g. in a online food ordering business, just because there is no other brand dos not mean that there is no competition. ‘Calling up the restaurants using menu cards available at home’ is your competition.

• Exaggerating management strengths: Remember, most VCs will do due-diligence… and most are experienced enough to know what is practical and what is fluff. E.g. for a professional with 2-years experience to claim “In my role as Client Services Manager I was responsible for formulating strategy and operations planning for fortune 500 clients” is usually not going to be an accurate representation of your role. However, “was involved with” instead of “was responsible for” is perhaps closer to reality. Also, giving the right picture of your current skill sets and capabilities helps investors understand what assistance they may need to bring to the table, in case they decide to invest. Investors are not looking for ‘we know all and we have been there done that’ teams… those are rare to find. Investors are interested in honest teams who are passionate about the domain and are smart enough to learn the things that they currently don’t know.

• Impractical and unrealistic growth projections: While aspiring for scale is important, planning ‘how’ you are going to achieve it is critical. Without a plan, aspirations of scale are merely a statement of intent. Investors invest in a team with pans… not just on statements of intent.

• Don’t include names of ‘advisors’ if they are not genuinely involved. Plain show & tell names just because you know a few people don’t impress investors.

Pitching to investors

Basics of pitching to investors

Apart from having a good business plan, which is of course the most critical thing, HOW you present your case to investors will determine whether you will get their attention and interest or not.

Because investors often listen to very bad presentations, good quality presentation itself offers a substantial edge while presenting to investors.

The most important thing to remember is that YOUR FIRST PRESENTATION IS AN ELEVATOR PITCH… NOT A FULL SCALE BUSINSS PLAN PRESENTATION WITH EXCEL SHEETS, TECHNICAL SPECIFICATIONS AND OPERATING DETAILS. In the first meeting, investors want to quickly judge whether they are interested in investing in the company.  Hence, the focus should be on communicating the concept and the potential and not the finer detai

Here are a few quick things to keep in mind

Start by introducing what you do and for whom… without any preamble

Investors will be interested in the details AFTER they have got excited about the concept, the scale and the team.

Hence, while presenting, ensure that your pitch focuses on what you intend to do, how you plan to implement it, how you will make money from it, what your scale of aspiration is and why you and your team is the one they should bet on. In fact, your opening statement should clearly state what you do and for whom. I.e. “we are an online music discovery platform where independent artistes upload their music and consumers buy or listen” or “we help small companies manage their sales processes”.

Most entrepreneurs make the mistake of diluting the pitch with a lot of detail of the operations, which of course will be of interest to investors… but only after and only if they have an interest in participating in your journey.

The initial pitch presentation should not be more than 8 – 10 slides. Click here to see template of the investor pitch presentation.

Investors are interested in the business case… not just details of the concept or the product

A concept and product is different than the business case for the same. Most first-time entrepreneurs make the mistake of thinking of the concept as the business. E.g. for someone presenting for a e-tailing venture, the investor would be interested in knowing your competencies or plans on supply chain, warehousing, procurement, customer acquisition, etc. Not just about how cool your web platform is.

One common mistake made by many first-time entrepreneurs is to elaborate on technical details. Technical details of your product/concept, and operating details will be relevant in the subsequent presentation… which will come about only if the investors get excited about the opportunity and you as a team.

Focus on key aspects rather than fluff around your business case

In most cases you will get a 20-30 minute window to present. You will have 10 - 15 minutes to make your case with 10 – 15 minutes for Q&A. In fact, in most cases, you would have either got their attention or lost them in the first few sentences. Rehearse your opening lines… once you get through this, the rest is the easier part. If you don’t get their attention and interest in the first few sentences, the rest really won’t matter that much.

“According to Gartner the market is 8 bn USD globally” has no meaning

At startup stage, investors are interested in knowing what you are going to do in the next few quarters. Of course, they would be keen to know whether the market is large and how large. But in most cases, industry reports on the size of the industry is no indicator of the size of the opportunity you are addressing.

You should focus on your plans and what you intend to get to in the next few years.

Be prepared with answers to questions

It is critical for entrepreneurs to know your business better than anyone else in the room. Be prepared with answers to questions, especially around assumptions about your business.

Know your business inside out. Know who the competitors are, know their business models, know the size of markets, know why consumers buy, know what the problems are with what your consumers are solving their problems currently with.

Explain why you are qualified to do this business

Investors are keen to know what you and the founding team brings to the table. So, a listing of your resume and career graph is not relevant. What is relevant within that is what you have done to make you a good candidate to pursue this venture. E.g. for an online retailing company, that “you have 11 years of professional experience in blue chip companies” is not as relevant as “I have handled supply chain and established relationships with vendors across the country” is important for investors to hear.

Be passionate. Early-stage investors, angels as well as VCs, invest in people

At the startup phase, investors are largely taking a bet on YOU and your team. They are betting on your ability to create a large company around the concept you are presenting. Hence, it is critical for them to see your deep commitment to the domain and your passion for the space.

Be clear about what you expect

Tell the investors clearly about how much money you need and what you intend doing with the money and what milestones you will achieve with the money that you are asking for.

End with a recap – end strong

Don’t end the presentation with slides of excel sheet numbers. End with a strong recap of what you have told them. Summarize what your concept is and say why this is a good business case.

Remember all the basics of good presentation skills

• Few words per slide
• Good looking slides attract attention – put some effort in designing the presentation well… at least it has to be clean and well-structured
• Speak clearly and speak slowly
• Be confident and passionate
• Let one person present while the other handles the computers – don’t try to do all things together
• Decide who will answer what questions
• One person should present – don’t try to distribute the presentation among 2-3 co-founders – remember, the first meeting will be only 20 minutes or so. Others should participate in the post-presentation discussion.
• Don’t go with an army of people if the others are not going to participate in the discussions – but ideally all co-founders should be present