Pitching your startup idea to investors is an exciting step in the process of becoming an entrepreneur. However, it can also be terrifying. Often the future of your business is determined in these meetings, and, unfortunately, trying to get funding can lead to a lot of rejection.
The upside is if you stick with it, and if you have the right approach, then it’s quite possible to find someone willing to invest in your business and help get it off the ground. So, what constitutes the right approach?
This is a tricky question, as each business, and each group of investors, is different. Fortunately, there are lots of resources out there to help you figure out how to succeed. Yet sometimes the best thing we need in life is splash of cold water to the face, a reminder of the facts.
It’s not always easy to hear these things, but they are what will help you most. So, here are three things you need to know about funding that not everyone wants to say:
#1 No One Cares About Your Idea
This sounds harsh, but it’s true. Most startup owners have pitched their business idea to lots of people, usually starting with friends and family. This is good, but these people don’t know what investors are looking for. They probably finish listening to you and say something like, “what a great idea!”
However, investors aren’t really interested in your idea. Obviously a good idea is the basis of your startup, but investors are primarily interested in two things, which are:
1. How does your idea add value to people’s lives?
People don’t pay for ideas. Instead, they pay for their needs to be met. So, when pitching, focus on this. What is the problem you think people are facing, and why do you think your idea is a unique solution to it?
2. What have you done to turn your idea into a business?
Again, the idea is the foundation, but that’s it. Investors want to know what systems and processes you’ve set up to efficiently produce your product, and they also want to know what your vision is. No one will give money to something that might disappear in a year, and ideas tend to do that. So, make sure you present a plan for how you’re going to stay relevant in the months and years to come.
A good way to do this in your pitch is to try and tell a compelling story. If you can lead off your presentation by conveying to potential investors that the problem you are addressing is a real pain point in people’s lives, then they will begin to see your startup as something that adds actual value to people’s lives, which means you’re much more likely to get someone to bite on your project.
#2 Experience is Better Than Chemistry
One thing investors will want to see in your pitch is the team you have in place to help you run the business. But one thing you need to remember is that investors aren’t going to care all that much that you’ve started a business with your best friend from college, or that you and your husband or wife make a great business team.
Again, it’s all about value. The money investors give to you will help you run the business, and this means paying the people you’ve hired to work on your team. As a result, they will want to make sure you’ve got the right people in place, and that there is a dynamic that will contribute to growth and good business practices.
This doesn’t mean you’re at a disadvantage if you happen to be working with people you know. You just need to make it very clear that those you do have on the team are there for a specific business reason, not just because they were in your dorm room the night you came up with the idea. If you are carrying people who aren’t adding value, then it might be best to have that tough conversation before you start pitching, as this will show real maturity to your investors and will cause them to look at your pitch more seriously.
#3 You’ll Need to Give Up Some Control
One of the big reasons most people get involved with starting a business is to be their own boss. This won’t change when you start pursuing investors, but you will likely have to give up some control. This is because investors usually want some sort of equity in the company when they give you money to ramp things up.
It’s tough to say exactly how much you will have to give up, as there isn’t a lot of reliable data out there. But the T.V. show Shark Tank can give us a snapshot; it’s one of the few places where we can examine a bunch of similar pitches. An analysis of successful Shark Tank pitches shows that the average equity stake resulting from a pitch is 26 percent.
This might be a big number for some people; giving up one quarter of your company doesn’t feel great. But this type of stake helps give investors the security they need, for it means they will have some control over what happens in the business. Of course, things will vary based on your revenue and also based on how much money you’re asking for. But this 26 percent number is a good one to keep in mind, and to get comfortable with, as you start making your rounds pitching to investors.
Hopefully, these truths aren’t too hard to swallow. It’s likely you’ve heard them at some point or another, but perhaps no one has been as blunt as we’re being right now.
But even with these things in mind, there is still going to be a learning curve. Make sure to have good visuals to bring with you to meetings, and also make sure you’ve been practicing your public speaking skills. Beyond that, though, there’s nothing left to do except pitch and persevere.