What investors are really looking for
Entrepreneur turned investor Natasha Rawlings opens up.
When I was an entrepreneur looking to raise money, I went to all the talks, googled and spoke to a gazillion other founders and they all said different variations of: team, market opportunity, product. After seven years of life in startups, and now on the investor side of the table, I’ve learned there are a few things many founders don’t know.
As an early-stage deep-tech (read: lab-tech) investor in the university space – I work for Uniseed, whose partners include some of Australia’s largest universities and CSIRO – I wanted to share some of my learnings to give founders their best shot at getting funding and moving their business to the next level.
I’ve also included some advice just for deep-tech founders – as often researchers can regrettably miss the point of an investor pitch altogether.
What investors are really looking for…
Ok, let’s just say it: it’s about the money. You are going to have to do the best sell job of your life. You need to convince a mostly cynical bunch of people you will give them a good return on their investment. For VCs it is usually a 10X return on their money, for angels it varies. If you pitch to an angel like you would a VC, chances are you will attract them.
For deep-tech founders, don’t just talk about your invention. It’s important – but you are asking for business funding. That means you need to be solving a problem that customers will care about. Keep in mind, investors are not necessarily the experts in your area, your customers are, so showing customer traction (even if it is meaningful customer interviews) is key.
If you’re stuck on this, get yourself into a program like CSIRO’s ON, Sydney University’s Incubate or one of the Founder programs at UNSW. You won’t go wrong with any of these.
Show them the money
The money slide usually comes last in a pitch, but I am mentioning it first. If you don’t get your money right, the rest of your pitch is useless.
The best way is to walk investors through your exit path as though it is paint by numbers. Most investors want to see a $100M+ business in 5 – 7 years. This is not your gross revenue at a future point, this is the number your business will sell for. If Investors want 10X their money back on their investment, you need to work the numbers back for them.
Simply, if someone invests $2M over time, they want to extract $20M at sale. If they are diluted to 10 percent, that means the business needs to sell for $200M.
You’ll need a graph of your projected sales, expenses and when you need investment (and how much), as well as a cap table showing what you are raising now (and for what valuation), and your future raises. Have a line on your spreadsheet for the current investors so they know you are thinking of them and the return you are planning to deliver.
Back up your story by showing comparable exits in your industry (try not to use market capitalisation as it fluctuates and may not be directly related to the sale value). What was the company’s revenue at the time of purchase, and what did it sell for? If the average multiple is 3X, then you need to include that in your exit projections.
Think deeply about your valuation because you will need to justify it. Google the metrics the VCs will use. For example, in a high growth SaaS business you might be able to get 5 to 8X revenue. Also get your valuation on the table early: if you and your investors are too far apart, it’s best to walk away and not waste anyone’s time.
Timing is everything
This has been the eye-opener for me. Capturing the attention of the VC fund or angel can simply come down to happenstance – being in the right place at the right point in time. You can glean a little from looking at their investments to date, but often you just have to speak to them to get this information out. For example:
– Does this company sit well within their portfolio?
– Do they have a company like you already, and are not interested in adding another?
– At what stage is their 10-year fund? THIS IS SUPER IMPORTANT for your exit alignment with them.
– Have they had (bitter) previous experience in this space?
– Is the space too busy, making due diligence a nightmare? e.g. drones and marketplaces sit in crowded spaces – what makes you special from the competition?
Also, you need your VC contact to be a champion for your company – they have to get you and your business past other fund members. If you are not feeling it with them, it is unikely to go anywhere. Unfortunately, once you’ve engaged one person in a fund, it is very hard to get another person in the fund to look at your opportunity. Move on.
Have a cohesive and memorable story
Ok, this is partly to do with having a good pitch deck, but it’s more about having an overall story we will remember and buy into. A lot of pitches I see are not cohesive – they don’t take you on a journey. Make it real, bring some showmanship and be clear about who your customers are and why you’re the perfect person to do this.
A story is really aided by props. If you are building or selling something physical, bring it to the boardroom.
We also don’t want to hear a roses-only fairy tale. Your founding and growth story (especially where you have overcome big obstacles) will always be your most powerful. Weave in your setbacks – we want to know you will walk through fire to get this business off the ground.
A final word…
Everything is a negotiation – so please never take rejection personally. The honest truth is very few investments are made by any fund in a year. Make sure you ask for feedback, take it on board, and move forward.
A word for the gals…I get asked from time to time by women who are pitching things like, ‘What should I wear?’ and, ‘How do I get taken seriously?’.
My advice (after getting it quite often, whether I wanted it or not) is just be yourself. Wear what you want to wear – act confident if you feel it, just be you. If there is unconscious bias in the investors, you won’t change that. Just move on and find the perfect investor who will back your business 100 percent based on who you are and what you will achieve.
Image: Natasha Rawlings. Source: Supplied.