Pitching to a potential investor is one of the most important things you will ever do as an entrepreneur. Preparation is vital, yet so many leave it to the last minute and wonder why investors aren’t lining up to throw money at the idea.
Crafting the perfect pitch takes time, effort and practice. After all, you are asking someone to take a giant leap of faith and handover their cash to a perfect stranger with no guarantee of return. The aim is to earn their confidence and trust by presenting a thoroughly researched strategy, rather than fleece them into supporting a flimsy, ill-thought out plan.
If your pitch isn’t, well, pitch perfect, you run the risk of spooking potential investors and having to start again. Here are five common mistakes start-ups make when pitching to investors and how you can avoid them.
You’re too in love with the product
There’s no such thing as an entrepreneur who isn’t passionate about their own product, but it’s easy to get carried away. Even though you’ve been living and breathing your product for months or years, the investor hasn’t. Avoid making outlandish promises based on dreams, not data. Investors want cold, hard facts. Will this make money or not? Sell the reality, not the dream.
Not understanding the numbers
This is a fatal error for any start-up. Investors case about one thing and one thing only. As the line from Jerry Maguire goes, “Show me the money.” If you can’t explain exactly how you will earn a healthy return for your investor, you may as well take your bat and ball and go home. The game’s over. Study the financial aspects meticulously and practise explaining them. Try to predict any curly questions and devise answers for them. When it comes to talking to investors about money, you can never be over-prepared.
Not enough ‘skin in the game’
Investors want to see that you have invested your own time and money into the project, rather than relying on them to put it all on the line. Document your personal investment in terms of setup costs, prototypes, wages and other expenditure. Put a valuation on your time and effort, too. If you can prove you have skin in the game, investors will be more willing to hand over some of theirs.
Not having a plan B
There’s a theory that when it comes to start-ups, everything takes twice as long, costs twice as much and is twice as hard as expected. You must have contingency plans for the inevitable bumps in the road that will slow you down and cost you more.
Show the investor that you have considered these possibilities and explain how you will deal with them. Prove you have planned for the worst, and they’ll be more willing to take a chance on you.
Not acknowledging the risk
There’s no such thing as a risk-free investment. Investors love to see entrepreneurs who understand the market well and are capable of managing risks, both expected and unexpected. Rather than trying to persuade them your plan is bulletproof, acknowledge that it involves a degree of risk, show them you have thought about the potential hurdles and outline your strategies to combat them. If it was a sure thing, you’d have gone to a bank and got a loan by now – but it’s not. So be realistic and don’t sugar-coat it.
Pitching to investors doesn’t have to be a terrifying ordeal. Think of it as a science, not an art. If you study hard and prepare well, there’s no reason you can’t succeed.
Alan Manly is the founder and CEO of Group Colleges Australia, one of Australia’s largest private education institutions, and recently launched the private MBA school, the Universal Business School Sydney. He is also the author of two books, The Unlikely Entrepreneur and When There Are Too Many Lawyers There Is No Justice.