Pitching Your Company To Investors

Although I have posted on this topic before, it was about 16 months ago. So, I guess it is time to bring it up again.

I regularly sit on panels and listen to business owners and entrepreneurs present their companies to investors hoping to gain interest and get some capital. Now I know that they have been working hard to get to this stage, but there is a difference between working hard and working smart! So, what is working smart?

From their presentations, I believe that less than one-tenth of one percent have spent any time trying to understand what investors look for. If they did, they would understand that we are not really interested in hearing about a company or technology before we hear about the business opportunity. If there is no clear business opportunity, then why spend the time learning about someones idea of a great technology?

I sat on a panel last Thursday. The CEO was energetic, slides were nice, he was able to explain his technology, but there were very few things that an investor would like to know in his presentation in spite of the fact that he believed that he had an Investor Level Presentation. He didn’t have an idea about how an acquisition would work for his company even though that is the exit he is planning on. He didn’t know what he thought is current valuation is, so that I could get an idea about what a $2M investment would buy. In fact, he didn’t talk at all about what he is offering until I asked him.

Oh yeah, a $2M first round. Who helped him decide on that number? It is at the high end of an Angel round and much to low for VC. Getting $2M from Angels might take forever. With an average Angel investing $25K-$50K per deal, he will have to convince somewhere between 40 and 80 Angels to invest. to do that, he will have to get in front of all the Southern California Angel groups. It will take forever and probably be extremely frustrating.

This CEO didn’t realize that he needed to, not only explain why his was a good deal, but why it was better than the six I saw two days earlier at a Keiretsu Forum meeting or the 150+ we are tracking at California Capital Partners.

One of the other panelists recommended that he not both thinking about his exit. It is too far away. He had to leave early, which is to bad since I disagree with him. I realize that things change and whatever he thinks today will probably be different in the future. However, I am interested in understanding how he is thinking. Is he saying he believes that he will be acquired  because someone told him to check this box. Or has he really thought about being acquire and how that might work. Equity investors, Angels or VC’s, want to hear about how a company can build a 5X to 10X return for them  in 3-5 years. Yeah, yeah I know that doesn’t always happen, but we do want to have someone focused on this type of goal in to beginning.

Let’s see, $2M investment, 5X to 10X return in 3 to 5 years; so I want to hear about a company that is planning to build to a point where an acquisition will pay out $10M to $20M. So, what’s their Proforma say? 5th year revenues at $24M. Hmmmm, not even close.  

What can the early stage entrepreneur do? Spend as much time learning about your potential investors as you do learning about your companies potential customers.  After all, investors are truly your first customers. More importantly, they have to buy into your company not just your products. Work smarter, do the research and find out what your investors are looking for and then tell them how your company will make it happen.

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