Start-up Entrepreneurs' Blog

Start-up Funding Pitfall: Presentations to Investors

February 4, 2010

As an entrepreneur, you heard about the elevator pitch. Every entrepreneur wants the person listening to find their product idea and business model irresistible, something that everyone wants to be a part of. But you only have a TV commercial’s few seconds to entice and convince your audience and you have to touch on a laundry list of who, what, where, how, and when questions?  The investor wants your pitch to be compelling and irresistible too.  After all, the investor is watching you in a commercial, he just wants to know if he should call the 800 number and find out more.

You arrive at the pitch session, and you are anxious and nervous about your presentation. What will they think? What will they say? Suddenly your name is called and it’s show time. You deliver your best speech and then it’s time for questions and answers. The Q&A session can bring out what is unclear, missing, or unpalatable about your proposal. It’s usually best to have someone in the audience record or write down the questions and comments. It’s also a good idea to write down the questions asked to the other companies presenting because behind every list of questions is another list of questions they’re saving for later. In sales, this is called handling and overcoming objections, but you don’t get all the objections at one time. It takes several meetings. Then it’s time to refine your pitch and try again. Eventually your pitch will become a polished, well-honed act, but it takes practice and continual revisions.

I often sit through these sessions and take notes on the questions asked by the panelists.  I even grouped the questions together to gauge where start-ups seem to be having the most difficulty.  For  some actual Q&A dialogues,  read more.

By far, the most number of questions are about what the product is.  You need to do this succinctly and more often, using an analogy, metaphor or story can quickly get the concept across to your audience. You need to describe in one sentence.  Keep it simple. Would my 8 year old daughter get it? Along the same line of questioning, I often hear investors asking for a use case. They want you to describe a specific customer case or walk them through the steps of how someone uses your product.  Founders are often subject matter experts on a technology and don’t take the audience into consideration in giving their pitches.  They speak as if they are talking to other experts. Investors have their own expertise and it’s not likely the same as the start up presenting.  Another problem is using most or all of your time describing the product, and leaving little time to describe the business around the product, which is what investors want to hear the most.

If you manage to describe what the product is, the next questions are about the business model.  Sometime the business model is half-baked or unclear. Other times they are looking for the assumptions, those leaps of faith that are the difference between success and failure, and how you plan on validating them.  The top questions are always: What is the customer value proposition? How do you make money? How do you plan on selling this widget? Who is you competition and how do you compare?

Constructive criticism is difficult for many entrepreneurs to accept.  I sometimes see the same start-up at six or more different pitch sessions hosted by different groups. Only on rare occasion do I see a start-up change their presentation over time.

Investors tend to be naysayers more often than not. That’s because most have been involved in many deals and most start-ups fail. It’s rare if a start-up succeeds and is a stellar success, and that’s the one that makes up for the losses on the vast majority of their investments. Seasoned investors can lend a lot of insight into what works and what doesn’t work, so the entrepreneur should heed their comments and listen to the questions asked about their business plans.

If you mention something during the pitch, expect there to be a question regarding the statement, further delving into it or a comment based upon their past experience. Here are some actual post pitch Q&A dialogues. The names are fictitious. Investors are looking for reasons to NOT invest, as these dialogues show.  

Q: Are there any other companies doing this?

A: Yes, another start-up.

Q:  How far along is the other startup and who are their investors?

A: They are about a year ahead of us, but are having difficulty gaining traction with customers. There investor is ABC Venture Capital, a well known icon of venture capital industry.

Q: Do you think that the clout and reputation of ABC Venture Capital will scare investors away from your company?

Q: Are you always going to be playing catch up with them?

 

Q: Why did you relocate the start-up to Silicon Valley?

A: We weren’t getting enough customers in Timbuktu so we up and moved to Silicon Valley where we re-launched the company over again.

Q: Re-launch is never a good word in our vocabulary.

 

Q: What is the barrier to entry?

A: It a first-to-market scenario.

Note: First to market never goes over well; you’ll usually get a smirk, an eye roll, or a soft groan.

 

Q. What is novel or special about your product?

A: The revenue model. It’ll be free to the end user and we will monetize it with advertising.

Q: Advertising is never a differentiation.

 

Q: How do you plan on making money?

A: Initially, we plan on a freemium model.

Q:  Freemiums don’t work. They are an excuse for a lack of a marketing and sales plan. Is your plan to figure out how to make money later?

 

Q: What are the target applications?

A: Our software can be licensed, downloaded, sold through OEMs, and packaged and sold at local computer stores with versions for cell phones, personal computers, mainframes, and any device that connects to the Internet. We will make both software and high-end hardware versions, and consumer and business versions.

Q:  Pick one, the best one, and go with it.

 

Q. Why would a costumer use your service?

A. Our studies show that there is a need for this service.

Q. I could be a user of this service. And right now, I can make a few phone calls, do a search on Google, talk to my colleagues, and get the same information. Why would I use your service?

A. Our studies show differently. We haven’t released the product yet, but when we do, we are sure people will use it.

Q. Let’s just move along to the next presentation.

Filed under: From Concept to Start-Up,Start Up Funding

Tags: elevator pitch, funding, new business proposal, presentations, raising capital, start ups