Imagine that you’re selling your house.
The tangible specs on the place — the square footage, number of rooms, location — will be immediately apparent to any potential buyer. But what about the neighborhood? Is it safe? Is it in a good school district for your kids?
The house will always be the focal point of the purchase. But potential buyers don’t want to just hear about the basic specifications of the house; they want a picture painted of what their future will look like as a result of buying this home.
Apply the same logic when pitching for startup funding. You may very well have concocted the invention of the century — a game-changing product. But if you can’t convey that to investors during the pitch phase, what’ll you have to show for it?
Preparation Is Key
When you put your house on the market, shrewd, discerning buyers will pick through your hypothetical palatial estate with a fine-tooth comb. Trust me when I tell you that potential startup investors are just as thorough when vetting your product.
Investors not only want to be wowed by your output, but they also want proof that it’ll yield sufficient ROI. That means you have to be able to support the conclusions drawn in your pitch.
I distinctly remember one presentation in which a founder showed his company’s financial forecast trending up and to the right — the much-desired “hockey stick” of growth. But when investors questioned him further, the founder couldn’t explain how his startup would achieve that projected growth.
Estimates and optimism will only get you so far. Having the cold, hard data to back it up is what pushes your startup pitch over the top for potential investors. Anyone can pitch a product well; highlighting the company around it is what investors are looking for and can be the deciding factor to get you the funding you need.
How to Avoid Pitfalls and Perils
You have to approach fundraising like it’s a sales or business development process, not just a demonstration of your product. There are many blocks a startup founder can stumble over on the path to pitching for funding. These three methods can help you hurdle them with ease:
1. Don’t let yourself be surprised
Be sure you arrive with the confidence preparation allows you. Be able to speak about your company’s three-year plan and highlight your executive team. Your investors will want to be familiar with them and what they offer. Show investors what drives your offering without boring them to death. Visual aids are nice, but a slide full of bullet points is not.
Remember, investors are going to have experience with startups. That means they’re going to expect you to have a long-term plan and a way to execute it. Going into a meeting unprepared not only makes you look unprofessional, but it also shows a lack of faith in your product and company.
2. Don’t fail to understand the market
Investors are going to ask about your competition and your attainable market. And if they think you’re not being specific enough with your answers, they’ll absolutely do the research on their end to confirm your information. Leave no stone unturned when familiarizing yourself with market landscape your product will face. If you know what to expect, your investors will know how to assist you.
3. Never ignore the numbers
There are many factors that go into your startup, but that doesn’t mean you get to be ignorant to all of them. Get to know your customer acquisition costs and your run rate.
For SaaS startups and other subscription offerings, what’s your monthly recurring revenue? For product companies, what’s your gross margin? What’s the lifetime value of a customer? These are questions that you should know the answer to almost instinctually.
It’s the little details that help close the sale of a house. Securing startup funding is no different. Show potential investors that you have every base covered in the pitch process.
Do that, and your product — and company — should have a smoother pass to gaining the funds it needs to take the next big step forward.