NCET explores business and technology.
Over the last ten years, I’ve heard lots of pitches to angel investor groups and in business plan competitions. Here are four of the most common flaws I’ve encountered, and ways to avoid them.
Get to the point
You have a wonderful product or service. But you also have only 20 to 30 minutes for your pitch and Q&A. So, plan on spending only one or two minutes describing your product or service, and use the remaining time (and PPT slides) for your financials, valuation, competition, go-to-market strategy, exit strategy, etc. If it really takes you 10 minutes to describe your product, you need a better product or a better way to describe it.
During your pitch, you’ll be asked for your “pre-money valuation,” which is the valuation of your company before you receive any additional investment or financing. The most common answer is “millions!”
While every entrepreneur sincerely believes this to be true, in reality, it’s probably not. An idea is simply an idea and has only a nominal value. In contrast, companies have value, but generally only if they’re generating revenue. If you’re in pre-revenue mode, your valuation is probably much more modest and is more closely tied to the actual investment you’ve made so far in your business. Having patents or sales contracts can significantly increase your valuation, but in general, the earlier-stage you are, the lower your valuation will be. Here’s a link to a valuation calculator that will give you some insight into the factors that affect your valuation: www.caycon.com/valuation.php.
Timing and Amount of Funds
As with valuation, ask a typical entrepreneur how much money they need and the most common answer is “millions!” And once again, it’s probably not accurate. While you may ultimately need millions of dollars, most businesses don’t need that much money right away. Instead, you’re more likely to need, for example, $100,000 now to hire a programmer, and another $50,000 in six months to hire a salesperson. You’ll gain credibility with potential investors if you spread your financing needs over one or two years, and tie successive “tranches” of funding to your ability to achieve agreed-upon milestones.
Competitive Advantages / Barriers to Entry
At some point, you’ll be asked about your competitive advantages and the barriers to entry that will discourage your competitors. A common answer is that you’ll have “first-mover advantage,” which means that once you enter the market, you’ll be so far ahead that it won’t be cost-effective for anyone else to enter the market. While that may be true for products that are very capital-intensive or for natural monopolies, it doesn’t usually work for most other products and services. (Think Palm Pilot, CompuServe, AltaVista and MySpace.)
Take a few minutes before your next pitch to consider these points, and you’ll have a much more successful presentation.
Dave Archer is the co-founder of the Reno Angels (www.RenoAngels.org) and President / CEO of NCET, which produces networking events to help individuals and businesses explore and use technology. www.NCET.org
This column first appeared in the Reno Gazette-Journal