Have you ever tried wearing a flip-flop to run a marathon? That is the same way it feels when you want to use your money (savings) to fund your startup. It is a great move but it may not take you far. If you bootstrap and remain without external funding for too long, you may be unable to take advantage of market opportunities.
According to a report by Briter Bridges, African startups have raised $5.4 billion in funding in 2022 alone. This implies that money is not scarce. You are not just present and positioned where it is in abundance. You need to be strategic to raise funds from investors.
Investors are busy people. Investors spend on average 224 seconds per pitch deck. If you can’t grab their attention in the first 30 seconds, you risk losing them. Your first meeting with an investor matter most.
1. Pitch your business, not your product
Investors are buying into your business, not buying into your product. Therefore, you should pitch your business, not your product. Investors are easily convinced when they can relate to the problem your startup or business idea solves probably because they have experienced similar problems in the past.
Other times, it could be your clear sense of ROI that would get an investor interested in your business. Because of their professional expertise, investors are psychological beings who can smell low confidence and see a semi-empty head from your speech. Hence, you have to know your business so well, to speak convincingly.
The more you can make the problem as real as possible, the more your investors will understand your business. Focus on the major problem
2. Present a Pitch deck
Your first meeting with an investor is not a time to bring with you your 60-page business plan. No! Every investor is first interested in a clearly-detailed visual document that summarises the key elements of your business plan. The goal of your pitch deck is not to raise money but to bring you one step closer to the funding you need. Although there is no specific number of slides for a pitch deck, a pitch deck should not exceed 19 slides.
In a pitch deck, too much detail is worse than less information. Combine infographics, images, and keywords in the right proportion. Avoid technical jargon and difficult-to-understand acronyms. Avoid inconsistent font style, colour, and size. Keep your pitch deck simple enough to cover every key point and compelling enough to be acted upon.
3. Know your investor
If you do not conduct due diligence on your investor’s background, you may not know what business they invest in, the sectors they care more about, the problem they are interested in, or what to expect in your first meeting. You may end up pitching to deaf ears or putting a square peg in a round hole. Your chances of winning an investor in a first meeting are higher if you can spark their interest.
4. Know your business
Who you are, what you do, and how you do it is the first thing your investor wants to see in your pitch deck. Your opening slide should show your business name and logo too. Scratch the surface. Digging too deep may bore your investors.
5. Identify only one real problem
Some problems are not profitable enough to be invested in. Some problems are cultural beliefs and not real issues. The more you can make the problem as real as possible, the more your investors will understand your business. Focus on the major problem. Do not itemise a problem that your product does not solve. Use visuals to explain complex problems.
6. Match the problem with a relevant solution
The first turn-off for every investor is when the business solution you are pitching does not match the problem your business is trying to solve. The solution does not have to be sophisticated. Show your solution in a simple, single, and concise statement.
Your solution should be scalable if you are pitching a tech startup. Your solution should be customer-centred not product-based. Mind you, no matter how beautiful your idea may be, your business solution is not novel. Therefore, you should recognize other businesses offering similar solutions in the market using a different approach.
7. Show your market potential
How you can define and segment your market is of huge interest to every potential investor. Use verified data to show the entire size of the market and how you position your business in the market. Investors are always seeking opportunities that offer huge returns on investment within a specific period.
This is why they are interested in businesses that operate in a large market. This does not mean that you should present false information about the market. Every reference, statistic and fact you cite to validate your claim must be true.
8. Show your product
Seeing is believing. Don’t just talk about your product, show your product. Go along with samples. For products still in their development stage, present a model to the investors. Use pictures to describe your solution. Show screenshots or a short video of your product in action.
9. Talk traction
If you have early users of your product or existing clients who have tasted or tested your product, quote their testimonials. Customer stories validate your solution and act as social proof of your business model.
It also decreases any fear of risk in potential investors. Traction also includes your milestones, awards, and achievement since inception. Your traction should show the monthly growth of your business in terms of growth metrics, profit margins, and revenue.
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10. Show your team
It is almost impossible to get a potential investor interested in your business when you are the alpha and omega of the business. Sometimes, an investor may not necessarily invest in your business because of your amazing business model. An investor may first be attracted to your business because of the quality of your team.
Some investors may go as far as profiling your team members on all social media and reaching out to people for references. What experience do your team members have and what achievements make them special to fulfil the vision and mission of your business? If you are the only member of them, have a board of advisors. If your team is complete yet, leave space for vital positions that would be filled in the future and discuss why these roles are important to your business.
11. Show your competitors
No investor will take you seriously when you say that you have no competitor in your niche or when you underestimate your competitors. Showing a competitor does not mean you should bad-mouth your competitor. It means you should talk about why your business solution is better. Why will customers divert to your product?
Even if your business is operating in a new market, your potential audience already has existing solutions to solve their problems. Your pitch deck must show your competitors and their current valuation, and how your business is similar or different from your competitors. Your business model should match your referenced company.
12. Show the business model
How does your product make money? What price do you charge? Who pays the bills? Is your product a high-price product? Is it budget-friendly? Your business model should be captured in your pitch deck.
13. Discuss your marketing and sales strategy
How do you want to put your product in the faces of your potential customer? What are your tactics to sell your products? How is it different from your competitor’s strategy? Don’t build a product and expect your customers to know about it. If you understand your strategy so well, your potential investors will know.
14. Show your financial projections
Investors are not Father Christmas. You must give them a reason to invest. They want high returns and low risk. Hence, you must emphasise clearly the returns on investment. Hence, your financials should show your sales forecast, cash flow statement, and income statement for a minimum of 3 years’ projection. These are not just fabricated numbers and baseless forecasts.
Your financial projections must have realistic metric assumptions and underlying processes. Show simple graphs and charts in your pitch deck, not a spreadsheet. Provide a summary of why you need the money and how the money will be used. Provide past financials (for an existing business).
15. What’s your plan?
After 3 – 5 years of financial projection, what next? Every investor wants to know your plans for the business. These include expansion and exit strategies in simple terms. Do you plan to go public, get acquired, or diversify?
16. Ask boldly
After your presentation, if you don’t ask for funds, no investor will give you money. Don’t be specific about the amount you are asking for. Rather, put a range. This is because many private equity investors and venture capitalists often have a benchmark or marked amount that they can invest per time, per startup. Putting a range amount makes you beckoning to as many investors as possible.
Ndimele is a personal finance coach, business consultant, and author.
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