Pitching a new business proposition to an investor isn't rocket science - in fact, the most effective pitches involve, of all things, empathy. As in, an understanding of why the person you're sitting in front of is sitting there in the first place.
1. Wealth Creation (The "Big Win")
In my experience, investors bent on wealth creation stand at both ends of the scale: they are either the very best kind of investor (as in "go for it, baby!"), or the very worst (as in "please don't spend all my money on that really great sales guy!").
Sometimes, wealth-creation focused investors are rebuilding from a loss - sometimes, they are looking to scale up based on a recent win, by investing in more things than they could execute on their own.
In either case, these investors are primarily going to be big-numbers-driven (as opposed to the detail), and on the hunt for data to support your ROI argument. So don't waste time with hours of demos, attractive powerpoint, or reams of text - get to the point and give this guy the data he needs:
- How much money you need
- What kind of multiple you think you can return him
- How big the market is (i.e. who wild things could get if everything went crazy-good (ability to scale)
I've seen deals close in minutes based on the simple fact that the investor appreciated that the entrepreneur had just made him a promise to make him a lot of money.
Sound simple? You'd be amazed how many entrepreneurs don't want to discuss money or investment returns. This, more than anything I know, drives investors nuts - and into the arms of the few guys who come armed with empathy.
2. Wealth Preservation (The "Business Builder")
The wealth preservation guys are easy to spot - although occasionally seen in the wild in "angel" form, they typically work for the growth equity funds, and are most concerned about the quality of the business's team, reporting, and systems, and its ability to grow market share and maintain margins. In other words, the normal stuff.
To entrepreneurs used to dealing with "Big Win" guys, these guys are anathema - an entrepreneur's worst nightmare. Which is why sometimes, the entrepreneur needs to step aside when the growth equity comes in - because, between the backers and the founder, there is no shared thinking to be found.
So what do the wealth preservation guys want to see?
- A team that has "done it before"
- Detailed cash flow forecasts, honest management, and regular reporting
- Comps around exit valuations and exit timeframes (ability to scale)
Sadly, the Business Builder often doesn't know himself that it's okay to ask for these things rather than go along for the (wild) ride. Too late, he/she finds out that the founder has zero intention of giving them what they need - ever - and war slowly ensures.
Again, recognize who is sitting opposite you, and, if their M.O. is based on the above points, and yours isn't, you probably should tell them you would prefer to be working for someone other than a guy who's looking for detailed data and a solid "at bat".
3. Ego (The "Cool App")
Years ago, while working in the music business, an executive called me up to tell me he liked a demo I'd sent him. Actually, more specifically, he called me up to tell me that his girlfriend had liked the demo - a lot.
I put down the phone knowing that I had a deal. There was no way this guy wanted to go back home to his girlfriend and tell her he let me sign with someone else. Sure enough, we did a deal within a month of that phone call, and money was no object, and things went about as smoothly as could be.
Key to the "ego" investor:
- Great demo (unique/attractive/cool product)
- Attractive/cool demographic target
- Massive publicity (ability to scale)
Ability to scale? Yes - no ego-based investor wants to back an unknown product - where's the fun in that? So while the numbers might not matter, you can bet your boots that if you fail to get traction, or your app turns out to turn on the wrong audience in the wrong ways, your investor is going to be... well, not happy.
Okay, so maybe I'm forcing things too tightly into three pockets here. But I'm just trying to get some thoughts flowing. It bugs me when i see founders struggling to marry their pitch with the guy sitting across from them, especially at times when just a little more listening and understanding would possibly get a deal done.
Empathy - not a word you hear often in business, but worth keeping in mind when you next go pitch an investor. Give it a try and let me know how you fare.
Note: Interesting how "ability to scale" is common to all arguments - I didn't try to shoehorn this in, just noticed this later and added the parentheses...
John is a serial entrepreneur and investor, and the co-founding Partner of Hatcher+, a data-driven, globally-focused venture investment platform based in Singapore. In addition to leading capital raising and deal syndication, he is the visionary and architect behind the Hatcher Stack, the company's venture-oriented business process automation platform. Over the past five years, John has led numerous venture investments in early-stage companies, including ASYX, DocDoc, Dropsuite, Invit, Inzen Studio, SocialCops, ThoughtRiver, and Telr - and syndicated over US$100Mn of additional debt and equity co-investment. IPOs and trade sales in which he was acted for the majority shareholder include Dropsuite (ASX:DSE) and Inzen Studio (ASX:ICI). His M&A work includes the merger of payment leader Telr with Dubai-based Innovate Payments, and the merger of Singapore-based companies DocDoc, and DoctorPage. Prior to co-founding Hatcher, John founded cybersecurity technology leader Authentium (acquired by CYREN in 2010), and acted as a director for global payments aggregator Mozido, and an advisor to Africa-based Gateway Communications, satellite technology developer MDS America, Kuwait-based Internet marketplace Sheeel.com, and Orion Partners, a $2B private equity fund manager based in Hong Kong.
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