How to Raise Money from Angel Investors and Venture Capitalists
Chapter 6 - Step 3: Presenting
by Marshall Brain
If your application moves forward, your next step will be to make a presentation. In an angel group this will normally happen at a monthly meeting where many of the group members attend and listen to your pitch. Your presentation time might be 10 to 30 minutes long depending on the group. During your presentation you will make your case to the group, explaining to the members why they should be interested in your company and why they should invest.
In the case of a venture capital fund, you will be assigned to one of the fund's partners and he will meet with you.
If you think about it from the investor's point of view, it is easy to decide what you should talk about in your presentation. The investor has a set of questions like: 1) Does this seem like the kind of company that can grow significantly in a few years? 2) Has this company proven that there is a market (does it have customers and know how to find new ones)? 3) Is this management team going to be able to execute its plan? 4) How do the current financials look, and do the projections seem attainable? 5) When the time comes, does this company have an obvious exit path?
The investor also has some key check boxes in his/her head. Is there a massive market here? What is the point of pain in this market that is being addressed? How will the company make money solving the pain? Therefore, you should be able to formulate a statement of this form that summarizes your company's value proposition:
X million people experience Y. We intend to become the leading company in relieving their pain by doing Z. In the process we will make $$$."
So, for example, a company might say this: "75 million households in the United States have automatic dishwashers. Homeowners waste 20 minutes per day loading and unloading these machines. Our new D-1000 dishwasher robot will completely eliminate this drudgery and wasted time, making life immeasurably better for homeowners. Our market research shows conclusively that sales in the range of 1 million to 2 million units per year will yield annual revenues averaging $300 million. We intend to become the leading company in the home robotics marketplace with follow-on products that do laundry, clean kitchen counters, scrub toilets and showers and mow the lawn. Annual Sales exceeding $1 billion are possible within 5 years." If you attach a credible management team to those projections, show how you plan to go public, and have a kick-ass demonstration using a prototype robot, chances are that investors would be interested.
Your business idea may not be that grandiose, and it may not result in a $1 billion company, and it hopefully is based on a technology that is currently feasible (as I write this, it is not possible to create a reasonably priced robot that loads and unloads a dishwasher), but the general form of the presentation applies. You need to show a large market. You need to show a point of pain, a hole in the marketplace or an opportunity not yet exploited. Then you need to show your solution and how you plan to make money with it. Your presentation should leave the audience with a feeling of inevitability, so that they are thinking something like, "wow, this business idea is awesome and they can't lose - how has no one else seen this opportunity?!"
Here are two other examples to help cement this approach into your brain:
- Let's take the example of HowStuffWorks. At the time we were seeking investment, the HSW audience was growing, and the rate of growth was growing. The site was winning awards and gaining a national reputation. The basic pitch when we approached investors was, "There are X million curious people in the United States who are interested in how things work. They are the kind of people who like NatGeo, PopSci, Discovery, etc. We can make $Y per month on average from a HSW article through advertising. As the audience grows, we will make more. If you give us money, we will hire writers who will increase the size of HSW's article library, which will increase revenue further. We will also hire BD and marketing people to increase ad revenue. Based on our projections, HSW will be making $Z million per year in 3 years."
- There is a company in Durham that does social media mining. They have created a large, searchable database of facebook posts, tweets, blog posts and so on. The PR departments in large corporations can search the database to see what people are saying about their companies. The company has released a product and have a list of features that their current customers have requested as enhancements. The company has also made enough sales to know: a) the cost of getting a sale in terms of time/effort, and b) the monthly revenue a typical sale generates. They also have gathered a number of testimonials, because customers like the product. The pitch to investors is, "There are X companies in the United States and internationally who would benefit from understanding how people talk about them in social media. Our product allows them to discover all the conversations taking place in near-real-time. Companies are willing to spend $Y per month to gain access to this data. It costs $Z to acquire a new customer using a proven sales script. We are seeking funding to expand our number of salespeople as well as the number of developers so we can improve the product. We predict we will be a $W million company in 3 years based on our projections."
If you have never done a presentation for investors like this before, I would highly recommend that you seek advice from a mentor, a consultant, a friend who has been through the process, a member of an angel group... someone who has seen a lot of these presentations and knows what works. Especially if you are appearing in front of an angel group, there may be 30 or 40 influential people from your community who will form their first impression of you in this presentation. You want it to be a good first impression.
There will normally be a Q&A session in the meeting and there may be many follow-up questions over the next week or two.
In an angel group, all of the members will vote based on your presentation. In a VC fund, the partner who hears your presentation will evaluate your presentation and talk with other partners. If all goes well your application will move forward to Due Diligence. If not, you will receive a polite rejection letter or phone call.
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© Copyright 2011 by Marshall Brain. All rights reserved.