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Pitching For Funds – Investors’ Views On Good Pitches And Bad Pitches: Funding

Start-up investors give their top 10 pitching tips

By Michelle Hammond
Tuesday, 07 August 2012

feature-judging-panel-outside-007-thumbDelivering the perfect pitch might sound like an impossible task, but the harsh reality is that the difference between an average pitch and an outstanding one could decide the future of your start-up.

 

The angel investors at Innovation Bay know what they’re looking for in a pitch, but they also know what they’re not looking for. The question is, do you?

 

Based in Sydney, Innovation Bay was founded in 2003 by Phaedon Stough and Ian Gardiner, with the aim of facilitating business opportunities between entrepreneurs and investors.

 

Members of the Innovation Bay network include senior business leaders and venture capitalists throughout Australia, with a strong tech focus.

 

In addition to regular networking events, Innovation Bay holds dinners where handpicked investors judge and put money into pitching start-ups.

 

Group buying site Spreets, which was purchased by Yahoo!7, emerged in this way, while, more recently, ImageBrief raised $600,000 from the process.

 

As Innovation Bay seeks video submissions for its next angel dinner on August 21, we spoke to some leading investors about the pitching efforts of start-ups – the good, the bad and the ugly.

 

 

1. Identify the risks

 

Joshua Tanchel, a partner at Deloitte Private, says most start-ups pitch in a similar way.

 

“We’re a major sponsor of Innovation Bay, so we get to go to all the pitch dinners and we spend quite a lot of time at various incubators and co-working spaces, so we get to hear a lot of start-up pitches,” Tanchel says.

 

“They have a problem they’re trying to solve, what their solution is, why it’s a big opportunity, their target market, how they will acquire customers, who their competition is, how they’re differentiated, the background of the team, and what the next steps are.”

 

“But they don’t always identify what the risks are. You need to show how you think about and manage those risks.”

 

“You’re better being upfront by admitting there are some risky areas but explain how you will manage them. I don’t see risks addressed in many presentations.”

 

Similarly, Dale McCarthy, founder of early stage investment firm Foundry, says all businesses have risks and potential downsides, and experienced investors expect these to be identified.

 

“If you downplay negatives too much, you come across as untrustworthy or naïve,” he says.

 

 

2. Practice what you pitch

 

“I saw one pitch where an older guy had a presentation timed and he pressed ‘Play’ on it, and it went over,” say Mick Liubinskas, co-founder of tech seed fund Pollenizer.

 

“He basically read what was on the screen, which was pages and pages of documents. He read his business plan to us. That was a bit of a shocker.”

 

“You need to practise your pitch a few times so you know what the story is. Learn a good pitch and practise it so many times that you just know it. It’s all about practice.”

 

“Having said that, it can be too rote-learned. Remember that no two pitches go the same way, so if you only know one way [it will be less effective]. When investors start asking questions, your pitch can be completely changed.”

 

 

3. Add some flavour

 

“You want to ask yourself, ‘Is this a long walk for a short drink?’ Make sure investors are coming for a long walk with a big prize at the end of the day,” Tanchel says.

 

“Often, you have all these high net worth individuals – VC investors – who might have seen 10 pitches during the day, so you really need to capture their attention and imagination.”

 

“It’s about really telling a great story. They don’t want data spat at them. It’s about bringing it to life, engaging them, using audio visual aids, etc.”

 

“There’s nothing worse than hearing a pitch where it’s just pretty dull and you lose interest.”

 

 

4. Learn to speak off the cuff

 

“Recently we went to San Francisco and we had a six o’clock flight back to LA,” Liubinskas says.

 

“At the last minute, we got a call from a prospective investor saying, ‘We’ve got an opening. Can you come in at four o’clock? We’ve got 20 minutes’. We drove straight there.”

 

“They want huge, world-changing opportunities, so we told them how enormous [Pollenizer portfolio company] Wooboard was going to be.”

 

“We didn’t use any of our original material or numbers, and the guy was completely blown away. That was pretty amazing – and then we drove straight to the airport afterwards.”

 

“In terms of quick impact, that was pretty crazy good.”

 

 

5. Be prepared – for anything

 

“On Tuesday I was pitching Wooboard and halfway through the pitch I went to pull out my phone and realised I’d left my phone in a bag in my room,” Liubinskas says.

 

“Another time, I was on stage in front of 400 people doing a pitch for Zingy and our app crashed in front of 400 people.”

 

“It came up and said something like ‘broken code’, which is the worst thing, but we got it going again.”

 

Stephen Baxter, founder of River City Labs, says technology hitches are a huge no-no.

 

“Things like getting presentations working beforehand is crucial. Macs have a habit of going to sleep during a pitch – that’s probably the most common thing I see,” he says.

 

6. Nail the video pitch

 

As Tanchel explains, you’ve generally got about a minute to do a video pitch, so your delivery needs to be extra sharp.

 

“You need to take all of those messages [you would convey in a normal pitch] and get the key ones across in the video pitch,” he says.

 

“Essentially, you need to show the scalability of your idea and make sure it’s very tight.”

 

 

7. Be definitive

 

Baxter says one of the worst things a pitcher can do is present “wishy-washy” numbers.

 

“If there are numbers on screen, the pitcher should have some good due diligence behind those numbers – where did they come from or what logic was used in their formation,” he says.

 

“Any stumbling or stammering on those numbers make me doubt how much they believe in them.”

 

 

8. Remain realistic about valuation

 

“For most start-ups, valuation is completed subjective and is really determined by what the market will bear,” McCarthy says.

 

“Some entrepreneurs are so hung up on getting a blue-sky valuation that they waste months of everyone’s time, and their own, rather than taking something realistic and getting on with the task of building their business.”

 

“It’s bad for their reputation and usually ends in tears as investors will place increasing pressure on the entrepreneur when the blue sky doesn’t eventuate.”

 

“When the Groupon phenomenon swept Australia a couple of years back, every entrant immediately valued themselves at $10-20 million, despite having no revenue.”

 

“A third of those no longer exist and another third are now seeking valuations way under that to exit the market.”

 

Baxter agrees entrepreneurs need to be realistic about valuation.

 

“As much as we want to be, we are not Silicon Valley and the valuations for Aussie-based companies are yet to catch up,” he says.

 

“Coming out with a $10 million valuation on an idea might fly okay in San José but it goes nowhere here.”

 

 

9. Don’t pretend

 

“If you don’t know an answer to a question, to try and bluff your way through it is the worst possible thing you can do,” Tanchel says.

 

“It comes down to really knowing your industry really, really well and thinking [about any questions you could be asked] in advance. What are those questions likely to be?”

 

“You need to put yourself in the investors’ shoes, so advance preparation is critical. If you can’t answer a question, you’re pretty much dead in the water.”

 

“If you’re pitching for money and you don’t know where you’re going to spend the money, your chances are almost zero.”

 

 

10. Keep calm and carry on

 

“If you’re pitching to a seasoned investor, they know you have challenges and they’ve been through it many, many times,” Liubinskas says.

 

“It’s kind of like taking a test. If you freak out, they’ll know you’re not a great entrepreneur because it means you’re more likely to freak out when a 100 other things go wrong.”

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Great article Michelle!

Having worked with many Australian entrepreneurs trying to raise capital in the US you have brought up some great points. On a slightly humorous side I decided to take one of Silicon Valley's guru's to task Mr. Guy Kawasaki of Garage Ventures. I took his top ten lies entrepreneurs tell investors and top ten that investors tell entrepreneurs and added a humorous and realistic twist. You can catch the rest of the top on IMES blog.

The average number of these ten lies that I hear in most pitches is ten. At the very least, tell investors new lies. (I like that at least Guy is being honest - twist the pitch in a new way so I don't get bored with the same ten slides I tell everyone to show me:-)!)

Top Ten Lies of Investors (My comments in parentheses)

1.“I liked your company, but my partners didn’t.” (happens, VC's don't want to be the only one to pick a company within their own VC team - if something ever goes wrong guess where the finger points!)
2.“We are patient investors who want to help you build a great company.” (Ha, Ha - my fund is a 10 year closed one and I have 3 years to invest 3 more to re-invest and 4 to divest - you figure out the timing)
3.“If you get a lead, we’ll invest too.” (Ummm, I didn't say I would invest with just any other lead investor, did I?)
4.“There are no companies in our portfolio that conflict with what you’re doing.” (yep, there is also this game called liar's poker and man are we good at it!!!!!)
5.“Show us some traction, and we’ll invest.” (can't laugh at this one because it is fair ... most of the time - but if I don't have money to gain traction - how can I do it......?)
6.“We love to co-invest with other firms.” (as long as we take the lead, they follow what we want, our lawyer is bigger than them, we get our equity out first, we choose the next CEO+Board+management and.............)
7.“We’re investing in your team.” (but wait, didn't we already say we don't think your team is proven....?)
8.“We have lots of bandwidth to dedicate to your company.” (As long as it doesn't interfere with our golf and sailing schedule - we're so busy you know. Oh and don't forget if one of our companies starts looking like the next Google, Facebook etc., we're really really busy )
9.“This is a plain, vanilla termsheet.” (except for all the perks for us that will hurt you down the line - you have no idea how much we pay our lawyers to slide stuff in - and we know you can't afford a good lawyer)
10.“We will get other companies in our portfolio to work with you.” (right.......................)
Do you know what the difference is between the lies of entrepreneurs and the lies of investors? The investors have money.
David Brown CEO of IMES , August 18, 2012
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