April 11, 2022 | 4-minute read (721 words)
Making a pitch to a potential investor can be a daunting proposition. After all, a founder’s success is ultimately dependent on whether others buy into their vision. But entrepreneurs can get a better handle on their pitch simply by putting themselves in the shoes of investors. If the roles were reversed and they were in the investors’ place, what would they look for when evaluating a business?
Whether you are presenting to an angel investor, a venture capitalist or an institutional lender, every investor will have a unique perspective and set of criteria when assessing a business. They may make their investment decisions based strictly on data, or they may go with their gut feeling that you are the founder in whom they are going to invest. Some may thrive on risk and others may be exceedingly cautious.
However, there are five core things that every investor wants to hear about in a pitch before deciding whether to commit. Let’s take a look at each of these elements:
1. Financial performance – Prospective investors, especially banks, expect entrepreneurs to be well-versed in the ins and outs of their business’s numbers and to be able to prove that its financial performance is robust.
Typically, venture capitalists are looking for a secure business opportunity with a high ROI and a logical exit strategy.
Other financials investors will want to see are signs of growth, plans for borrowing money or issuing shares, debt repayment plan and evidence that the company can meet its financial responsibilities.
2. Background and industry experience – Investors prefer to invest in experienced entrepreneurs with a proven record of success and leadership in their industry.
Most investors will conduct their due diligence by investigating an entrepreneur's business experience and background. Integrity, commitment and enthusiasm also tend to instill confidence in investors.
Certain investors, particularly angel investors, put a premium on their sense of compatibility with the entrepreneur. This is because they prefer a more hands-on approach in the businesses they invest in.
3. A functional business model – A business is expected to begin showing its strategic value once it starts to generate a profit. Investors expect to see the business model being employed and how it will help the organization further grow profits.
Additionally, some investors are looking for certain characteristics in a business plan. This is why it’s best to tailor your business plan based on the investor. For example, because angel investors and VC fund managers are concerned with both market and financial issues, these are areas an entrepreneur should focus on when approaching such investors.
4. Uniqueness – Investors not only seek to invest in products or services that are unique, but they also want evidence that their market potential is sufficiently large to make an investment worthwhile.
Further, investors look for product characteristics such as proprietary attributes and competitive advantage. They will also find value in intellectual property protection, licenses, and special marketing and distribution relationships.
5. Market size – Angel investors seek to invest in goods or services that address challenges for large target markets. VCs typically prefer to invest based on market factors such as minimal competition and significant growth.
Entrepreneurs that offer a bigger and more stable customer base will have a competitive advantage, because it serves as proof that the firm has a sizable impact on its target market.
Investors want to put money into firms capable of rapid growth that can be sustained. They need to see that the businesses in which they are investing have the potential to create significant returns that go beyond the initial product concept with adequate financial projections and a plan to include multiple sources of revenue.
Investors are motivated by the potential to make money. The entrepreneur's job is to illustrate that they can do that, and that this will be the best investment they will ever make.
The most important thing a founder can do to hit their pitch out of the park is to come prepared. Next is a watertight business plan.
A captivating brand story will also go a long way. The entrepreneur seeking investment should know exactly what they plan to do with the capital, as well as how the investment will be structured. They need to show to prospective investors what the future holds for them and the business.