These are the top 5 reasons why investors invest and how you need to address them when pitching your company:
1. They “believe” in your market and the problem you are solving.
Let’s start with the obvious. The first and most crucial factor in an investment decision would be the ability to both understand the market, the problem, and the market potential of your idea startup. . They look for companies that are positioned to disrupt existing industries, create new ones, and ones that align with their personal passions or values. A large market size with significant growth potential will ensure the company has room to grow and scale, leading to a higher return on investment. When pitching your company, it is imperative that you nail this part of the pitch and make it so simple to understand that any non-expert in your field can easily explain it, and ideally relate to it emotionally or personally in some way.
2. They “believe” in your team
Time and time again we have heard investors who have succeeded with a previous founder or management team say things like “as soon as they come up with their next thing, we will be there to back it.” That simple statement should show you the power of team track record, capability, and reputation. The reality is the team behind the startup is often as important as the idea itself. A strong team can pivot as needed, put their foot on the gas when they find product market fit, and generally understand what it takes to build a company. Investors know this…so they invest in it. Obviously at the seed stage especially the majority of founders pitching for capital do not have a previous exit or win. When pitching in this situation it is critical you accomplish one of two things. First, talk about WHY you started the company and why it is personal to you. Personal passion can help them connect with you as a leader. Second, put real thought into your team before pitching. Who can you assemble to join you ahead of time. Who could be an advisor? You need to spend as much time thinking about the team who will execute as you do about the idea that will be executed.
3. They “believe” you have a breakthrough product
There are better mousetraps and there are breakthroughs. Better mousetrap ideas have dominated the venture landscape ever since the word “disrupt” became a buzzword. In reality, while these better mousetrap ideas can be novel and even compelling, they are not true breakthroughs and therefore are often invested in because of the market size they can compete for – not the product itself. But on occasion, a product comes along that truly falls into the “new invention” type category that allows it to become highly defensible, patentable, and a massive competitive advantage. When pitching you really need to be true to yourself on where your product fits. If it could be knocked off and mimicked in <1 year – probably a better mousetrap and you should focus your pitch on market, team business model and traction. But, if you have truly found a breakthrough then be proud of that and showcase it during your presentation. These are unicorns, and investors really appreciate unicorn products ideas.
4. They “believe” in your business model
The first automobile was sold in the 1880s. For 60 years buying an automobile was (other than renting) the only really known path to automobile ownership. Then, in the 1940s the concept of a long-term lease was introduced and over the next 20 years leasing became a multi-billion dollar industry. The product itself…the automobile…never changed. The business model itself was the disruption. These types of “business model innovations” are rare but they are amazingly compelling investment drivers. Imagine the pitch for the first software-as-a-service idea after years of buying software license keys. All companies that garner investment will need a reasonable well-defined revenue model, a plan for growth . Very few founders spend a lot of time thinking about whether the business model itself can be revolutionized for their product. The few that do often walk away with funding.
5. You can demonstrate clear traction
Let’s face it. This is the ultimate “trump” card. People can say all they want about the market, team, and product…show us a company with clear revenue growth, customers, users, and adoption and you can all but guarantee someone will be racing to invest. Quite simply, investors want to be right, but they hate it more to be wrong. Fear of missing out is the #1 driver of deals getting done in the venture space. When pitching a company with clear traction, never bury the punch line. Traction goes front and center on the cover page of the presentation. Lead with your trump card. While there are other nuances to raising capital associated with your specific company matching the charter, stage, and industry that your audience is targeting, the items outlined above are universal. Always start your pitch and spend the most time with the area that you feel gives you the biggest advantage and support your strongest attribute with solid explanations for the other things investors are seeking.
Tom Willy
Over his career, Tom has been instrumental in the successful completion of venture capital funding rounds in excess of $100 million, acquired and integrated companies both domestically and abroad, attracted and consummated deals resulting in the acquisition of companies he has led and been part of a management team that has taken to the market and managed a public company.
