Revised and updated June 26, 2020
By Richard D. Harroch, Neel Lilani, and Kate O’Laughlin
Entrepreneurs have to pitch investors to raise financing. Many entrepreneurs from earlier stage companies make common mistakes that could be avoided. Read below for some tips on how to improve investor interest and increase the likelihood for financing.
The mistakes are categorized as follows:
- Mistakes to avoid when planning investor outreach
- Mistakes to avoid in the investor pitch deck
- Mistakes to avoid during the presentation of the pitch
Mistakes to avoid when planning investor outreach
Mistake #1: Sending your executive summary or business plan unsolicited
While some investors are opening their process to cold outreach in response to leveling the racial and gender equality playing field, the majority still routinely do not read unsolicited emails. They get hundreds, if not thousands, of such emails, and don’t have the time to sift through them to find that diamond in the rough.
But what they will pay attention to is a referral from someone in their network: a lawyer, an entrepreneur from one of their portfolio companies or a fellow venture capitalist. Ask your advisors that you work with (e.g., your board of directors or law firm) to see if they have recommendations on investor referrals and can offer any direct introductions.
Mistake #2: Not doing your homework on the investor—pitching your company without being clear that you are in a space, stage, and geography the investor is interested in
Some investors only care about biotech or mobile apps; or the internet and digital media. Other investors have mandates about the stage and/or geographic location of a company. Do your homework first before pitching to make sure your company is aligned with the investors’ objectives.
The first place to look is investors’ websites, which typically state the exact stage, sector, and location they invest in. Other resources include PitchBook or CB Insights. If you were introduced to the investor, find out everything you can about the firm and individual from the person who made the referral.
Showing some awareness of an investor’s background and the companies it has invested in will facilitate the conversation, and also shows you have done some advance due diligence for the meeting.
Mistake #3: Pitching your tier 1 investor first
Every time you pitch, you will gain valuable feedback that will allow you to further refine your deck and presentation. Start with “warm” or “friendly” investors first so you are well-positioned by the time you pitch a highly desirable investor. You need to be prepared to provide crisp answers to questions; and practicing will sharpen your responses and presentation.
Mistake #4: Asking to have an NDA signed before sharing information
Most investors have a policy not to sign non-disclosure agreements. Why would you want to put a hurdle in the way of being able to connect with an investor? If you have something highly confidential, don’t share it. As soon as you send a pitch deck, you should assume that it will be shared more broadly.
The purpose of a pitch deck is to generate interest between an investor and a company—not to provide a deep dive, which would normally take place during the diligence process. For your legal protection, put a copyright notice at the bottom of your pitch deck and add the phrase “Confidential and Private. All Rights Reserved.”
Mistake #5: Not having an effective and concise email introduction
Create a thoughtful, short four to five sentence email introduction that briefly summarizes the company and motivates someone to open the pitch deck. The email should not be overly technical, but rather convey why this is an exciting investment opportunity.Your advisors and others may use this blurb to help connect you with relevant investors.
Mistake #6: Not looking at other pitch decks and executive summaries
Reviewing other pitch decks and executive summaries can help you improve your own. You can ask your lawyer, other entrepreneurs, or angel investor friends for samples. Plenty are also available online. See A Guide to Investor Pitch Decks for Startup Fundraising.
Mistakes to avoid in your investor pitch deck
Mistake #7: Having more than 15-20 slides in your deck and making it difficult to view
You will have an hour at most to make your pitch. So overloading your deck with too many slides will cut into the crispness of the presentation, and you won’t have time to get to the slides at the end of your deck. If an investor is interested, you can always provide more detailed information later.
The deck will in many cases be viewed on a mobile device or tablet. Having a file size of 5MB or smaller will ensure that any email filters or cellular download restrictions won’t stop your deck from being viewed. Also, don’t make investors go to Google Docs, Dropbox, or some other file sharing service to get the deck. Include it in the email as a PDF file.
Mistake #8: Not fully understanding and articulating competitive landscape
A competitive landscape analysis should always be part of your presentation. Telling a VC that you have no competition likely says you are unrealistic or naive. Of course you have competition, whether direct, indirect, or someone who provides a substitute solution. And your analysis of your competitors will show an investor whether you have an understanding of the market.
An investor will want to know why your product or technology is better than or different from what is already out there. You can assume that they will know about competitive products or technology, so you need to have a good response. For example, “We are different from Instagram in three important ways: (1) we are easier to use; (2) we have better editing functions; and (3) we are monetizing earlier than Instagram was able to.”
Mistake #9: Not explaining traction or current customers
One of the most important things to relay are signs of early traction or customers. If you have an app, investors want to know how many downloads you have and how many additional ones you are you getting per week? Have you gotten any brand-name customers if you are a software company? How can the early traction be accelerated? What has been the principal reason for the traction? Show how you can scale this early traction.
What betas/pilots/proof of concepts do you have out there? This can have great signaling impact.
Don’t forget to convey any early buzz or press you have received, especially from prominent websites or publications. Feature the headlines in a slide on your deck. List the number of articles and publications mentioning you.
Mistake #10: Failing to highlight your team’s experience and credentials
Many investors consider the team behind an early stage startup more important than the idea or the product, especially if the team includes a serial entrepreneur. The investors will want to know that the team has the right set of skills, drive, experience, and temperament to grow the business. Investors want to be shown all of this, together with a passion to do something truly great and unique. Anticipate these questions:
- Who are the founders and key team members?
- What relevant domain experience does the team have?
- What key additions to the team are needed in the short term?
- Why is the team uniquely capable to execute the company’s business plan?
- How many employees do you have?
- What motivates the founders?
- How do you plan to scale the team in the next 12 months?
- Who is on your board and why?
Mistakes to avoid during the presentation of the pitch
Mistake #11: Not demonstrating why the market opportunity is big and can thrive in the current climate
Most investors are looking for businesses that can scale and become meaningful, especially in the current COVID, political, and economic climate. So make sure you address this issue right up front as to why your business can really become big. Don’t present any small ideas. If the market opportunity for your initial product is not large, then perhaps you need to position the company as a “platform” business, allowing for the future development of multiple products. Investors want to know the actual addressable market and what percentage of the market you plan to get over time.
Mistake #12: Showing uninteresting or unrealistic projections and valuations
If you show projections for the company to become $5 million in revenue in five years, there will not be much interest. Investors want to invest in a company that can grow significantly and become an exciting business. Alternatively, if you show projections where you are at $500 million in three years, that will be seen as unrealistic, especially if you are at zero revenues today. Avoid assumptions in your projections that will be difficult to justify, such as how you will get to a 400% growth in revenue with only a 20% growth in operating and marketing costs.
The same goes for valuations. Often, it’s best not to discuss valuation in a first meeting, other than to say you expect to be reasonable on valuation.
Mistake #13: Punting tough questions
You have to anticipate difficult questions. Telling an investor that you will get back to them with an answer seldom leaves a good impression. If an investor is asking you questions, that’s a good sign that they are engaged. Do your best to answer questions right away. Don’t evade the hard questions or say you will get to them later in the presentation. Investors want to see if you can think on your feet. Expect to get interrupted during your presentation.
Mistake #14: Not understanding customer acquisition costs and long-term value of the customer
Investors will be interested in your understanding of customer or user acquisition issues. What costs will you incur to acquire a customer? What will be the likely lifetime value of the customer? What channels will you use to acquire that user or customer? What marketing costs will you incur? What is the typical sales cycle between initial customer contact and closing of a sale? Not being prepared for those types of questions will hurt the perception of how well you have thought out your business plan.
Mistake #15: Not being able to articulate a coherent marketing strategy
Just because you build something great doesn’t mean it’s going to sell or get user adoption. Explain your plans to market your product or service. What outlets are you going to use? How can you cost-effectively get to prospective customers? How will you use social media, such as Facebook, Twitter, LinkedIn, Pinterest, etc.? Will you do content marketing and put sponsored posts on sites like BusinessInsider.com, Forbes.com, and AllBusiness.com? Will you do search engine marketing, and can you show it will be productive? What steps will you take to get some rapid sales or adoption of your offering?
Mistake #16: Not doing a demo
A demo is worth a thousand words. Show a prototype or working demo of your product, app, or website. This will give investors a better sense of what you are trying to do. Make sure it works well and isn’t “buggy.” Impress the investor with its look and feel. When possible, consider including a video/demo link in your deck.
Mistake #17: Not understanding the potential risks to the business
Investors will want to test what you see are the risks to the business. They want to understand your thought process and the mitigating precautions you plan to take. Inevitably there are risks in any business plan, so be prepared to answer these questions thoughtfully:
- What do you see are the principal risks to the business?
- What legal risks do you have?
- What technology risks do you have?
- Do you have any regulatory risks?
- Are there any product liability risks?
- What steps do you anticipate to mitigate such risks?
- How does COVID-19 affect your business going forward?
Mistake #18: Not being able to explain the key assumptions in your projections
In order for an investor to believe your financial projections, they will want you to articulate the key assumptions and convince them they are reasonable. If you can’t do that, they won’t feel you have a real handle on the business. Expect smart investors to push back on the numbers in the assumptions; they will want you to provide a cogent, thoughtful response.
Mistake #19: Not clearly articulating use of funds and runway
Investors will absolutely want to know how their capital will be invested and your proposed burn rate— (so that they can understand when you may need the next round of financing). It will also allow an investor to test whether your fundraising plans are reasonable given your capital requirements. It will also allow them to see whether your estimate of costs (e.g., for engineering talent, marketing costs, or office space) is reasonable, given their experiences with other companies.
Mistake #20: Not selling your intellectual property
For many companies, their intellectual property will be a key to success. This is true in many instances, but even more so for early-stage companies. Investors will pay particular attention to your answers to these questions:
- What key intellectual property does the company have (patents, patents pending, copyrights, trade secrets, trademarks, domain names)?
- What comfort do you have that the company’s intellectual property does not violate the rights of a third party?
- How was the company’s intellectual property developed?
- Would any prior employers of a team member have a potential claim to the company’s intellectual property?
- What actions are you taking to safeguard your intellectual property?
Mistake #21: Not explaining the product or service well enough
You must clearly articulate what your product or service consists of and why it is unique, so expect to get the following questions:
- Why do users care about your product or service?
- What are the major product milestones?
- What are the key differentiated features of your product or service?
- What have you learned from early versions of the product or service?
- What are the two or three key features you plan to add?
- How often do you envision enhancing or updating the product or service?
Mistake #22: Failing to send a personal thank you after the pitch meeting
Failure to send a thank-you note, or worse, sending a generic note, is a mistake. Always send a genuine and customized thank-you note to each of the investors that you met.
Not all of these mistakes are fatal. As you practice and make more presentations to advisors and investors, you will learn what they care about and what doesn’t resonate with them. Make sure to adapt your pitch deck and presentation from these tips.
Read all of Richard Harroch’s articles on AllBusiness.com.
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Copyright (c) by Richard D. Harroch. All Rights Reserved
About the Authors:
Richard D. Harroch is a Managing Director and Global Head of M&A at VantagePoint Capital Partners, a venture capital fund in the San Francisco area. His focus is on Internet, digital media and software companies, and he was the founder of several Internet companies. His articles have appeared online in Forbes, Fortune, MSN, Yahoo, FoxBusiness and AllBusiness.com. Richard is the author of several books on start-ups and entrepreneurship as well as the co-author of Poker for Dummies and a Wall Street Journal-bestselling book on small business. He is the co-author of a 1,500-page book by Bloomberg: Mergers and Acquisitions of Privately Held Companies: Analysis, Forms and Agreements. He was also a corporate and M&A partner at the law firm of Orrick, with experience in start-ups, mergers and acquisitions and venture capital. He has been involved in over 200 M&A transactions and 500 startups. He can be reached through LinkedIn.
Neel Lilani is Managing Director-Clients of Orrick’s global corporate development efforts for technology companies, Neel drives opportunities for clients throughout the innovation sector. He has always been fascinated with technology’s ability to shape the way we live, work, think and play. At Orrick, Neel is able to help technology entrepreneurs and investors capitalize on their vision by leveraging his global network of companies, investors and entrepreneurs to create connections and advise on financing and business strategy. He is also able to connect clients with the precise legal help to meet their specific needs. Neel has served in senior strategy roles at some of the world’s leading law firms and Fortune 500 companies. He can be reached through the Orrick website.
Kate O’Laughlin is Director, Tech and Investment at Orrick. Kate works with emerging and high-growth technology companies at each stage of the company’s lifecycle, from making impactful, targeted introductions to strategic investors to advising on key hires to identifying core lawyers with the precise subject matter expertise. Kate brings a macro perspective when strategizing with founders, CEOs, general counsels and other executives on a company’s immediate, medium- and long-term needs, drawing on her market knowledge and experience as both an in-house and law firm lawyer. It is important to Kate that clients have the right connections and resources in place at the right time. She focuses on identifying and facilitating such connections by leveraging Orrick’s extensive, global network so clients can focus on running a successful business. Kate was previously an in-house lawyer at Atlassian and most recently practiced with Orrick’s Technology Transactions Group. She can be reached through the Orrick website.