So you want to pitch your business to investors? Chances are, you’re not ready.
Who says? Jeff does. Meet Jeff Shackelford of Digital Sandbox, a proof-of-concept center supporting early-stage commercialization processes. As executive director of the Sandbox, Jeff has been on the investor side of more than 550 startup pitches—and notes that only about 20 percent actually receive funding.
“We are looking for needles in a haystack,” he says.
The number one reason why startups get rejected? Market validation. Your idea may be the coolest thing ever according to you, but without proving it will prove its cool with customers—without demonstrating how it will make money and get customers--investors are not going to give you money. It’s as simple as that.
We got together with Jeff to chat about what startups should do differently in their pitches to investors and how they can use those few precious minutes into to make their case that their idea is one with betting on.
Know your startup
Investors won’t care about market validation if you haven’t answered these key components in your pitch:
● Strengths and weaknesses of your company
● Identified competition and what sets your business apart
● A growth strategy outlining how your startup will make a profit
To answer these questions, look over your business plan. Yes, the same business plan banks want to see if you’re getting a loan. Go through the process of answering all of the questions a business plan addresses, so you’re fully prepared to answer any question an investor may throw at you.
Jeff wants to know, “How much diligence have you put into your business?” This is his biggest indicator if a startup is qualified for investment. “In the pitch process, you discover what you don’t know about your business,” he says.
Understanding every facet of your business will help you answer all of the questions an investor may throw your way.
Validate before pitching
Jeff says “no” a lot. However, “just because a startup doesn’t get money from us, doesn’t mean they aren’t successful. It’s just we saw things that could be improved,” he says. Jeff and his team always provide feedback and suggestions when rejecting pitches and entrepreneurs are always encouraged to come back and pitch (sometimes even three times).
“The number one thing we see companies lack is market validation. What makes you think people are going to buy your product or service?” he asks. Passion and belief are great; however, data is the ultimate indicator of potential startup success. Prove to investors that your business will make money.
Here’s a few ways Jeff suggests to validate your idea:
● Show that people are already using your product or service, even if they aren’t paying customers
● Validate that customers will pay for your product through Kickstarter
● Walk door-to-door and receive feedback from your community
● Attend industry trade shows to gauge interest, evaluate your product and snag a few pre-sales
● Host a pop-up shop to assess if people want to buy your product or service
● Ask potential customers to sign a letter of commitment or intent
● Sell your product or service at a discounted rate or offer beta testing
Here’s a test: “Next time a friend or family member says you have a good idea, ask them to give you money,” suggests Jeff. Are your closest loved ones willing to back your idea with hard cash? If they’re not, a perfect stranger may not either. Make a better case for your idea.
Investors want to invest in a company that will make them money. They can’t go off on your good word (or that your mom thinks your idea is tops). Prove that people are willing to buy what you’re selling.
Growth and coachability
Outside of market validation, you have to have a fundable company that will make investors money. It’s a cold truth, but the actual truth.
“We are looking for businesses that have high-growth trajectory,” says Jeff. How do you plan on scaling your business? How do you plan on growing the company’s profits while minimizing operating costs?
Investors are not just investing in your business, they’re investing in you. Demonstrating your own expertise in the field adds to your credibility and the potential for your business to become highly successful. Investors want to know if you and your team have the key skill sets to take the business plan from creation to exit.
“How did you get to your projected numbers? How do you think? Are you reasonable and rooted in reality?” asks Jeff.
These are key questions investors are thinking while you’re pitching. Part of what you get when you receive funding from investors is advice. Investors want to make sure you are open to feedback and coachable.
For a deep dive on what to say in a business pitch, check out How to Pitch to the Sandbox slidedeck.
Ready to pitch your startup?
Missouri has investment resources all over the state. Check out the angel investment groups and the equity funding available to Missouri startups. And, of course, if you need help pitching your business, fill out this form and receive a free personalized action plan pointing you to resources who provide pitch consulting, mentorship and advice.