What Entrepreneurs Need To Know About Investors

What Entrepreneurs Need To Know About Investors

Copyright (c) 2010 Cynthia KocialskiMuch like sports, a startup can't win a race by winning a qualifying round, but a startup can sure lose the race in a qualifying round. Much has been written about the elevator pitch, the two minute presentation, investor call back presentations, and the series ABC's alphabet pitches. The basis for all these presentations is the Slide Deck, a standardized format for presenting a startup to an audience. All of these things are the qualifying rounds, winning a round does not mean you have won the start-up game, winning means you get to continue to play, lose and you may be sitting on the sidelines for awhile.While there are many version of the Slide Deck, all are very similar in the information to be presented to an audience. Here is one version.* Company Overview - Problem, Solution, Product* Market and Market Context Your Company Addresses* Business Model* Progress and Milestones* Competition and Company's Secret Sauce* Partners, Customers & Pipeline* Team - Founders, Advisors, and Mentors* Finances* Exit OpportunityWhile all of these categories are important, some are more important than others. So where should an entrepreneur focus their attention? Here's a typical weighted breakdown of how a company is evaluated for funding from an investment group.* Team (25%)* Customer understanding (12.5%)* Market Opportunity (12.5%)* Business Model (12.5%)* Competition (12.5%)* Product (10%)* Financials (10%)* Exit Opportunity (5%)Interesting enough, most entrepreneurs focus too heavily on the product. That's great if you're giving a customer presentation, but an investors aren't interested in using the product. They want to make money and the sooner the better. What interests investors most are how does the startup make money and how does the startup plan on increasing the value of the company. Look closely at the evaluation criteria, and you'll notice that it's mostly about marketing - customer understanding, market opportunity, competition, and pricing schemes (part of business model) are all marketing issues.I often sit through many investor presentations and pitch sessions. By far, the most number of questions are about what the product is. You need to do this succinctly and more often, using an analogy, metaphor or story can quickly get the concept across to your audience. You need to describe in one sentence. Keep it simple. I often hear investors asking for a use case. They want you to describe a specific customer case or walk them through the steps of how someone uses your product. Founders are often subject matter experts on a technology and don't take the audience into consideration in giving their pitches. They speak as if they are talking to other experts. Investors have their own expertise and it's not likely the same as the start up presenting. Another problem is using most or all of your time describing the product, and leaving little time to describe the business around the product, which is what investors want to hear the most.If you manage to describe what the product is, the next questions are about the business model. Sometime the business model is half-baked or unclear. Other times they are looking for the assumptions, those leaps of faith that are the difference between success and failure, and how you plan on validating them. The top questions are always: What is the customer value proposition? How do you make money? How do you plan on selling this widget? Who is you competition and how do you compare?A startup defines and develops a product or service based upon the needs of the customer. Likewise, when it comes to securing funding, the startup company itself is the product. The best time to entice investors is when the start up achieves a milestone that significantly increases the value of the company. The entrepreneur needs to build a company such that it becomes attractive to the investors because somewhere along the way, entrepreneur is going to need some sort of investment or financial assistance.

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