Earlier this year I was asked to give a short presentation to the Inventor’s Society of South Florida about how to pitch to raise capital. I probably disappointed them when I told them this would not be a “pitch” training session. I was not there to teach them how to pitch. Learning how to pitch can be done, but that would be another discussion. Also, learning to pitch is a thing you are just born with.
The main reason they asked me to present is I have run a pitch event mainly in Boca Raton, FL as well as NYC and Orlando for the past 5 years with over 300 tech startups that showed and pitched. That does not make me an expert on how to pitch, it just means I have seen a lot of pitches and picked up a few pointers here and there. I have had my tech startups, but nothing to write home about. I don’t even recommend raising capital through investors as the main way to start up a business. I think most things can be done on a bootstrap diet of hard work and guerrilla marketing.
As of late, even I have been on the board of several startups and in many situations where capital was being raised, so I am not completely saying I don’t know anything. I am just saying that my expertise is simply my opinion. I am around a lot of pitching for capital at all levels from a small startup to a public company. This list below is what I think is truly important to investors. And this needs to be isolated to just about individual accredited investors who are early investors in tech startups and pretty much not your friends or family.
And because I was in front of an inventor group I needed to make sure they understood the full concept that the invention is a small part of what they need to be doing as a team; there needs to be a larger plan that investors need to see or at least understand. There is more than just an invention or idea of raising capital. Of course, the inventors all were up in arms about the list. They assumed that the “invention” is the main point of a capital raise. I wanted to get them all in a tizzy because if they are not already aware of it, the business side is 80% of the reason people invest. If you contact me here on Linkedin, I can send you the full deck in PDF. It’s like 10 slides. Here are the top reasons Investors invest:
1. By Far The Person (History of Success)
This is an absolute truth. So, if this is true, and you are a 23-year-old looking to raise your first capital, you need to show some history of success. Maybe you were class president, Stanford or Harvard grad always helps, having climbed Kilamajaro or wrote a novel at 16, Eagle Scout or survived the Stoneman Douglas shooting. Anything is something. Something needs to show you are more than a normal kid. A full career at a big corporation is pretty much the standard line most 45-year tech startup founders use here. There has to be something to the guy or gal who starts the venture. And it needs to be something unique or big if you don’t have your last $10 million exit startup to show.
Another no-brainer. If your startup has sales and is growing right now, that is a major reason to get a meeting with you. This is almost as good as being successful before. I wish this was more important than being successful in a previous startup, because many, many failed startup founders raise capital because of previous success. So even a stupid, poorly thought-out idea will get funded if a Zuckerberg puts their name on it. I feel bad for that investor, but he should know better that first-time success is not always an indication of second-time success.
3. Where You Are Located
After a short conversation with a member of Benchmark Capital in Silicon Valley a few years ago, the member was direct and honest. He told us if you are not located within a mile of his office, he is not going to consider your venture. That hard, honest truth is you need to move to Silicon Valley for most investment dollars. So here is the truth stated again. If you are not near some of these investors, they are not going to do the deal. And why should they? Most of them feel they need to be close to their investments. The problem is, if you are in 1000 US cities that are not near big-money investors, you are not in for an easy capital raise.
4. The Industry (They know it and have researched it)
I just told a startup this week that during a pitch, most investors are not listening to see how well the idea is thought out. They are listening for keywords that meet their criteria for another meeting. If you are a marijuana venture, they will hear CBD, Hemp, or marijuana, write that down and contact you afterward. If they are into AI and robots, that’s their thing. If they are into gaming, that’s their thing. A doctor likes to invest in healthcare tech. It’s a simple formula. Trying to get a real estate investor to invest in a none-real estate mobile app is like trying to convince me to eat eggplant. I don’t eat eggplant!
5. The Synergies With Another Investment (They want to fix)
This is a typical scenario that most tech startup founders are not aware of. They have to think through the concept that the investor may have already invested in a blockchain company for instance. They have already made that decision. You are just another type of blockchain company. What may be going on, is the first venture may have problems, so they are looking for all kinds of synergies, least of which is having you fix the first problem company. Not always a bad thing to happen, because it can result in an investment.
6. The Return Or Financial Opportunity
Scary enough that number 6 on this list is about making a return on investment. You would think that is number 1. Should be #1, but clearly it is not. I can show you 100 investments where the ROI made no sense at all. Hopefully, all those types of investments have come to an end and we are in the world of getting real with real financials. Yet, having the ability to at least make a large return is important to investors.
7. The Team Involved
Every pitch has its team. This is a standard thing. The only thing other than your team that can be completely inappropriate for investors and can draw negative attention is a startup of 1. That is a problem. Most startups have a team, where the tech, the finance, the marketing, and other aspects are covered by experts in their field or at least team members. If you are in this situation, you need to venture out to networking events or go online. There are a ton of people who want to be on your team, especially as advisors or mentors. Just ask them.
8. The Investor’s Personal Likes
This is just all opinion, but I think a lot of investors get hooked on the concept that they can taste and feel the startup. If they feel they can use it in their everyday life, then maybe it's a good investment. It is not a real financial decision, it is more of a guts decision. And sometimes their gut decision is right. So you got to get lucky with this one because you did not choose the business you are going in to make an investor feel good.
9. The Hype
I don’t think a lot of investors get hooked into investing in just the hype unless they are Hollywood stars or recently retired sports figures. Those types of investors do get hooked on the hype. Hype simply means everybody is talking ICOs, so the investors end up wanting to invest in ICOs because it is on the cover of Forbes, Fortune, and Wall Street Journal. It is a way some people invest. Ask them what happened in the end, the last time they invested in the hype. They may have just invested because that thing or industry was trending, and that’s why.
10. The Idea
This is where inventors get all pissed at me. I am saying that their idea is the least of the reasons why investors invest. It is still important, but it is not always the driving force. A great idea still needs a lot of these other factors before you put together your pitch deck and go on Shark Tank. They may love your idea, but they will pan it when they find out the margins are 1%. So ideas are great, inventions are great, but everything else involved has to make sense to the investor.
2 things I am pushing at the end of every article I write. One is always our tech startup pitch events. We have one coming up in Boca Raton, Florida on Wednesday, April 3rd, 2019. The event is free to attend. There will be 5 tech startups pitching. Pitch companies and sponsors pay either to pitch or get found in our materials or have a table at our event. Here is where to sign up:
The second thing I am pitching now is our LEAD GENERATION solution we are calling the SEO Turbo Booster. If your website is not being found easily on Google search without buying ads, let’s talk.
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Contact me at email@example.com if you want to know more about SEO Turbo Booster or call our company number at (786) 209–1848 to get in touch with us asap. Ask for Dan or leave us a message and say I want to be found better on Google! Also, remember to email me if you want the full pitch deck from my inventor presentation!
Have a great day and I will see you at our next pitch event if you can attend.