By Clarie Chan
Unequivocally, investors are akin to customers, where everyone has different personalities, their own set of preferences, and values. This translates to variations in expectations, however, there are some fundamental expectations which many investors have in common. It is useful to understand these expectations, in order to develop a successful pitch to win their eventual mandate. We have compiled five key areas that founders should pay attention to when preparing your investment pitch.
Perhaps the most basic expectation which investors generally lookout for, is how committed is the founder in the project. A founder who has other priorities, and treats the project as a side-income or a contingent career path is a sure-fire way of facing rejection in any pitch. We have come across many startups, where the founder was running the project on a part-time basis while holding on to other career commitments concurrently. While there is nothing wrong in spinning off a side project while holding on to the main job to hedge the risks, it is inappropriate, and in my opinion, to expect investors to part with their money and invest in the business. Obviously, if the founder is not even prepared to forgo the opportunity costs of losing his main income because of the idea, this shows that the founder is not confident enough to undertake the project in question. How then, would the founder expect an investor, most likely a third-party stranger with no prior rapport, be willing to take the risks which the founder is unwilling to assume? Therefore a general rule when it comes to commitment is unless the founder is ready to go all out and invest his entire career into the project, attempting to raise capital during such state is not appropriate, and in fact, unethical.
In the perspective of any investor, the objective any investment decision is always to generate returns. Returns can come in many forms, whether monetary or strategic. In essence, every investor would expect to gain something out of the investment that one made. This return has to be balanced with risks. Therefore, investors often adopt different approaches to measure the risks which the project involves. If you are pitching your project to seasoned investors, such as venture capital, private equity, or even those retail investors whom you approach in your crowdfunding campaigns, do expect that these investors usually possess a certain degree of sophistication. Track records of the company, the founder, and the team, are always the key consideration in those investment decisions. The most direct and standard set of track records that any investor would want to review are the background of the founder, the quality of the team, and the financial performance of the company. Therefore, when you prepare your curriculum vitae, make sure that it is targetted at this expectation. Ideally, you should also get your financials audited wherever possible, as the presentation of unaudited financials is immediately discounted. Whilst many times small companies are constrained in financial resources, an audit can be quite costly. Minimally, your financials must be properly reported in compliance with the financial reporting standards. This would send a signal to the investors that the management takes a diligent and responsible view in reporting the affairs of the company.
As a founder, you should ensure the accuracies of whatever claims or facts that are reported in your investment deck. Sophisticated investors usually would conduct independent due diligence checks, and in any event, if any material inaccuracies are identified, the credibility of the founder is immediately discounted. Remember, your job is to gain the trust of the investors.
Be Optimistic, But Substantiate and Demonstrate Conservatism
Many early-stage startups often lack established track records. Although it is a lot more difficult to attract investments, it is not impossible as there are investors (such as business angels) who have a bigger risk appetite. Frequently, the approach to prove to this group of investors on the potential could be through presenting forecasted figures, benchmarking against existing players, showcasing of product sample or prototype etc. Whatever you do, make sure that extensive research is conducted to back the claims that are forecasted. It is good to be optimistic but practice and demonstrate that conservatism is taken into account when the figures or valuations are calculated. Draw relevance from your personal backgrounds on how it substantiates the probability of success.
Know Your Market and Competitors
The last thing that you ever want, is a situation where the investors know better about your market than you. Make sure your knowledge and understanding of the happenings in your market is current and extensive. With the explosion of information in this age, this could be a challenging feat. However, fundamentally, you should have a good grasp of the trends and sentiments of the market. Research on your competitors, recognise their strengths truthfully and objectively (I know it is difficult, I have been through that), acknowledge the threats they could impose on your business. Investors do not have the emotional attachment that you have with your brainchild, therefore, expect a lot of objections, skepticisms and even rejections.
Learn From Rejections
Unless you are extremely lucky, you probably would not get funded in your first pitch. Always conduct a self-reflection and review after the pitch. Rejections are discouraging, but it is important to move on from it fast. Many founders possess strong beliefs and compulsion in their projects, there are pros and cons to persistence, however, it should be balanced with receptivity to constructive feedbacks. In fact, you should be thankful if investors provide you with feedbacks, as at least you have a chance to review and improve on your pitch. Treat every attempt to pitch as an opportunity to gather feedbacks and suggestions, as frequently, founders tend be too obsessed and excited with the project, that left them blinded from the risks and possible predicaments.
The author is the CEO of Iconomy Corporate Consultancy Pte Ltd (ICCPL). She is an accountant by training, and former investment banker in Hong Kong, an entrepreneur and book author. Besides ICCPL, she concurrently holds directorships in three other companies including a property management company and a tech startup.