Let’s not kid ourselves here; investors are looking to make a return on their investment. When we are looking to pitch our investment ideas, though, what we need to find out is what investors are looking for to trigger their interest to have another meeting or maybe even invest.
Who’s a good boy? Are you my good boy?
One of the most important facts is the idea that they’re betting on the jockey and not the horse. Yes, they care about the horse, which is your business idea and what your plan is, but they’re more interested in the jockey, which is you. As the founding team that you’re managing, investors want to know that you have the right team to get the job done. In a startup, the horse changes regularly, and it’s because it’s very rare that your original idea, from your creative mind, is the same business that comes out the other end.
How are you fixing the problem?
So angel investors want to have the confidence that you and your team will be smart enough to know when to adapt when you should be patient and push your business model and prove it. Investing people want a clear pain and solution type story. They want to know what the problem/s is with the current marketplace services/products and how you will solve the problem. If you can’t identify the market’s pain, how are you going to target your market?
You may be able to identify it numerically and all demographically, but if you can’t say this is a pain and I know people have it, and here’s why I can prove that then you have a big issue. Similarly, if your solution isn’t clear, maybe you haven’t thought through your idea deep enough to explain it in that detail. In which case, it’s time to go back to the drawing board and rework it.
The obvious pain and solution will either open the door or close it during your pitches or even when you send it out to your prospects.
Who’s going to buy it?
Thirdly, they will be looking for market potential, which is an investor’s way of asking how big the company can grow. If you have a company that needs to raise five million dollars, you’re going to need to have a big exit for your shareholders. A $50m+ merger, acquisition, or IPO is what you need for them to get a return on their investment. Rich people in suits still want that 10x multiple, and they’re looking for the 100x multiple. They’re looking for the next Facebook.
They know not all their investments will reach this, and some Venture Capitalists will look at deals where they can get the business to $10m – $15m and then seek the market for a merger and acquisition, gaining them 3x – 5x their ROI.
But really, what you want is to walk into a room and say we have the next big thing; here’s why and why you should get on it. They don’t want to miss this opportunity, and that’s where the sale comes in. The pitch should portray the image of such a great idea that they don’t want to miss it and have someone else gets on. Let’s be honest; no one wants to be the guy who passed on Facebook or Twitter; almost all VC’s have given on a big deal in the past.
Can YOU make it happen?
Lastly, your investors are looking for executability whereby there’s a clear, logical path, and you’re the right team to execute the plan. If there are many big behavioral changes you require out of the market, and if you only have one customer you can sell to, then the risk level goes much higher, and the executability of this plan goes down. If they don’t buy, then you’re out of business.
Value in a company is created by executing your business plan; it makes you money, not your idea and not even your technology. You can have the best patents globally, but if you can’t get them in the market and get people buying them, you haven’t executed the business plan.