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The X Factor – Pitching for Capital

EntrepreneurCountry Global Wednesday, 29 December 2010.

Many regular investors must dread ‘The Pitch.’ Everyone has the best idea ever and it is going to make zillions. Like the worst chat up lines, they would be dreary if they were not so bad as to be funny.

Whether the pitch is for your first round of angel finance, or later when you are running a Venture Capital process, try to avoid being a bore. The investor is going to have to work with you for several years, so you have to build a good rapport.

I understand that different areas of the brain are used for decision making and for processing information. Decisions are rationalised by the brain’s processor, but are made with the brain’s emotional response. Fail to understand this at your peril.

Decisions not to invest are frequently made at the first pitch, but having cleared the first ‘l like you’ test; be aware you are still several layers of communication and diligence away from completion.

Some simple tips; tell real life stories to illustrate your argument, whilst avoiding trying to express your genius with technical detail. Markets buy solutions to problems, not technology. Explain or demo the customer journey, whatever that may be, to allow the investor to feel rather than calculate. Avoid cluttering up your communication with statistics and long range financial detail.

I recently saw a pitch for a pre-revenue tech start-up with a seven year financial forecast in microscopic detail on PowerPoint. Investors watched with open mouthed astonishment (or were they yawning?) as the entrepreneur explained how they would win a new contract with an un-named, unknown business in year six which would lead to a major surge in revenues.

Keep your messages simple and any slides minimalist. Less is always more. The investor will remember more if you tell them less, and invite you back for a further conversation. What is the handful of key things that you want them to remember?

You can rehearse key questions with colleagues. Don’t waffle. If they ask a question you are not sure of, say so. Your financial plan is a forecasted scenario, not an investor promise. Say so. Try to avoid getting too deeply tangled in the minutia of forecasts at the first meeting. Be honest and frank. They are appealing qualities to investors. This is not the same as being scared to sell; you can sell your socks off. Just don’t fabricate contracts or embellish traction. Don’t be scared to admit past mistakes. Investors like to be able to add value, and if you come across as Mister Know It All, it reduces their appetite for helping. Don’t get defensive – if you are defending, the investor will find it difficult to engage.

I think it also helps to take every chance to practise public speaking. When you graduate from novice, you will be able to speak fluently on your subject to an audience without notes, as you would do easily to your mates in the pub. It just gets easier with practice and you look more assured and confident. It is also easier to engage the emotional response if you can look directly at the investor, and build in a little humour, rather than reading from the script.

One final tip: if you are pitching to an investor audience, for example, at an Angel syndicate, the angels may start to show off to each other by trying to ask technically unreasonable questions. Ensure that your meetings are properly chaired by someone sensible to avoid straying from the course.

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