For the most part, start-up founders tend to be functional domain experts, be it in technology, or e-commerce, or supply chains. And while developing a cutting-edge product remains the most challenging aspect of establishing a start-up, the next big hurdle is fundraising for accelerated growth. A lot of founders often are not well versed with corporate finance and negotiations, which often results in them being unable to convincingly pitch their start-up idea to investors even if they have a market-beating product to sell.
Here are some tips one can follow to create an effective business idea pitch which can help you obtain the funds to take your business to the proverbial next level.
Defining the Problem and Solution
At the heart of commercial success of a product is the market demand for it. And this demand will exist as long as there is a pain-point, a need, or perhaps a desire to own the product. As part of the investor pitch, one needs to clearly outline what is the pain-point, need, or desire that the product has been built to address and how it is an effective solution for the same. One of the most effective ways to convince investors is to present findings of primary market research. A well-devised market survey with the right kind of analysis can also help investors raise the right questions which you can then clarify as part of your pitch.
Presentation of Metrics
A business idea is only as appealing as the numbers that it can generate. And therefore, it is essential to highlight the key achievements of your start-up so far using the right metrics so that investors can be convinced about its commercial viability. Some metrics that you should include in your pitch presentation are:
- Current market size and CAGR
- Size of new markets that your product may open up through disruptive innovation
- Current market share for your start-up versus existing competition
- Current sales (by volume and value) of your product and the y-o-y sales growth
- Average customer acquisition cost
- Average active users
- Customer churn rate
It is essential that you quantify each of the above aspects in as much detail.
Scaling-Up Plan
While presenting a sound business idea is essential to convey the market feasibility of the product to investors, what they would also look for is what you hope to do with the funds that they provide your start-up. So, you need to describe, with quantification, the ways in which you plan to use the funds and how the business would be able to grow through such application of funds. This may involve mentioning the cost of entering new markets, setting up a physical presence, costs of salaries of potential new recruits needed to increase the scale of business operations, overhead costs, marketing expenses, technology upgradation and R&D expenditure, and so on.
What’s in it for Investors
Investors are keen to know what returns they would be able to gain if they choose to invest in your business and within what time-frame. Therefore, it is essential that you include an exit plan for the investors and mention what could be the ROI of their investment. This would be clear once you make realistic P&L projections, describe what percentage equity you hope to offer to the investors for the funds that you wish to raise, and justifying the ROI that you suggest your investors will be able to obtain by making the right assumptions.
While the above guidelines can help you determine how to pitch your business idea to investors, remember that investors come with their own investment philosophy. And therefore, the best of investment pitches may not be convincing enough to some investors. As such, it is essential that you maintain a thick skin and not get discouraged by a few rejections. In the end, you do not want to on-board an investor who has not fully bought into your business idea. The above points are must-haves in any investor pitch and if you build it around these points while giving due consideration to being realistic, you will surely maximize your chances of securing the desired investment.