The Perfect Pitch Works

“He cared; more than Harvey Ramos” – quote from this blog’s author.

I know what you are thinking – he has run out of quotes so now he is quoting himself. So before you get the wrong impression, let me explain.

As part of instructor training at EY, we were told at cocktails when we arrived that the next day, we would be asked to introduce ourselves with the proviso that our presentation had to end with what we wanted scripted on our tombstone. (BTW I suggest you try this sometime.) Well I tossed and turned that night and after trying what I felt were thousands of iterations, I finally settled on “he cared.”

The next day we are going through our presentations and preceding me is Harvey. He comes to the end and announces that his tombstone will read “he cared.” The instructor thanks Harvey and immediately calls on me. My readers are pretty smart so you know how this concluded. So why the long lead in?

If nothing else, this exercise caused me to reflect deeply on what I really wanted to say about my life in simple terms and owners do the same for their company each time they make a pitch for investment. Lately, I have been through a couple of failed funding attempts and I wanted to better understand why investors said “no.” I reached out to some of the investors that passed and also saw a couple of recent articles on the subject. Always searching for a new angle, I gathered about a dozen or so different reasons but was disappointed to find they really had not changed in the last four decades. Some common culprits:

  • Barriers to entry not highlighted
  • KPI failure – either don’t know them, they are poorly defined or poorly measured
  • Shallow knowledge of competition – and the always fatal “we have no competition”
  • Economics – not clear how investment will be used or no “paying” sales channel presented
  • All OPM – where was founders’ buy-in?

I then looked at our “Perfect Pitch” guidelines (available @ withum.com) and realized all these points would have been addressed had the founders done a deep dive into what they were presenting. To draw the analogy, had they invested the same level of thought into what their pitch “said” as I had in doing the simple tombstone exercise, all of these points would have been addressed.

Your “pitch” is your chance to show your best. I really do not care if you use what has worked for us over the years or another guide, when you are preparing it, invest the time to completely address what is suggested – – there is a reason for it. This is not the same as being at a New Jersey diner and spending the time figuring out what you want from the hundreds of items on the menu. This is not a checklist; it is a starting point for you to shape the future of the economic life of your company.

So please when you put the meat on the bones of your pitch, think about what it says about you and your company; what it stands for and what it represents. Don’t get turned down just because you did not do your homework. Think about how an investor sees it, because properly prepared, the Perfect Pitch does work. Good luck.

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Caution – Those Equity Promises Can Really Hurt

 “Nudge, nudge, wink, wink; say no more, say no more” – from a skit by Monty Python’s Flying Circus

My partner and I have been making the rounds in a series of Lunch & Learns at various co-working spaces around NYC.  Our normal fare is to discuss the pertinent accounting and tax issues startups and early stage growth companies face (after all, we are CPA’s) but we also discuss ownership issues and in particular equity splits or as it is commonly known, how to “divvy up the pie.”  This topic seems to dominate the conversation (it seems to be more popular than tax credits) and we are always intrigued by the questions and issues that get raised.  It is clear to us there is more education needed in this area and this blog is just one small attempt to fill this void.

It is important to emphasize the basic fact that if you give someone something of value, even if it is not cash, there are usually tax consequences to the individual.  Reducing this to its simplest form, what did you give and what was it worth?  This is one of those “says easy, does hard” moments.  So, let’s look at an example.

Joe has started to develop a social media app and is in the early stages of proof of concept.  Joe works on this for a month or so and realizes he needs technical help.  He recruits in Jane, a tech pro who really accelerates the app development.  Joe appreciates her contribution and tells Jane he will give her 10% of the Company (for those of you following, that is the wink, wink; nod, nod part.)  A few months later, Joe and Jane present their concept to an angel who invests $100k for 10% of the company.  A couple of months after that, another investor approaches ready to write a big check.  He asks us to do some diligence, part of which is reviewing the cap table.  We see Joe at 90% and angel at 10%.  We ask about Jane since she appears to be a key player and find she was promised 10% but there is nothing issued or in writing.  You know what then hits the fan.  The investor now wants to know what other promises were made.  When someone invests, there is one thing they want clear – who owns what before and after the deal.

So, this has now created a credibility issue.  In addition, Jane now has a problem.  If she is to get her 10%, she can only get it at current value.  And, what about vesting; does she get credit for past time and effort?  There is nothing worse than getting a big tax bill with no cash to pay the tax and that is what is going to happen to Jane. The plan to give her an incentive has just become a disincentive plan.

So, I will state this as simply and strongly as I can.  If you decide to either give equity or have a partner invest in your Company, please get the right professionals involved to make sure it does not become a painful experience and that it accomplishes what you want it to.  With that, I will “say no more, say no more.”