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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Equity Promises, Promises, Promises

“Your ego is writing checks your body can’t cash.” – Stinger – dialogue from” Top Gun”

When I started this blog over four years ago, I promised myself I would not repeat a topic, and to prevent that, I keep a file of all my blogs. Well today, I have to break that promise. The reason is simple; I spent a great deal of time on three new clients (and prospects) recently dealing with this issue. So I thought maybe visiting it again will prevent at least a couple of early stage companies from having to confront this dilemma. So let’s just take one case.

An entrepreneur contacts me for help with a series of acquisition transactions. He and his team of three have been working on this project for a little over a year – – none are taking salary but all have a promise of “a piece of the pie” once they get a bit further along. The good news is the CEO is calling to tell me an investor believes in what they are doing and just invested $200,000 for 10% of the business. They are also close to a Letter of Intent on the first target. We proceed to spend the next 2 – 3 hours talking structure, due diligence, and deal points and start to lay out a roadmap to completing the first transaction. All good so far.

Being obsessed with equity, I ask about the other three team members. The CEO had made a de minimis investment to get started and the other three joined shortly thereafter. I asked what their “deals” were, and as usual, there was nothing in writing, but verbal agreement that they would each get 5% of the business. Of course, they would all vest and all were expecting to get in at “founders’ share” (i.e. de minimis) prices.

So I asked the first question; was the new investor aware of the “promises”, and unfortunately, he was not. So in the end, the 15% (and perhaps more) will probably have to be taken out of the CEO’s shares. The next question was what would be the mechanics of the key employees’ deal? The answer was that now that there were funds, they could afford to get legal counsel to draw up the paperwork and issue the shares. I was amazed to find that though there was a bona fide transaction for the recent investment which valued the Company at about $2 million, the CEO thought he could issue these shares at the de minimis value.

The lesson here is while there are investment vehicles that may not establish value (convertible notes – often cited as “kicking the can down the road” on this topic), pure equity deals due create economic value that have to be considered when granting equity. In all of these cases, solving this issue is going to take money and time; two rare resources for an emerging growth company. So as I have said before, nail down the equity issues first and treat it like gold because I believe that though cash is king; today equity funds the monarchy. Be very diligent (use advisors) when determining when and how much equity others get because you do not want to “write checks your body (company) can’t cash.”