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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Show Me The Money – The Question Early Stage Fund Seekers Are Afraid to Ask

“Fundraising is the gentle art of teaching the joy of giving.” Quote from Henry A. Rosso – fund raising master

Over a long Holiday weekend, I had the chance to read through and comment on a handful of pitch decks. It may have been my good mood, but I really think the quality of these decks is getting better especially as it relates to early stage fundraisers including most of the basic components of a solid deck. There are plenty of guides out there to show what the contents of a deck should be – – in fact we have a good one at our Withum website if you just go to withum.com and search for “pitch deck.” So as Mona Lisa Vito from My Cousin Vinny would say, “So, what’s the problem?”

Despite the better quality, I was amazed to see that except for one deck, there was reluctance for these companies to address the “proverbial elephant in the room” – – namely stating how much money they are looking for and how they are going to use it. It appears to be like the fear of asking someone out on that first date.

So for our fundraising friends out there, here are five simple Dos and Don’ts when it comes to covering the “ask” in pitches:

  1. Do tell investors how much money you are looking for. Be clear about how much and how you are willing to layer rounds in, say as you achieve certain milestones.
  2. Do support this amount with summary (and detail if requested) calculations including a reasonable reconciliation to your basic cash flow. Provide a summary phrase that is descriptive of each major goal. A phrase like “develop a mobile app” is more helpful than “ramp up operations.”
  3. Do indicate to investors your flexibility as to form of investment. If you are comfortable with convertible notes, or SAFE documents or prefer a straight common stock investment, help guide a potential investor.
  4. Don’t show funds will be used to settle old debts or for significant owner salaries. Paying off old problems like existing debt or back pay does not move a business forward. Setting aside an amount for some minimum salary / payment to owners for their survival is not fatal but it probably helps if this can be avoided.
  5. Don’t imply this amount of funds is all you will need unless your projections clearly indicate this to be the case. Nobody likes the gift that keeps on giving. It is a frustration for investors and it is better to state upfront where you expect to be once the money is spent and how you will be positioned for the next stage of your growth.

The punchline here is not to forget the punchline. Just think about telling a long story and leaving that all important ending out. Listeners will look at you quizzically – – they expect – – in fact they demand you bring the story to a close. It is the same with your pitch deck. Potential investors want to know the punchline – – what do you need and how are you going to use it? Teach them the joy of giving.

Is Your Business Model Sound?

“If it’s a penny for your thoughts and you put in your two cents worth, then someone, somewhere is making a penny.”  – quote from Steven Wright.
I love to listen to entrepreneurs and advisors talk about the value of a new venture.  Even more enlightening to me is the discussion that centers around the proposed business model.  Of particular interest is when the conversation moves to potential funding and the steps one must take to be successful at this difficult task.  One slant I have heard a number of times is a common theme about the difference in approach between West Coast and East Coast investors. There seems to be a pretty consistent “myth” which goes something along the lines of “West Coast investors are more likely to invest in an idea / concept whereas those on the East Coast want to see models and projections.”  It almost comes across as requiring you to develop a viable business model for those on the East Coast but you can “coalesce the vapors of human experience into a viable and meaningful comprehension” to win over West Coast money. (My thanks to Mel Brook’s character, Comicus, from History of the World; Part I for this quote.)

Well, I hate to bust this myth but I believe nothing can be further from the truth. Trust me, unless an investor is totally in love with either your management team or the social cause you are touting, you need a viable business model to obtain meaningful financing. Now some of the models I hear touted sound a bit like this quote from Stephen Wright – they appear to be based on the belief that “there has to be money in there somewhere.”  While this might be true, investors look for you to show them the map and tell them where.

When some talk about their model, I still hear about the number of “eyeballs” a site will attract and the resulting impact of generating advertising revenue. This isn’t Warby Parker – – I am not discouraging this approach but you have to consider how many uses FB had to get to before it could generate meaningful ad revenue. Though they may convey it at different times in the evolution of an early stage company, the message from investors from both Coasts is always the same – – the more pain your product / service eases and the easier it is to use, the more people will pay; and if it is better yet if that payment happens at the time of a purchase (like a transaction fee.) They invest in aspirins not vitamins (see my earlier blog on this.)

So a word to the wise; while I would certainly agree that I have seen some West Coast investors fund companies earlier in their life cycle, I would not extend this to include the concept that there was not a solid business model behind that decision. Earlier involvement does not translate into the fact that they will fund a concept without a business model.  Stay focused on that solid business model no matter where your target investors reside.

Startup Funding Myths

Dr. Thorndike: “Do you really think that is nece…”

Professor Lilloman: “Don’t tell me what’s nece…. I’ll tell you what’s nece..”

Script from High Anxiety by Mel Brooks

So why the arcane quote? In this scene from one of my favorite Brook’s films, Dr. Richard Thorndike is being told by his mentor, an old psychology professor that he (Richard) needs psychoanalysis. Richard does not even get the chance to complete his question about if it is necessary; he is stopped in mid-word. His mentor tells Richard (again with a partial word) that he will tell him what is necessary.

The parallel for me is the guidance I constantly hear at MeetUps and other gatherings that those “in the know” give to startups regarding achieving success with funding sources. The common theme to me is these so called “advisors” never listen to the startup. Many just dive right in with their advice and while some of it is good, some just seems to perpetuate what I think are myths. It is the same phenomena we hear as tax advisors when clients call about some great tax saving gimmick they learned about on a golf course. Raising capital is an intense process requiring serious dialogue, so let me try to debunk or perhaps clarify five of the more egregious myths I hear:

  • You don’t need revenue – while this is true for very early start up funding, you do need a revenue model and a “path” to revenue. At some point, you have to show that investor money will eventually lead to a “salable product or service” and revenue will commence. Without that, you are going down a very long road.
  • You need an introduction from a trusted advisor – this is false. While an introduction from someone known to the funding source is helpful, it is more important to make sure when approaching a funding source that the stage of development they seek and the space they like match with you. A venture capitalist interested in emerging growth medical device plays is not the right source for an “ed tech” company seeking seed financing regardless of who introduces you.
  • You can build the team later – while true as to a full team, investors want to see more than one person dedicated to the Company vision – – how do you operate together, how do your skillsets match your business model. If it is just you and an organization chart with boxes that contain TBD, you are not going to make it.

You do not need a business model; just a product or concept – false. As the late Jeff Timmons would say “an entrepreneur knows the difference between an idea and an opportunity.” Business models validate opportunities.

You can use funding meetings to practice your pitch – false. I think the idea of getting before as many investors as possible for a true “funding pitch” is not the way to go. There are friends, professional advisors, pitch competitions and a dozen other venues to practice your pitch. A funding meeting is the real game – – not a warmup and you should treat it accordingly.

We have watched our entrepreneurial friends waste endless hours in the pursuit of funding. Some blindly follow all of this “advice” and have minimal success. Hopefully, by delving behind these myths, I can help shorten your journey.