Guest Post by Peter Geyer, MBA
You have finally scheduled a meeting with a potential investor to fund your new company.
You only have a few minutes to convince them that you are their perfect future partner.
Your marketing department (you) has spoken with your controller (your co-founder) and your engineering department (both of you), and you have developed the perfect pitch deck to present to this investor. It has nice graphics, it has numbers, it has a description of your product.
The investor is not impressed.
But why? You have a great product and all you need is some seed money to make yourself and your investor millions. How could the investor not see your potential?
Maybe it’s because you didn’t address the 5 essential things that your pitch deck should say about you.
1: You understand the problem
There are a lot of entrepreneurs out there who are looking for a problem to solve, so they fish around until they find something that they think will gain traction.
But do they really understand the problem?
What is the nature of the problem? What causes the problem? Who experiences the problem? What are the pain points of those who experience the problem? How does your product relieve this pain?
Understanding the problem requires identifying and understanding your potential customers and delving into – not just the problem’s primary effect on them – but also secondary effects and secondary problems that may also be caused by the initial problem. Just as importantly, you need to anticipate the impact of your solution on both the primary and secondary problems. If it solves the first problem while making the second problem worse, you need to be aware of the potential risks. If it solves both – or other subsequent – problems, then understanding this can provide compelling information to your potential investor.
The essential issue is that your pitch deck needs to communicate that you are aware of and fully understand all these problems, and that you have a viable solution.
2: You understand the marketplace
Understanding the marketplace can take three separate tracks.
First, do you know who your current and potential competitors are? Who currently occupies the space that you want to enter? Do their solutions solve the same problem that yours does? How do their solutions compare to yours?
Second, do you understand the barriers to entry – regulatory, cost, time – that might either get in your way, or that might prevent new competitors or substitute solutions from getting into the market?
Competition is not necessarily a bad thing, so don’t treat it as such. If the marketplace is already crowded with similar solutions to your own, it may be an indicator that you have found a good problem to try to solve. If the barriers to entry are low, then from an investor’s perspective, this is probably a relatively low-risk – albeit also probably relatively low-reward – investment. The inverse is also true. High barriers to entry make an investment substantially riskier and more costly, but the rewards can potentially be substantially greater.
Finally, have you considered the potential for substitutes entering the marketplace that may render your solution – and other existing solutions – obsolete? For example, you may have developed the best treatment for cancer ever, but if somebody cures cancer tomorrow, your treatment is useless. Do you know enough about your marketplace to know whether substitutes are anywhere on the horizon?
There is no right answer here. The key here is to demonstrate that you understand these marketplace characteristics and that you communicate them clearly and honestly with your potential investor. You may fit their risk-profile, or you might not, but they need to know that at the start.
3: You understand the opportunities and risks
Because you understand the problem and because you understand the marketplace, this is the point at which you bring it all together for your potential investor.
This is where you can identify your opportunities.
Are you going to build your market share through higher quality? Through lower cost? Through better service? Through improved distribution chains? Do you see failures in your competition? Do you see unmet needs or unsolved problems?
But it is essential to also understand risks.
What does higher quality cost, and does that put too much upward price pressure on your solution? At what point does lower cost have a critically negative impact on quality? Can your competition solve its own failures more quickly or efficiently than you will be able to?
Again, there is no right answer. But understanding your opportunities and risks reassures your potential investor that you have given adequate thought ahead of time.
4: You know what to reasonably expect
Every business owner and investor wants to have an overnight success. But most businesses take time to ramp up to full capacity, and many businesses – even at full capacity – will not make millions every quarter.
The question is, do you understand this, and can you communicate this reasonably to your potential investor? What is it reasonable to expect in terms of production while you perfect your product, while you train your team, and while you present your solution to the marketplace? What is the most you can reasonably expect in revenue during this ramp-up time and later when you reach full production and sales capacity?
A clean and competently formulated financial projection for your first few quarters, along with a reasonable and rational estimated return on investment is essential. The ultimate accuracy of your forecasts is not the point – an investor is unlikely to look back at your pitch deck to compare your forecasts against actual performance. What that potential investor wants to see, though, is whether you understand how big the market is, whether you have a realistic idea of how much of that market you can occupy, and whether you have a reasonable understanding of likely revenues and expenses in that market.
5: You have the talent and the team to get the job done
I once had a meeting with an early stage investor who told me that only once in his entire 20-year career had he seen a truly unique idea. “I don’t invest in ideas or concepts,” he said, “because I’ve seen them all before. I invest in the people who I believe can develop those ideas or concepts into a successful business.”
Telling your potential investor about why you are the right person, and how you have assembled the right team, to bring your business to life is the essential element that many people overlook.
What is your education? What is your experience in the marketplace? Who are the key players on your team, and how do their skills supplement or complement each other? What passions or insights do you bring to the table that nobody else has?
Why should your potential investor become your actual investor if he is reading pitch decks from dozens of other companies with essentially the same product?
In order to answer these questions, you need to believe your own answers. If you genuinely believe that you are the right person, with the right team, with the right solution, in the right marketplace at the right time, and if you communicate this effectively in your pitch deck, this conviction will come through and your pitch deck will have a greater impact.