Takeaways from Pitching to Investors
Every entrepreneur that is preparing to pitch to investors or raise capital at some point in the future, should know the words of Richard Harroch, “It’s almost always harder to raise capital than you thought it would be, and it always takes longer. So plan for that.” These words ought to be imprinted in the minds of every founder, and every entrepreneur, regardless of how amazing they think their idea may be.
As a first time entrepreneur, I was incredibly naive this past summer when working on my first startup, Lula. Lula is a peer-to-peer car sharing platform for college students, that is set to launch in Spring 2017. I’d read so many articles on Tech Crunch, and Crunchbase about people my age raising money for some crazy ideas and always imagined that my idea would have no trouble being funded, but I couldn’t have been more wrong. I was rejected by the first 21 investors I spoke to, and even though I managed to successfully raise a few hundred thousand dollars in my first two months of raising capital, there are 5 really important things I wish I would’ve known before I started pitching to investors:
You will get rejected by multiple investors.
This sounds like a given and really obvious but needs to be said. There’s no shame in rejection in this game. Airbnb was rejected by the first 7 investors they reached out to, and Pandora was rejected by 300+ venture capitalists. In the startup world, rejection is inevitable. Founders tend to read about various success stories, like “Yo” (an app that literally only lets you message your friends the word “Yo”) raising over a million dollars, and automatically assume they will do the same. Unfortunately, this industry doesn’t work like that. Taking other people’s hard earned money is a long and difficult process, so don’t be naïve and expect to be the exception that doesn’t get rejected.
MAIN POINT: You will get rejected, but DO NOT get discouraged.
Once I had incorporated, figured out who would develop my platform, written a business plan, had the insurance company I’d be working with, and had a really cool pitch deck, I thought I was ready to reach out to investors (WRONG). As I was preparing for my initial meetings, I spoke to a professor at Babson, and he started throwing out comments about how investors would want to see my annual projections, when I’d break even, my balance sheet, my income statements, my budget, my burn rate, and my cash flow statements. I thought he was just being old school, and was I dumb enough to assume he was wrong, because I never heard Pied Piper mention these things when they pitched to VCs (WRONG AGAIN). After my first conversation with an investor, I realized my professor was right and I had to prepare my financials.
MAIN POINT: Having a cool pitch deck, along with a strong business plan is great, but investors won’t take you serious if you haven’t prepared your financial
Pitch Decks are overrated.
A pitch deck makes for a great crutch during your meetings, and assists in structuring your presentation, but don’t be surprised if your meeting with the investors don’t include the deck. Investors like to see that the entrepreneur can hold a conversation about their business, say the story of the business, and answer tough questions without the help of a script or writing on a screen. Not a single investor of ours cared to see it—they were more interested in being able to guide the conversation themselves, and asking whatever question they wanted at any given time. We’d spent countless hours finding the right wording, the right icons, placing the slides in a specific order, only to find out that the pitch deck wasn’t really cared for.
MAIN POINT: Pitch decks are often useful, but be prepared to tell the story of your business, and answer all questions pertaining to your business without using the pitch deck as a crutch.
Educate yourself on the various ways of funding.
When watching television shows such as Shark Tank, the Profit, West Texas Investors Club, or Silicon Valley, you typically only hear the entrepreneurs, and investors talk about the sale of equity for cash. You never hear mention of common stock, convertible debt, option pools, preferred stock, convertible promissory note, uncapped convertible note, the SAFE, or the countless other ways to structure a deal. Before heading into any meetings, make sure to educate yourself on the various ways that an investor can join your company, or be prepared to be caught off guard.
MAIN POINT: Study the terms mentioned above, and don’t enter a meeting without knowing them—especially Common stock, Preferred stock, and convertible note.
It will take longer than you want it to.
Unfortunately, many entrepreneurs fall into the assumption that raising capital is a quick process, and that one successful meeting with an investor means they’ll immediately receive the money. In reality, so much goes on after that first meeting. The investor has to do his R&D, talk with his advisers or team, review the terms with his lawyer, consider other deals he has going on, really think about your idea for some time, and likely schedule another meeting with you. According to David S. Rose, CEO of Gust and Managing Partner at Rose Tech Ventures, the best case scenario is having your capital raised in 30 days. However, he, along with other industry professionals, agree that it typically takes about six to nine months to close a round of raising capital.
MAIN POINT: Raising capital is a slow, difficult process that requires tremendous patience and determination. Don’t give yourself a tight timeline, and expect that your idea will automatically attract investors.