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The art and science of a perfect investor pitch


Successful pitching is part art, part chutzpah and, part science.

The first two depend a lot on your personality and style. But anybody can, and should, get the science right. After all, investing is all about growing the money, and this pursuit has established methods and milestones.

Here are eight basic points you need to address to win over investors:

#1. Validate your idea. You’ve got a great product, but are people willing to use it? There is nothing worse than building a great product that nobody wants. So be sure to conduct a focus group and validate your idea, before presenting it to investors.

#2. Size up the competition. Why should people come to your website or, buy your software, and not the others out there? Most business owners have difficulties answering this one. Your answer to this must be compelling enough and not something like: ‘We got excellent customer service’ or ‘Our design is prettier than the others.’

#3. Is your market big enough? Professional investors eye businesses with the potential to rapidly grow. Christopher Golis, author of ‘Enterprise & Venture Capital,’ thinks if the potential market of your business is lower than $100 million, venture capitalists would simply pass the investment opportunity. So make sure you can demonstrate a large enough market that can deliver the expected ROI.

#4. Users, users and users. Valuations are all about large numbers of users and high levels of engagement. The number of users you have for your software or website is critical to the valuation you can seek. Skype was valued at $8.5 billion mainly because of its 65 million daily users. Instagram, despite having zero revenue, was bought by Facebook at $1 billion for its user base of 30 million. High early demand and steady traffic are crucial to demonstrate proof of concept to potential investors.

#5. Marketing muscle. The next point to present to potential investors is a strong marketing program that will further enlarge the database. Make sure you employ the basic strategies such as hiring the best SEO expert and doing joint venture promotions with other online businesses or blogs. Still, achieving high valuation comes down to whether you have the A-Team to execute the plan or can hire one quickly.

#6. What is your ROI multiple? Investing in early-stage private companies is highly risky and venture capitalists expect big payoffs. If you cannot offer a potential 10-20 times return upon exit, investors may prefer to put their money in less risky startups or lower risk assets property and stock market.

#7. Disaster plan. No startup goes to plan. Period. What are the worst things that could happen? Outright product failure, missed deadlines, lower-than-anticipated market, smaller than expected customer base, insufficient capital, or a poor executive team. Investors like to know how you will respond to one, or more, of the above scenarios. Make sure you have someone on the board who strongly understands finance and risk management. And, put together Plan B, C and more.

#8. Show a strong exit plan. Most businesses show plans for an IPO or, to be acquired by a larger company in 3-5 years. It would be more compelling if you detailed an exit and succession plan, outlining what needs to be done from now, until the day you sell your business. You could present a time-frame for when you will begin scouting for potential buyers, or when you would open up talks.

Edwin Lucas is the non-executive director of Digital Office Builder, an online business development company in Melbourne. He also educates online businesses about various online marketing strategies and how to raise equity capital from private investors.