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ou now have an appreciation of the significant role angels play in early-stage financing, as well as of the basic types of pri- vate equity financing and the usual terms for it. You’ve made a start at understanding your funding requirements into the future and how to prepare your company for professional investors. But you haven’t spo- ken to anyone yet. The next phase in preparing to engage prospective angel investors is communicating everything about your company.How do you tell your company’s complete story in twenty-five pages?
Or in one minute when you run into a potential investor in an eleva- tor? You need to communicate to investors through a variety of meth- ods depending on the investor interaction opportunity.
These are the four most important investor communication tools you need to have well developed:
• Elevator pitch
• Investor presentation
• Executive summary
• Business plan, including detailed pro-forma financials
From these four, you can create almost any communication an investor needs to hear. Other documents are also valuable, but they are developed for reasons other than investor communication:
Product fact sheets and flyers, advertisements, articles, awards and recognitions, testimonials, and the like. But the four essential com- munication tools must be polished and complete before any meeting with potential investors. You may be asked at any time for a quick summary of your business (elevator pitch and executive summary), or to give a visual and discussion overview of your company (investor presentation) or deliver a detailed discussion of your company (busi- ness plan).
Once you’re ready, never miss an opportunity to make a connec- tion with a potential investor or referral source. Take advantage of these situations whether spontaneous or staged. Make sure you get contact information from your audience and give them your business card. Never step out of your house without business cards, even to coach a Pee-Wee Football game. Opportunities occur when you least expect them.
ELEVATOR PITCH: YOUR TAG LINE IN A PARAGRAPH
You really can explain your company in sixty seconds. Your elevator pitch is an articulate, concise statement of your idea, business model, company solution, marketing strategy, and competition, designed to be delivered to potential investors during an elevator ride. While it may seem difficult, you can do it. Creating a great tag line is a place to start: a one-sentence statement of the essence of your company, which should be based on your mission statement. Once you have your tag line, a way to create your elevator pitch is to use a white- board and write down your tag line, vision, and four to six bullet points about your company. Now take this information and see what you can combine; underline the essential words and key phrases.
From this condensed information, draft your paragraph. Capturing a prospective investor’s interest is key, so you need to communicate what makes your company the one to invest in: the size of your mar- ket and the strategy you’ll use to approach it, along with your com- petitive advantage.
Test your new statement out on friendly audiences and individuals familiar with your company to make sure you have covered all essential
find out if your brief description is simple, straightforward, immedi- ately understandable, and exciting. Modify the statement as necessary.
It needs to explain why you are a perfect match for potential angel investors, and how you will meet their goals for a robust return on their investment.
INVESTOR PRESENTATIONS
Your first impression is your investor’s most important memory.
Guy Kawasaki, founder of Garage Technology Ventures and an inspiring author and speaker, has a rule for investor presentations:
10/20/30. Your visuals should be limited to ten slides that you can pre- sent in no more than twenty minutes, and the font size should be at least thirty points. Great rules to live by. As hard as it may be to imag- ine, you can describe your company in ten slides and twenty minutes.
Going through the process of condensing your presentation makes you review and revise, again and again, both your assumptions and your messages. You will discover two or three essential attributes of your company. Approach content development from the investor’s perspective.
Bob Goff, founder and president of Sierra Angels, emphasizes the need to pitch the plan, not the product. In the first couple of minutes of a presentation, he wants to know six specific things, in this order:
1. What business the company is in 2. What important need it fills
3. Why the solution is superior to the competition 4. Why the plan and management team are credible
5. How the management team’s relevant experience will influence the execution of the plan
6. Why the plan is a superior opportunity for the investors, com- pared to the other deals under consideration
Remember, investors want to know, first and foremost, how you will make them money—what exit strategy they can look forward to.
What is their realistic return on investment (ROI)? And what is the timetable for their exit?
Content of Investor Presentations
Getting your slide presentation right is very difficult, and everyone will have an opinion on how to make it better. You should practice your presentation several times before friendly audiences, experienced and inexperienced. How you present yourself and handle the fundraising process is a key indicator to potential investors of how you will handle customers, strategic partners, new hires, and the other challenges of running a business. You must have a complete presentation that cov- ers all essential components and is also readily understandable by potential investors without any industry expertise. Never assume any- one understands your market, technology, or industry, and always assume your audience is intelligent and savvy with investment experi- ence. Remember, you get one chance to make a good first impression.
Many angels and angel groups have set information they require in all presentations; make sure you understand these information needs. You can often obtain this information from angel organization Web sites and from individual angels simply by asking. Nothing is absolute with investor presentations, but following the structure out- lined in the following paragraphs should give you a strong first pre- sentation for beta testing on your safe audiences.
SLIDE #1: COMPANY INTRODUCTION
Content:
a. Company name—with your slogan if you have one b. Your name and position
c. One-sentence “essence of your company”—what you do, the market, and your solution
Objective:
Set the stage for your presentation so your audience understands who you are, what your company does, and in general who your cus- tomers will be and the problem or pain you are solving for them. Most important, this slide should capture their attention and pique their interest, so they’re ready to hear more.
SLIDE #2: MARKET
Content:
a. Who are your customers?
b. What need creates the market demand? Why your solution?
What is your value proposition?
d. Quantify your opportunity.
e. Explain how the market is growing and why.
Objective:
You want to define your customers so that your audience can relate to them and appreciate their needs. Investor audiences want to under- stand the customers’ specific problem or need, and why the problem is important—a hindrance to maximizing a customer’s business. In siz- ing the market, reference third-party, independent evidence. If you have broad-platform technology, with multiple market opportunities, mention the others, but focus on the first market you plan to pursue and why.
SLIDE #3: TECHNOLOGY OR PRODUCT
Content:
a. How is your product a solution to market needs?
b. Explain your technology or product from the customer’s per- spective.
c. Will the customer see your product as either an entire solution or the main, critical component in a multi-sourced solution?
Identify your product’s value-add.
Objective:
Rather than focusing your presentation on the novel and innova- tive characteristics of your technology or your product, focus on the solution you provide. Through this approach, you will answer ques- tions on what your product does, why customers would buy your product, and what makes your product unique. If you have propri- etary technology, say so. If you have patents or patent applications—
list them and then speak to their value.
You are highlighting product or technology benefits and superior- ity from a customer solution perspective. If there are customer sys- tem, behavior, or procedure conversions required, make sure to mention these and how and why they will occur.
SLIDE #4: WHAT MAKES YOU SUPERIOR TO THE COMPETITION; BARRIERS
Content:
Who are your competition? Again, approach from the customer’s perspective. If you have defined the market as X, don’t do compar- isons to companies in market Y.
One method of communicating competitive positioning is a com- petitive analysis matrix or four-square diagram, comparing your com- pany with the competition on two leading factors. The lower left box typically represents lowest rankings for both factors, and the upper right box the highest rankings for both factors. Place each company measured in the appropriate location within the boxes based on X and Y axis factor scaling.
Objective:
When considering competition, think like your customers. How would they categorize you? What are their needs? What problems are you solving for them? The fundamental objectives for this slide are to show why you have the superior solution for solving critical customer needs, to identify the big players in your field and show your persuasive differentiators, and to explain how you will keep your competitive edge over time. If cus- tomers will have to make behavioral or system conversions to use your product, how will you get them to change? Also, if you are successful, how will you prevent a bigger, better-known, or better-funded com- pany from creating a competitive product and grabbing your market?
SLIDE #5: MARKET APPROACH
Content:
a. Sales: Explain how you propose to reach your market. What channels of distribution will you use? If you are using third- party distributors, what sales incentives will you use? Is your sales cycle seasonal? How long is your sales cycle?
b. Support: How do you plan to provide customer support before, during, and after the sale? Access to information and rapid response are crucial at all steps.
Objective:
At the end of the day, sales are the true evidence of success. Your finan- cials will show your revenue projections (which directly relate to sales), so how will you drive those sales? Make your market approach and sales program simple for prospective investors and customers to understand.
Investors need to readily grasp your customer awareness and buying stim- ulus programs and systems—from the salesperson’s and customer’s per- spective. How are you conditioning the market to receive the product?
SLIDE #6: OPERATIONS; BUSINESS GROWTH STRATEGY
Content:
a. How is your product or technology scalable?
c. How will you manufacture products at a competitive price?
d. Where are you in the product development and commercial launch time line?
e. What is left to accomplish and when?
f. Are there any risks or challenges to commercialization?
Objective:
Technology can be very exciting and products can clearly meet a significant market need, but if you cannot make commercially useful quantities at attractive prices, you have only an interesting idea. Rec- ognize any necessary strategic partnerships, licenses, or contracts (such as manufacturing or distribution) needed to achieve success.
SLIDE #7: MANAGEMENT
Content:
a. Previous companies, positions, and relevant accomplishments for key management.
b. Key positions that still need to be filled, and timing of filling positions.
c. Background and qualifications (in general terms) of prospective hires whose identity can not yet be revealed.
d. Members of the board of directors and the board of advisers.
Describe their general level of involvement and highlight any strategic contributions.
Objective:
Investors want to know that key management has relevant experi- ence, knowledge, or background. Therefore, leadership and entrepre- neurial experience should be emphasized for the CEO, while technical expertise and impressive credentials should be noted for the chief technology officer.
Investors put considerable weight on the caliber of board mem- bers. An industry leader’s willingness to participate on a board speaks volumes as third-party validation of you and your company.
SLIDE #8: FINANCIAL PROJECTIONS
Content:
a. What is your road to profitability?
b. How big are the potholes?
c. What is your time line?
Give broad five-year financial projections in a table format with annual total product units sold, revenues, cost of goods, gross margin, SG&A, pretax profit, and cash flow. Show when and how you will be cash-flow positive and ultimately profitable.
Objective:
You are showing well-considered financial projections. Investors want to know you have realistic projections for market adoption, tim- ing, and product pricing. Investors also want to understand, from a financial perspective, if and when you will need follow-on financing and the milestones that will be accomplished with each funding round.
Different angels may want other numbers in the initial presentation—
so ask.
SLIDE #9: MILESTONES
Content:
You may wish to use a Gantt chart to highlight key steps and mile- stones, including key hires, product development and funding needs, and timing. Show a stepwise, methodical process to success. Start with earlier activities, even showing the date of company formation.
Include key financial milestones such as prior and subsequent fund- ing rounds and revenue targets.
Objective:
The primary objective for this slide is to communicate your under- standing of the steps to profitability, and to show how you plan to reach it.
SLIDE #10: FUNDING SOUGHT AND EXIT STRATEGY
Content:
a. Funding sought: How much are you raising in this round? Any previous rounds? What is the timing? Have you already raised part of this round? If so, how much did you raise, and by what investment vehicle (debt or equity—common or preferred)? If not already shown, your future funding needs and timing. Is this a debt or equity offering? What was the valuation on any prior financing rounds? What is the pre-money valuation for this round?
b. Exit Strategy: Give your best estimate of timing to exit and liq- uidity for investors. Recognize that a merger or acquisition is the most probable exit strategy, unless your revenues and market sector strongly suggest an IPO opportunity. Give suggestions of appropriate potential acquirers.
Now that you have the audience excited about your business and future opportunities, let them know how they can participate. Investors want to know your timing for due diligence. They also want to know the percentage of ownership resulting from this financing round.
At the end of the day, investors want to know how and when they will realize a return on their investment. They also want to know the exit strategy is well considered and the long-term target.
Once you’ve covered the basics, leave the participation info on the screen. Say thank you, then restate your name and contact informa- tion. If you have a follow-up meeting date set, give that information.
Restate your slogan. Ask for questions.
TEN-M INUTE PRESENTATIONS. The Alliance of Angels, the first angel organization in Seattle, which has an impressive investment record and member list, has a great diagram on the ten-minute pitch, shown in Figure 7.1. The diagram gives a nice perspective on relative time spent on each subject and an alternative approach to the order of your slides.
The slides outlined in this chapter and the diagram in Figure 7.1 work well for nearly any size audience. How you present—from sit- ting at a table with one other person beside you to standing at the front of a packed room—is mechanical.
The Presentation
Once you know what to present, how do you present it? Remember, potential investors are going to judge your whole approach to busi- ness by your presentation. Find out the amount of time you have, the meeting and presentation format, the possible room setup, the equip- ment you may need to bring and if you can bring other materials, products, or anything else. In other words, find out all audience expec- tations. If you’re thinking of video or multimedia presentations, coor- dinate with the forum employees. Find out beforehand if you can bring another member of your team along, if you wish to do so. Con- sider developing a set of questions and answers for your own use, to help you prepare for what the audience may ask.
Finally, show your passion. Angels invest in you. They enjoy being part of a company and its growth. Your passion, excitement, and energy are infectious and will remind your prospective angel investors of their own heady days of building a company.
Figure 7.1 Ten-Minute Pitch Time Line
{10:00 min.}
Advisory Board
Financials The Offer
{00:30 seconds}
{02:30 seconds}
{06:30 seconds}
{08:30 seconds}
The Problem
The Solution Traction
Market Size Customers
Revenue Model Sales Cycle
Competition Partners
Management
Presentation Dos and Don’ts
Proofread everything and have a second set of eyes look over the documents, too. Don’t let a single typo slip past; investors are likely to take it as a sign of slipshod work in your whole company plan.
Make sure your format, font size, and slide layout is consistent throughout your presentation.
Don’t read your slides—have bullet points only and add content and context through your presentation.
Include your company name and logo on each slide. Use a unique background developed for your company, one that you plan to use for building brand.
Bring copies of your slides and executive summary. If product samples are practical and permitted, bring them along.
Don’t use multiple flowery adjectives or statements like “world’s leading,” “the first and only solution,” “massive market share potential,” and the like—investors will be skeptical unless you can prove such claims through third-party evidence.
During the presentation, if you are asked a question, briefly answer it and then indicate you will expand on that point in a minute. Do not just say you will get to it later.
COLLEEN STONE ON SPEAKING WITH POTENTIAL ANGEL INVESTORS Colleen Stone, founder and CEO of InSpa, offers the following advice: “If you are going to have angel investors, do not approach them until you have refined your ideas and business proposal into a simple, straightforward, easy-to-grasp presentation. This is not to say angels are dumb; quite the contrary, angels make exceptional advisers and mentors because of their experience and background. Rather, angels are not going to take raw data and turn it into analysis. Angels will take you at face value on the size of the market, potential, et cetera, so make sure those are verifi- able. Simply put, if you don’t have your elevator pitch and pre- sentation down cold, you are not ready for prime time.”