6. How do I pitch an investor?
Note: this is Part 6 of Fractionalist’s Startup Fundraising Series for Early Stage Companies.
It’s a process and it pays to know it
Put yourself in a prospective investor’s shoes. They hear pitches all day long. They have heard it all and can spot red flags a mile away. If you can’t get across your idea and why you’re the person (or team) to make it happen in less than 3 minutes, you’re doing something wrong.
While it doesn’t tell the full story of your product, there’s a lot of value in being able to boil yourself down to the “we are the X of Y.” We’re the Uber of Laser Cats. We’re the Facebook for robots.
How do you get good at telling your story in 3 minutes or less? Practice, practice, practice.
As an entrepreneur, you’re always selling yourself, your company, your team, product, etc. If you don’t truly believe in what you’re building or you’re harboring any doubt, it will come out. Customers and investors can smell that a mile away. They can also sense if you’re nervous. So knock it off.
Seriously. Shake the nerves. Drop the PowerPoint script.
You’re talking to another human who wants to see you succeed. When you do that initial call, get a sense from them about how they are feeling/doing.
Do they look annoyed? Rushed? Don’t waste time; get into the pitch. Do they seem friendly or talkative? Then talk them up on just about anything but fundraising for a few minutes. You’re trying them out as much as they are trying you out. If you can’t have some interesting banter in a quick phone call with someone, how on earth are you going to manage this relationship during the good and bad times?
Once you get that target list of potential investors together you have to figure out how to get in front of them. Warm intros are ideal, but barring that, you can do some social “stalking” of people to find the right angle to connect with investors. Listen to podcasts they’ve been on, read their blog and review their portfolio. Sometimes you can even get a warm-cold intro through one of their portfolio companies if you find the right person there. It’s a lot of work and it is super frustrating, but when you’re starting from scratch, hustle can be your only X-factor.
Pitching Investors
You’ve already decided to run the process. What do you do next, assuming there is interest from the investor? Here’s a high-level, generalized overview of the process.
The partner call
For funds that have a larger partnership (4 or more), you’ll do an initial call with the partner you reached out to. These are usually 30 minutes and I like to keep these initial calls pretty tight. Again, put yourself in the investor’s shoes.
The partnership meeting
If your pitch is interesting to them, the partner will take it to their partnership meeting the following week. This is the weekly meeting where firms review existing investments, hear pitches, learn about new deals, etc.
Your pitch can be shot down in the partnership meeting for a variety of reasons. The firm already made an investment in the space. Someone else “big” made an investment in that space. They are in a bad mood. They heard you might not have a very good haircut. Okay, I’m playing a bit with that last one, but really it can be just about anything. You have to just roll with it if you get the no. It’s not personal. It’s your haircut.
If you make it through the first partnership meeting, you’ll have another call with that partner or one or more of their colleagues. I like to do one-on-one with the partner if I can. This is when I’ll dig a little deeper on who they are and cover some things that aren’t about fundraising and the company. You want to test compatibility a bit at this stage.
The partners meeting
If you make it through this phase, you can get pulled into a partner meeting. This is when you pitch your company to the entire firm. At this point, the partner who has been working with you is putting a bit of their reputation on the line. Don’t hesitate to ask them some questions to help you prepare before this meeting.
Who is likely to be a challenge in the room? Did anything come up in the first partner meeting that I should address up front in this pitch to the partnership? Make sure you have your appendix slides up-to-date here and tailored to this pitch specifically. You might get some random questions; you’ll be in a stronger position if you can jump directly to a slide that addresses it.
If you have a co-founder that is comfortable speaking in this kind of environment, bring them along to this meeting. As the CEO, you’re driving this meeting. You need to dictate the cadence, read the room and make sure you hit all of the points and questions that come your way. If you co-founder can take a question or two it gives you a chance to breath a bit and reassess the room and make sure you’re on track. I did not do this enough early on as I thought it was my job to do all of the fundraising. Once I brought my co-founders in the meetings got easier and more productive.
If you make it through the partners meeting and they like the deal, you’ll get a call from the partner to start talking through what a term sheet might look like. You’ll discuss terms around the deal like valuation, the vehicle you’ll use (note or priced round) and if any other investors will be participating. Know your terms around doing these deals. Since you’re running the process, you will hopefully be aligning these kinds of conversations with a few firms which can make it competitive (read: good for you as the startup founder).
Negotiating term sheets
Negotiating multiple term sheets can be tricky. It’s out-of-scope for this post. The important thing to remember is ultimately everyone’s check cashes [link back to your story]. Take the better relationship over a higher valuation all day long.
What’s next?
This is part of the Fractionalist Fundraising Series for Early Stage Founders. We always appreciate feedback on the series and we're always here to help you with your fundraising efforts.
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