How to make effective pitches to investors without striking out
10/20/2013 12:00 AM
10/20/2013 6:26 AM
In about three years, Jeremy Jones has brought more than $4 million from private investors into Nitride Solutions.
“That guy is an animal” when it comes to effectively making pitches to investors, said Joni Cobb, president of Pipeline Entrepreneurs, a Kansas City-based fellowship program that Jones attended in 2010.
He is one of 40 entrepreneur semifinalists in the United States who were selected from 283 qualified applicants to compete in the global Get in the Ring venture capital competition.
Jones will learn Wednesday whether his three-minute video pitch advances him to the round of eight, which is the next stop in the competition that culminates in the Netherlands and gives the winner a shot at $1 million in new investment.
But Jones is the first to say that figuring out how to effectively pitch his company to angel investors and venture capitalists wasn’t easy.
Like those who have come before – and who will follow – Jones has learned that having a great idea and a solid business plan is worth about as much as the paper they are printed on.
To realize the value of an idea, you have to convince the people with the money that your plan is worth the investment.
So learning to effectively pitch a company becomes key to developing an abstract idea into something an entrepreneur can sell.
And entrepreneurs and experts say it’s a skill that takes time and real-world pitches to effectively develop.
“You practice, practice, practice,” said Trish Brasted, CEO of Wichita Technology Corp. “And then you practice some more.”
Brasted is also managing member of the Midwest Venture Alliance, a local angel investment group, which hears about 100 pitches from entrepreneurs each year.
She said the first step in a successful pitch is to quickly capture investors’ attention and leave them wanting to know more.
An entrepreneur typically has 30 to 60 seconds to do that, Brasted added.
Quickly catching an investor’s attention is akin to the so-called “elevator pitch” – the idea that an entrepreneur says enough about his or her business in the time span of an elevator ride so that a potential investor will be moved to take a longer meeting with the entrepreneur.
‘Way too technical’
Toby Rush, CEO of EyeVerify in Kansas City, Kan., said he never knows when he might run into a potential investor – at a cocktail party or in the airport – so he’s mentally prepared himself to give an elevator pitch at any time.
“You’re always looking for a place to tell your story,” Rush said. “You never know where it might lead.”
EyeVerify is Rush’s second venture, and it has developed software that uses a mobile device’s camera to scan and analyze the human eye to verify a person’s identity.
Rush successfully exited his first startup, Rush Tracking Systems, in 2009 when he sold the company to Pharos Capital Group. Between Rush Tracking and EyeVerify, Rush said, he’s pitched his companies so many times that he’s lost count.
When he first pitched Rush Tracking to a group of local angel investors, he was determined to give them a lot of information.
“Back when I was way too technical. I probably had a 60-page business plan,” Rush said. “At the end of the day, it was just way, way too much information.”
Nowadays, his pitches are aimed at providing a broad overview of the company and its market potential. And if the investor wants more information on a particular topic, “you let them drive you to their areas of interest,” Rush said.
He said what is just as important as the pitch is knowing who you are pitching to. That includes knowing at what stage of a company’s life cycle the potential investor likes to invest and whether the investor is merely seeking a return on investment or whether the investor wants to use the entrepreneur’s product or service to benefit his or her company.
Types of investors
The latter would be what Rush said is one of three types of investors: the angel investor, the institutional investor and the investment arm of an established, large company. Knowing the type of investor lets you tailor the pitch.
Rush said an angel investor is generally an individual who is also an entrepreneur and that part of the motivation to invest comes from his or her own desire to relive the entrepreneurial experience.
“They love hearing about the story, the excitement, the ups and downs,” he said. “They tend to be a little bit more of an emotional investor.”
The institutional investor wants to hear more facts and data, Rush said, while the investment arm of an established company wants to know how the product or service is going to improve its parent company’s business.
Like Rush, Nitride’s Jones in his early rounds of pitches found himself focusing too much on details and delivering a message that was better suited for an audience of scientists than investors.
“We develop and manufacture products that involve atoms, they involve chemistry, they involve electronics,” Jones said. “And the biggest problem that technical people like myself or my folks here try to do is teach, and that’s a killer.”
Nitride has developed a process to produce low-cost, high-quality aluminum nitride substrates that are used in solid-state electronics, light-emitting diodes and ultraviolet laser diodes.
Jones said he quickly learned not to “put to sleep” investor audiences with all of the technical data.
“They just want to know what problem you are solving, how you are solving it and how they are going to make money if they invest in you,” Jones said.
Chris Shipley estimates that she has sat through more than 20,000 pitches by investors over the years, including 13 years as executive producer of DEMO, which is akin to the Super Bowl of investor conferences. During it, a select group of national and international entrepreneurs gives six-minute presentations on their innovative technology products to the media, investors and corporate buyers.
Shipley, the CEO of San Francisco-based Guidewire Labs and a national adviser to Pipeline Entrepreneurs, said pitches have become too formulaic and steeped in facts. She advocates for a pitch with some emotion.
“To me, a great pitch is one that tells a story that the listener can fall in love with, want to get engaged with.”
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