There seems to be a saying going on right now: “If you can’t find a job, make one.”
More students are looking to their creative side to start business ventures and pursue careers where they can be their own boss. But going from an idea to a solid business plan is no cake walk; a lot of blood, sweat, and tears are shed by these students along the way.
Most importantly, any idea needs capital to grow, which means if you’re thinking about starting your own business, you’re probably going to have to pitch your idea at some point. For many entrepreneurs, you only have one shot to make a good first impression, so we’ve rounded up five tips from different investors on how to create the perfect pitch.
1. Keep your pitch short and sweet.
On average, a pitch lasts from three minutes to a maximum of ten minutes. You don’t want to ramble on about your product and leave the investor confused as to what your product actually does. Use that time wisely to sell your idea and explain why it’s worth the investor’s money. After talking to individuals who frequently invest in startups, here are some key points your pitch should answer in the first three minutes.
Capture the essentials by identifying what problem you’re trying to solve and why this is a problem for the consumer. An investor from a private chartered accounting firm advised, “If you want to sell your idea, you need to convince people that there is a problem with the way they are currently doing things, and you have to convince the investor of the same. If people don’t see a current problem then they’re not going to buy into your idea.” Remember, every pitch needs to have a strong value proposition, that is summarizing why a customer should buy into your idea, service, or product. By answering the problem you’re trying to solve, and your proposed solution, you’ll have a strong value proposition embedded into your pitch.
There are also many products in the market trying to address the same problem, and your idea may be competing with established ideas. For instance, I sat in on a pitch for a student trying to develop an app to evaluate a person’s health risks, but there are already countless apps on the market which the student never addressed in their pitch. When asked about these existing apps, the student couldn’t speak to this and came up blank. Which brings us to the second point in creating a successful pitch:
2. Do your market research
Investors aren’t just looking to put their capital into a product or idea, they are also looking to invest in the individuals behind the project. As one investor said, “A business idea is only as strong as the person behind the idea, and I need to know that I’m investing in someone who has the capabilities to grow their idea.”
One way to ensure investors that you are worth their dough is by doing your homework on the market your idea will be in. Some investors only want to invest in small scale industry, while others are looking to double or triple their original investment, so it’s your job to speak to the size of your market. You should be able to answer questions related to what market size your industry is, what the growth outlook of the industry has been in the last five years, and what types of consumers your product or idea is geared towards. The more you can confidently speak to the market your product is in, the better prepared you’ll appear to investors and the more likely it will be for you to land a deal.
Re-visiting the consumer health app pitched by the student, you also need to know your product’s competitors so that you can speak to how your product is different from the others and why customers should pick your product over the competitors. Investors suggest that you talk to competitors or even get a feel of their products so that you can speak to their weaknesses in your pitch.
3. Back up your assumptions with hard data
Presenting a functional business which has a proven revenue model is going to capture the interest of a venture capitalist more than assumptions of projected financial growth.
Every idea has operating costs and costs associated with implementation. You should be able to speak to those costs and how you plan to make money off your idea. For instance, with the health app example, the student talked about how the mobile application industry works and how much money he would make off one download. The student also talked about marketing strategies for his application. This is key – by demonstrating how you plan to get your idea into the minds of customers, you’re instilling more confidence in the investors that you know what you’re doing, and the investors will be more likely to invest in your ideas.
The student also talked about doing a royalty deal with the investors, so that for every download the investor would get five cents. Other pitches involve an entrepreneur giving away part of their shares in the company to the investor. Clearly outlining how you plan for the investor to get their money and be involved in your business will help make sure you both are on the same page and will also strengthen your pitch.
4. Find the right number to ask for
One reason pitches may be unsuccessful is because the entrepreneur is asking for too much money. This can be tricky to navigate, but looking at your operational budget and how much money you need to implement your idea is a good starting place. During your pitch, clearly outline to investors what the money is being used for, and more importantly, why you need the money now. If you want the money to expand your warehouse stock but you don’t have any orders coming in, this kind of investment wouldn’t make sense. Often entrepreneurs will overshoot and ask for more funds as a safety net, which can be a red flag for investors. Instead, being upfront with your costs will allow investors to see if they are a good fit to support your idea. Many investors also expressed that if your idea does well and in the future needs more capital, they wouldn’t be opposed to helping fund a little more.
5. Make sure your pitch is clear to people from any background
Investors themselves can come from a wide range of backgrounds and they may or may not be familiar with the specific jargon of your industry. If you bog down your pitch with very technical terms without explaining them, you won’t come across as smart but rather confusing. One investor suggested performing your pitch to as many different audiences as you can, such as your parents, grandparents, people outside your field, and even within. Not only does more practice allow you to perfect your pitch, but if everyone can understand your idea and your value proposition, you’ll be more likely to land an investment.
Best of luck as you go out and pitch your ideas to investors. If you need some support, check out University of Alberta’s eHub services, a destination for entrepreneurs to access world-class experts and help them bring their ventures to life.
Banner illustration courtesy of Wanderer Online Visual Editor Fren Mah.