Delivering a compelling pitch is Step 0 in building your company. Whether you are pitching to a customer, an investor or a potential hire, you need to sell your vision with clarity, passion, and conviction.
Listed below are the 11 slides you must have when pitching to an investor:
OVERVIEW
Explain what you do. Your “Elevator Pitch” should be succinct and powerful. This is where you get their attention or lose it.
PROBLEM/OPPORTUNITY
Explain the problem you solve. Hopefully your product or service is a pain killer, not a vitamin. List statistics that support the opportunity.
SOLUTION
Explain how you are going to solve the problem in a unique and defensible way. How is your solution better? What is your unfair advantage?
TEAM
Describe why your team is qualified. What have they done in the past that makes them credible? Remember: investors invest in people, not companies.
MARKET
How big is your addressable market? Don’t make the mistake of listing a widely published industry statistic as your addressable market. Conduct a bottom up analysis of you market. If you sell software to health clubs, list how many health clubs exist. List the dollar value that it represents.
SALES, MARKETING + DISTRIBUTION
How do you plan to get money out of your customer’s pocket? Explain your sales process. Investors want to know that you have, at the very least, thought through the process. List results for past marketing campaigns and committed distribution partners.
COMPETITIVE LANDSCAPE
List your competitors. Explain why you are better. Never list that you do not have competition. If you product or service is a novel idea, you will want to list alternatives to your offering. If you are building the first personal, commuter helicopter that fits in a garage, your competition would be cars and other commuter airplanes.
FINANCE
Remember: investors are investing for a return. You need to convince them that you are going to make money and deliver a healthy return. Show your assumptions. Make sure they are well researched and believable. A bottom up analysis will deliver a clear picture of your prospects and aid you in building your company.
PRESS/TESTIMONIAL
What are others saying about you? Ask your customers to provide quotes on how well they like your product or service. If you don’t have customers, ask experts to weigh in on your idea.
CUSTOMERS
List paying customers and those that are in the pipeline. Show that you have identified future prospects and explain how you are taking steps to win their business.
STATUS
How much capital do you need? How will you use it? This is where a well-detailed financial model will help you be clear in your goals. Don’t forget to add a small amount for reserves.
A few tips for getting people to believe in your idea:
Connect Research your audience and relate to their interests.
Use images. A picture is worth a thousand words.
Research. Know your industry inside and out.
Be likable. Smile. Make eye contact.
Practice, practice, practice
You should know your story so well that you do not need to look at your slides. When raising capital, you never know when you will meet a prospective investor. So always be ready.
I heard an interesting statistic at the Decoded Fashion event in NYC last month — 95% of high fashion purchases are done in brick and mortar stores. This bit of knowledge may lead brands to believe that they should shutter online stores and focus on a brick and mortar only strategy. Think again.
Betsey Johnson built her first brick and mortar store in 1978 and expanded her empire by approximately two stores per year. Currently, she is closing 95% of her stores. Oddly, despite a 20% decrease in store sales and a 50% increase in wholesale sales, the company was planning to grow stores from 63 to 100 in the near future. Not surprisingly, the question most brands are asking is: what percentage of distribution should be devoted to traditional brick and mortar stores?
Bricks or Clicks?
Well known e-tailers are realizing the power of the physical store. Bonobos recently announced their launch into Nordstroms. Warby Parker credited their move into physical space for not only an increase in sales, but an increase in consumer insight and employee knowledge. After Gap acquired e-tailer Athleta and built physical stores, Tony Lenk, President of Gap’s E-commerce business, stated; “For every dollar that customers in the region spent over the Web, they shelled out an additional $4 in the store.” It is no surprise, consumers purchase more when they can touch and feel the merchandise. Clicks need bricks.
Balancing Act
As with any business decision, your bricks vs clicks ratio is derived from a blend of analytics and customer feedback. The question you want to answer is: where are consumers finding you? Strong brands, such as Bonobos, Warby Parker and Athleta, have the advantage of experimenting with brick and mortar by utilizing partnerships, pop up shops and acquisitions. Lesser known brands will have to be careful when they enter physical space on their own. A store build out can range from $100k to $500k, and comes with annual expenses that are difficult to unravel. A conservative ‘brick approach’ is one store per year, measured regularly against the metrics of other distribution channels.
Some brands do well in the digital world, while other brands require a high touch experience. I highly doubt Lululemon could have built a multibillion dollar wellness brand online. The lure of the store is the community you interact with while shopping, wine tasting, exercising and socializing. Camaraderie is a powerful selling tool.
Can Luxury Go Virtual?
E-tailer Amazon recently announced that they will be entering the luxury market. Their 2006 acquisition of Shopbop gave them a glimpse into the luxury market, while keeping both sites separate. Of course, the consumer is comfortable buying a $30 pair of shoes on Zappos as the price point is low. But Shopbop has proven that the consumer would also be comfortable buying a $10,000 Zac Posen dress online. As with the brands mentioned above Zac Posen already has a strong following. This is not the case for most brands, luxury or otherwise, that sell online.
Statistically speaking, the conversion rate for in store sales is 67%, while the conversion rate for online sales is a mere 10%. More importantly, online returns range from 15%-50% of sales and 60% of those returns are due to fit. That is a lot of money wasted on shipping and reduced value as apparel goes out of season.
Yes, Amazon’s experiment is ambitious, but 2012 is armed with selling tools that didn’t exist in 2006.
My Digital Doppelgänger
Decoded Fashion included a stellar panel on digital customization. The panel included Acustom, Clothes Horse, Me-ality, and Styku — all focused on helping consumers get the perfect fit. One company missing was Fitiquette, a 3-D avatar-as-model approach created by Cisco alums Andy Pandharikar and Anant Kumar. I believe the digital doppelgänger could be the solution to the pain found in billions lost due to low conversion rates and high returns.
What do you think? Have you used technology to perfect your shopping experience?
During 2007, we witnessed 86 VC-backed IPOs bring in $10.3 billion in fresh capital. Unfortunately, 2008 did not produce the same pay day. With only 6 IPOs yielding $470 million, many feared the party was over. Fear not, 2009 brought a sliver of hope as the number of IPOs doubled to 12, bringing in $1.6 billion. 2010 proved to be a strong year. We were blessed with 75 IPOs, bringing in $7.6 billion. Of course, 2011 would be more of the same, right? Wrong.
The Year of Bloated IPOs
In 2011, we had approximately half the number of IPOS as 2007, yet the amount of capital raised was roughly the same. At first glance, we might think this is a good thing. Actually, this is the worst thing that could have happened. Jumbo IPOs were caused by underwriters propping up prices to unsustainable levels, knowing that the market was hungry for new shares. The average IPO jumped 30% on opening day and stumbled back below opening price. Slumping stock prices acted as a distraction. Management should have been focused on growing the company, not the stock price.
Below is a chart of a few high flying stocks that closed the year below their opening price: Demand Media, Pandora, LinkedIn, Groupon, Zynga and Angie’s List.
Lean and Mean, Miss Diane Greene
Let’s look back at 2007. VMW was the hottest IPO. They went public on August 14, with prior year revenues of $704 million, net income of $87 million and $176 million in cash. The stock opened at $52, rose 90% on the first day and peaked at $107 on November 9. At the end of 2007, the stock closed at $85, up 63% from the opening price. Over the past five years, the share price ebbed and flowed with the markets, but has now settled in the mid $80s. VMW continues to be a healthy company, focused on increasing market share, not market cap.
Pipeline is About to Burst
Currently, there are over 205 companies which have filed to go public. To put this in context, 299 companies filed to go public in all of 2007 and 259 companies filed in 2011. Over the past five years, with the exception of 2008, the percentage of companies that identify as technology companies held steady at approximately 15%. In 2012, we could see well over 50 technology IPOs. Let’s hope they are appropriately priced.
IPOs are Good for America
Historically, 85% of job growth occurs after a healthy IPO. It is critical that we get IPOs priced for sustainability (read: job growth), not quick profit. We want CEOs focused on increasing staff, not bending over backwards to please shareholders clamoring for their “profit.” If CEOs are worried about expenses, they’re less likely to invest in growth. In this scenario, nobody wins.
We all know the old adage, “The love of money is the root of all evil.” I joke. Of, course. I don’t believe we need to be “evil” to build wealth. However, I do believe we need to be focused on wealth creation to create wealth.
It’s Not What You Make, It’s What You Keep
When Angie’s List went public, Angie Hicks owned 1.8% of her company’s shares. When Prada went public, Miuccia Prada owned 33.2% of her company’s shares. Miuccia is a multi-billionaire. Angie is not.
This is an important lesson for anyone building a company. I constantly meet with companies who believe that bringing in capital is their number one obstacle. They focus so much of their energy on bringing in money to make money that they fail to focus on organic growth. By doing this, they fail to build real wealth. They fail to see that building a sustainable brand on non-dilutive capital (loans, customer revenue, etc.) is really the biggest, and most important, obstacle.
Innovate Your Way to Wealth
Prada was founded in 1913, but what took place in the mid 80s at the hands of Miuccia Prada gave the company new life. Miuccia began revamping her grandfather’s company in 1986. She started with chic, new stores in New York, Madrid, London, Paris and Tokyo. Prada’s product range was extended beyond traditional leather goods (bags, luggage and accessories), first to include shoes, and then to include ready-to-wear for both women and men.
A Brand Was Born
Prada held their first womenswear fashion show on the runways of Milan in 1988. The brand’s first major success was the launch of the iconic black, nylon bag. Every woman bought one (genuine or faux). In 1992, Miuccia experimented by adding a standalone brand, Miu Miu, which, at the time of IPO, accounted for nearly 20% of Prada’s revenue.
Reap Your Rewards
Prada is both a fashion and a financial powerhouse. The company was doubling profits as it completed its $2 billion IPO — Hong Kong Exchange’s largest in 2011. The company enjoyed a $13 billion valuation, with Miuccia’s shares valued at nearly $5 billion.
If you are in San Francisco on September 26th, join us for Think + Drink: Finance Meets Fashion. RSVP here.
As the IPO market came to an abrupt halt, the M&A market rendered brighter returns. For the first three quarters of 2011, venture-backed M&A activity, by value, was up 43% compared to the first three quarters of 2010. During Q3 2011 alone, 101 venture-backed M&A transactions were reported with the average transaction valued at $181.3 million, up 17% from Q2 2011.
The most important trend is improved returns to investors. During Q3 2011, 30% of the transactions returned greater than 10x the amount invested and only 6% returned less than the amount invested. The chart below illustrates this trend by utilizing disclosed transaction data for the past twelve months.
IPOs are Not
During Q3 2011, there were approximately 68 US-based, VC-backed companies in queue to go public. Not surprisingly, only 4 were bold enough to dip their toes in the murky waters. In fact, the number of IPOs decreased 77% from Q2 2011, raising only $442.9 million, which is down 92% from Q2 2011 and the lowest for venture-backed IPOs since Q4 2009.
Navigating the Path
At Atelier Advisors inaugural CEO dinner, a gathering of friends running companies, I had a chance to catch up with a few founders on the liquidity path. I spoke with Haydar Haba, founder of IntelePeer, a company that was scheduled to go public this summer, on his decision to postpone an IPO. Needless to say, the decision to postpone an IPO is always a tough one, but with current market conditions it’s better to be safe than sorry. As of this blog post, 40% of the companies that went public in Q3 2011 are trading below their offer price. On the other side of the table, literally and figuratively, Rodrigo Flores, founder and CTO of newScale, which sold to Cisco this April, was relieved to be on the other side of the transaction. He noted, and I agree, that M&A always takes longer than companies anticipate. Similar to raising capital, you want to begin the process long before you think you need to make a decision.
If you are looking for liquidity in the near future, begin now. You may not want to exit for another year, but begin having conversations with your team today. Create a list of ideal acquirers and get to know them. You’ll want to understand how they would integrate your products and services. In most acquisitions, key players are required to stay on for a set period of time. Not only are you looking for an acquirer, you are looking for your next employer. Start “interviewing” your future boss today.
Regardless of market conditions, anyone can raise internal capital. Raising internal capital requires a deep look inside operations – physical, virtual, and mental.
During the recent downturn, many of the companies I advised were discouraged by the lack of capital available. As the number of VC funds declined 30% to 1,183 in 2010, companies looking for capital were left with limited options. Of course, a lack of resources always leads to resourcefulness. That is what led me to develop the three step approach to raising capital in any market.
Let’s walk through the three step process I created to assist companies with an internal capital raise.
1. Analyze Cost of Revenue
First, we look at each revenue item and compare it against all costs associated with that item of revenue. We do not simply look at cost of goods sold, but look at all resources needed to acquire revenue. Ideally, our revenue should come from referrals or viral channels. If not, determine how much it costs you to acquire each dollar of revenue. Then, ask yourself if it’s worth it. It’s okay to pay high dollar for a top tier client who will attract more revenue down the road. If you are spending resources to build your first client in a new sector, that is money well spent. We call that business development expense. And if it’s developing business it’s worth it. On the other hand, if you have a problematic user or customer who is absorbing an inordinate amount of resources, you want to address this.
Not all revenue is equal. Focus on building profitable revenue sources. Learn to say no.
2. Analyze Operating Expenses
Second, we look at expenses and ask whether you could do without it or do it for less. PR, marketing and administrative support are the easiest items to cut. There are low cost alternatives for each of the previously mentioned categories. Explore your options. You will be pleasantly surprised at the abundance of resources that are free or inexpensive.
Get frugal. The money you save decreases your need for outside capital.
3. Analyze Yourself
Last, but not least, take a thorough look at your behavior toward operating your company. Ask yourself, “What is my belief about money?” Most people have a negative mental association with money that only rears its ugly head when it’s time to step it up. In a good economy, money is flowing. There is no resistance for you to overcome. In a down economy there is resistance. You will need to hustle. You will need to cut off slow paying clients who are draining your staff and get comfortable going after new markets. Most people realize, when push comes to shove taking an aggressive approach to money is hard to do. We often view people who focus on money as greedy or obnoxious. Get over this.
Write down all the negative associations the media has been sending you since childhood. Cruella de Ville loved money more than anything. Robin Hood, an icon commonly referred to as a hero, stole from the rich and gave to the poor. This negative association sticks with us, whether we know it or it. So take a deep dive into your head. What is the story you are telling yourself about money?
Use journaling, meditation, and visualization to fine tune your thinking. Remember, money is not the root of all evil. It is the love of money that creates evil. Healthy prosperity allows you to run your company and your life in a rewarding away. There is nothing evil about that.
Stop expending resources –time, money and mind – when there is no clear return.
