Not everyone is going to pitch their Business Plan to investors. There are many great businesses to be built without ever raising a Rand from external investors, and many types of businesses shouldn’t pitch to external investors to begin with. With this said, I wanted to present some insight on pitching because I know that:
- Many people do want to raise funds from external investors, and
- The level of rigour needed and thoughtful planning that goes into just how to communicate your business idea in convincing employees, co-founders, advisors, customers, and yourself can never be understated.
Presenting your Financial Projections:
First off, here are a few things NO TO DO when presenting your financial projections:
- Do not paste a spreadsheet from Excel into your pitch deck. A spreadsheet has a lot of data in it, and your goal in pitching is to get someone excited, not to look at your detailed projections. Instead, make your point very clear by focusing on the key metrics and ratios you want to report, and report on those.
- Do not create a projected “hockey-stick growth” (linear growth) chart if you are a start-up company and don’t have any past performance history to justify a hockey-stick growth. Everybody shows one of these graphs, but nobody believes it. You will never grow 30%+ year on year.
- Do not focus on revenues. Revenues are great, but there are often more important or interesting metrics for an early-stage investor: signups, churn, scale, traction, and not to forget cash flow.
- Do not focus on presenting your financial projections. Rather focus on the story of your business. Your projections should help you tell the story, so don’t be lazy and paste in a spreadsheet or a chart with your projected growth: they don’t tell the story.
The problem with the typical ‘graph of growth’ is that it’s difficult to have a good conversation about it and use it as a meaningful part of a conversation. It always feels like the weakest part of the story, right? That’s because it tells two stories simultaneously, but poorly.
The growth graph obscures:
- Unit economics, the core underlying performance of the business
- Execution, the success of the entrepreneurs in scaling the business
Investors focus on two things: (1) the assumptions underlying the revenue forecast, and (2) the monthly burn rate or cash consumption of the business.
So, for start-up companies looking to talk to investors, the press, employees, etc., it’s pretty clear… focus on your:
- Market Potential
- Cost Budget
- Business Milestones
As for market potential, you need to focus on summarising the market, justifying the addressable market, look at market dynamics (challenges and opportunities), and competitors.
For financials, do not, as far as possible, “thumb suck” or pick projected figures out of thin air. That carries now weight and will damage your credibility as entrepreneur. All projections and claims must be backed by factual information. Pick important metrics, and use that to indicate growth. Remember, growth is key to the story.
For fundraising, one common way to present fundraising financials is to create a slide which outlines three things: how much you’re raising, how much runway (# of months) that funds will last you given your monthly burn, and the key milestones you’ll achieve during that time. Here’s an example:
Raising R1,25 M
Primary expenses on hiring 1 website developer, 1 sales representative, 1 marketing manager, and opening an office.
Runway: 18 months
Key Milestones: Complete Version 1 Beta Product Design, Sign 20 customers, Build and launch Version 2 Production Product.
And so how does your financial model figure into this? While it’s certainly not the centerpiece of your presentation materials, it would be hard to create a solid rationale for a fundraising amount without an idea of monthly burn, hiring plan, and key costs. The model is necessary to create the headlines of the pitch, but on its own is more of a background resource to use when investors want to see more details.
You’re not going to win a deal with a great model, but you could lose a deal without one.
In any given year, investors sees ~2,000 pitches, looks more closely at 400-600, and ends up doing between 10-20 deals. Investors spend an average of 4 minutes on successful Pitch Decks. At least 15% of investors read decks on small phone screens. Good pitch deck design is essential if you want to get noticed.
Don’t Ignore these Investor Statistics:
Here are some statistics on Investor Presentations:
- The average investor presentation has 20 slides
- The average investor pitch lasts 42 minutes
- 75% of Investors get distracted by email or something else in the first 10 minutes of your pitch
- 43% of Investors pay attention less than half of the time
- 63% if Investors will never open an emailed Business Plan/Pitch Deck
…of those Investors that opened the email:
- 73% spend less than 5 minutes reading your presentation
- 48% read less than half