So you have decided to pitch your startup to investors for funding. Congratulations! You probably feel excited and nervous, which is understandable, but do not worry – pitching for funding does not have to be like an episode of Shark Tank.
You need to tailor your pitch depending on which growth stage your startup is at, as investor expectations change as you grow. Keep reading to know more about how to get an investment for your startup:
The five stages of startup funding
1. Pre-seed funding
This is the very first stage of your startup. You have an idea and the zeal to execute it, but you probably do not have a professional investor to back you at this stage. Most entrepreneurs source funds from their family and friends at this stage and use their savings. Some may even use crowdfunding platforms.
2. Seed funding
This is the next stage, where you have converted your idea into a product or service and want to test it on the market. This is when most entrepreneurs first approach a venture capitalist or angel investor. Since you do not have actual numbers to back you up, you need to prove your idea is viable by making a solid business case.
Use market research to demonstrate what needs your product fulfils, how it outperforms the competition (if any), and your projected cash flow. You also want to demonstrate that your team comprises qualified individuals ideally positioned to bring the idea to fruition.
3. Series A
This is the stage at which your product or service has been launched, and you want to enhance it further. An idea alone would not win the day with investors at this stage – you need a viable strategy based on the numbers you have seen so far and what you project for the next few years in terms of revenue, sales volumes and profits.
A good option is to use cohort analysis to divide your retention rates into different user groups and see how many of them returned during a later period.
4. Series B
You now have a product or service making money and a business model attracting customers. The next step – scaling up. Investors at a Series B pitch session are no longer worried about whether your offering is viable.
They want to see that your model is scalable, which you demonstrate through a growth hypothesis validation.
Now more than ever, you need to talk numbers. The unit cost of each good, the unit revenue you are making, how much users are spending based on cohort analysis, the customer acquisition cost, and the lifetime value of your product – you need them all down pat.
5. Series C
At this stage, you have proven that your business model works, and you are looking to expand into new markets or add more products to your roster – maybe even prepare for an IPO. You are typically targeting VCs looking to invest larger amounts to support that kind of growth – investors, in turn, are looking for a strong expansion plan and a solid team behind it.
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Tips on how to pitch your startup for investment
1. Do your homework on the investor
You could have the best business idea in the world, but if there is no vibe match with the investor, you will not get them to sign a cheque. Before setting up a meeting, research who the investor is, where they have worked, what kinds of businesses they have invested in and what they have expressed an interest in seeing more of.
You also want to look up their temperament and leadership style with the startups they invest in and decide whether you will click with them or not.
2. Prepare a top-notch pitch deck
Your pitch deck must be striking and memorable, but that does not just mean having cool graphics. You will want to build a deck of around 15-20 slides that contain the problem you are solving, your solution, your target market, a product or service description, your strategy, your cash flow forecasting projections and your exit plan. Include charts and visualisations that will give the investor more insight into your words.
3. Have a compelling story
What is the origin story of your startup? What inspired you to solve that particular problem? What was your journey toward designing that product?
What problems did you face? What was your eureka moment? Telling a vivid and honest story adds authenticity to your deck and keeps the investor engaged.
4. Have the numbers to back you
A story might spark interest and engagement, but at a pitch meeting, numbers are paramount. You need to demonstrate compelling data to show that your business model is viable – and you will want to showcase it multiple times in your deck and your verbal presentation.
The more frequently you reference and engage with data, the more confident the investor will be that you have more than just a story.
5. Be prepared to answer questions
Your investor will have questions about your deck, and likely lots of them. Before the meeting, look at your pitch from the investor’s perspective and prepare for as many questions as possible. In particular, focus on things you may not be covered in the deck and enquiries related to current happenings in your industry.
If you do not know the answer to any question, say so honestly, and you will work on finding a solution. Do not fudge – the investor will know, and it will be a point against you!
6. Know how much to ask for!
Finally, let us talk about the investment itself. It can feel awkward to ask for a large sum of money (especially when you know you might end up with less), but what is critical here is not the amount – it is that you know precisely what you will be using the money for and what returns you expect to see. This demonstrates forethought and clarity, further building the investor’s confidence in you.
Should you hire a startup accountant for this endeavour?
There are several reasons why your startup should hire an accountant before pitching to an investor. Firstly, an accountant can help you to present your financials clearly and compellingly, which is essential for impressing potential investors.
Secondly, an accountant can assist you in understanding the various tax implications and regulatory requirements associated with receiving investment capital. This can help you avoid costly mistakes and ensure your startup complies with all relevant laws and regulations.
Thirdly, having an accountant on board can provide credibility and assurance to potential investors that your startup is being managed responsibly and transparently. It demonstrates that you clearly understand your finances and are taking the necessary steps to manage them effectively.
Bradleys Accountants, for instance, can assist you with cloud accounting systems to simplify day-to-day record-keeping, communicate with HMRC, administer payroll when you begin hiring staff, and provide advice on securing investment. Additionally, we can keep you informed about the performance of your business. Contact us for more.
Over to you
We will close off with this – we know how nerve-wracking it can be to walk into a pitch meeting and try to sell your idea, and it is okay to make mistakes. What you should always remember is that you are not alone.
All entrepreneurs are nervous at the beginning – investors know and understand that. What matters is your conviction in what you are selling and your sincere effort to give it the best possible chance. Bring that solid conviction into your pitch deck and speech; the rest will follow!