20 min to read

Investor Selection & Research

Not all angel investors and venture capitalists are interested in the same business. This stage entails research to identify the most suitable investors for your startup. You can also use services like AngelList, Crunchbase, and Gust to find potential investors. These are excellent tools for identifying and investigating investors.

Additionally, you may use LinkedIn to find and contact potential investors. You may think of “potential investors” as anybody willing and able to invest in your starting business. The ideal investor for your business would be:

• With problem domain expertise,
• Those who had invested in businesses of comparable size to yours?
• Ideally, in the same geographic region as you,
• Lastly, who is enthusiastic about the problems you’re trying to resolve?

Your Task for Day 5 will be to create a database of investors to approach. Imagine you have made this database - let's read further on how to approach further.

How to Better Approach Investors

A typical investor gets about 500 pitches a year, while a well-known investor like Sequoia Capital gets about 10,000.

A cold pitch rarely works in this situation because your email will likely get lost in the flood of emails. Being able to connect with someone personally is a huge asset in this situation as well. It would be best to find someone the potential investor knows and trusts to introduce you to them. In this regards Linkedin helps much, because you may find connectors from your network right away. On the other hand, investors could learn from your Linkedin more information about your company and yourself (make sure that you have an updated and full information in Linkedin).

Be cautious about doing thorough research before requesting an intro. If it is a friend, you may immediately ask them. But if it is a colleague or someone more significant or senior, you must be ready with pertinent facts about your organization and a brief elevator pitch.

If you use Linkedin, it doesn't mean that you shouldn't right emails. Basically you should approach investors through any / each and every channel. If you don't know email address, but you know an investor's name, you may use rocketreach, this is the service which can find any email for you.

Startup Parsers VC created a venture capital discord channel with a database of investors. You may join one here.

Introducing Yourself to the investor

Hi Ted,
I hope you are having a fantastic day! My name is Nate, and I’m a co-founder at XS. I am reaching out because you backed Miso Media [explain connection with an investor, whether it is a network, or you visited the same event], which I love, and I wanted to get your advice about our new company since we have just opened our seed round [explain the reason and occasion]. To thank you for your time, if you’re interested in surfing and you find yourself back in the San Francisco Bay Area, I’d love to give you a lesson, or more traditionally, buy you a cup of coffee [promise an award for his time and attention, you should do reasearch].

I know your time is really valuable so in the spirit of the 30 second pitch here is an overview of XS.
XS is creating a mobile community for action sports enthusiasts. Our app is a place where people can view and share high quality user generated & professional photos/videos. As we grow, we’ll leverage user behavior and information to sell discounted sporting goods. Think Instagram/Pinterest meets Fab for sports. [1 paragraph pitch]

1: Pitch deck: https://www [attached, or link for a pitch deck]
2: 3 min pitch video: https://www.youtube.com/watch?v= [link to your video pitch if any]

Thanks for your time and I look forward to meeting you in the near future!
Best,
Nate Mihalovich Co-founder

!! If you ask your friend to make an intro, you should write for him/her a similar intro email.

Initiating a Conversation

After establishing a connection with the investor through a mutual connection, you must create a warm introduction to gain access to their email inbox. Herein lies the importance of your email deck. An email deck is a cut-down version of your pitch deck, with no more than ten slides and just the most important aspects. It typically contains less text than the pitch deck itself.

Your objective is to present your startup to the investor so they can evaluate it and decide whether or not to invest in your opportunity. Typically, the email deck is concise, well-structured, and straightforward, with a call to action requesting that the investor review and discuss your pitch deck in person.

Additionally, you may incorporate a video pitch with your email deck to boost its impact.

Examples for a pitch deck.
More examples.

Investor’s Meeting and Pitching

This is a significant step in the startup fundraising process since it is the day you meet with the investor and present your business. Before the meeting, you conduct thorough research on:

• The investors you’re meeting
• Their portfolio companies
• The domain they’re interested in
• Any other pertinent information?

Typically, the meeting is brief, with 20–30 minutes allotted for the presentation and another 15–20 minutes for questions. It begins with a personal introduction, an explanation of your business plan and its potential, and then an investment proposition.

This meeting aims to attract the investor’s attention and secure their commitment to invest in your startup. Typically, negotiations on the investment type, amount, valuation, and equity follow the presentation.

Understand the different types of investors:

• Family Offices prefer Investment Memorandums (IMs) and financial models that follow accounting standards (Forecast Balance Sheets, Income Statements, etc) along with printable summaries that can be distributed in hard copy at a meeting.
• Venture Capital Firms appreciate short, precise decks. If impressed, they will likely request access to an online Dataroom
• Accelerators usually have targeted, bespoke written questions as part of their application process, followed by considerable face-to-face pitching. Sadly, completing these applications take time, so aim to record all your answers so they can be repurposed in the future.

Pitching

Pitch is a short presentation which usually takes time up to 3 min with slides. Please make sure you have a pitch in 90 sec, in 3 min and a video pitch. Here there are some tips we should share with you about pitching:
1) Be ready to pitch everywhere and anytime. Effective pitch = (presentation skills * content * storytelling)* time-place.
2) Be as simple as possible. Don't use anything complicated. Use simple sentences.
3) Use similarities, use cases and examples.
4) Tell a story.
5) Please pitch alone. But any team member should be ready and capable to pitch in any situation.
6) The conclusion should be logical.
7) Avoid many details, figures - give a full picture.
8) Show that it matters for you.

Pitch Deck Structure

Problem & Customer
Every time I sit down with an entrepreneur for the first time, I always start the conversation the exact same way. Before we've even settled in, I'm already asking "who's the customer and what's their problem?" If they are telling a story, this is the logical place to begin. As an entrepreneur if they cannot describe who their customer is and what problem they are solving for them, they've got work to do. Please refer your Value Proposition Canvas.

Market
The next thing to do is to talk about how these customers make a market. What its size is, whether it is growing, if it is fragmented, is it ripe for disruption, who the other players are, etc.; in short, what makes it interesting. Please refer your Value Proposition Canvas.

Solution
Here you want them to talk about the solution. Have them focus on the pain relief, rather than the product. These are the attributes of the product that solve the problem. Highlight benefits, not features. Have them explain what the perfect solution looks like, not all the details about what they have built. Please refer your Value Proposition Canvas.

Product
Here is where the entrepreneur says, “Yeah, I've built a solution with those required attributes, and I've solved it in a cost-effective way.” Given enough resources, anyone could solve virtually any problem. Have them emphasize how their solution is both practical and economically viable. Please refer your Business Model Canvas.

Plan
This is the story of how they are going to get their solution to the customer. Their business model, their go-to-market strategy. What are they actually going to be doing and selling and what the key challenges are going to be along the way. Please refer your Business Model Canvas.

Go To Market
Here is where you have them get more specific about their actual sales strategy. Are they selling with a direct sales force, over the web, through partners, through distributors? Where are these customers and how will they locate them, talk to them, and bring them on board cost-effectively? What is the customer acquisition cost going to be relative to the life-time value? (Hint: LTV better be higher than CAC, or they're in trouble.) Please refer your Unit Economics.

Their Awesomeness
Now that their listener has a handle on what they are doing, it’s time to explain why the team has the skills to pull it off. Yes, they are super-smart and have the right education, skills and experience, but they also need to gel as a team. Advise them to keep in mind that a high-functioning team is very different from a group of high-functioning individuals. Investors are looking for 1+1=3. Please refer your Business Model Canvas.

Company Development
Here is where they talk about where they are, where they have been, what they need to do next, what resources it is going to take, and how long it's going to take. You have to get them to talk about a plan that makes sense, is realistic in terms of both time and resources and is sequenced logically. Please refer your Business Model Canvas.

Financial Model
Now that their potential investors understand what they are going to do, you need to have them talk about the resulting financials. What is the revenue model? What kinds of gross and net margins will this company generate? How fast can it grow? How much capital will be needed down the road? We would complete in during Day 6.

Exit Options
Next, looking forward, you need to assume their business starts to grow. Have them take some time to consider who the potential buyers might be. Who cares about what they have built? Are there different kinds of potential buyers? What will they value the company for? What kinds of prices are they likely to pay? How much traction/revenue/grow this required before the company will be of interest to them? We would complete in during Day 6.

Call to Action
A great call to action needs to express that the team knows it needs help and speak to their desire to get help involved. They should start the dialog by providing the details of your current fund-raising. We would complete in during Day 6.

Applying this formula when you are helping with decks allows you to have them take an enormous amount of detail and weave it into a narrative that hooks the listener immediately with a human interest story about a customer and their problem, and starts an interesting discussion about solving it. The result has flow. Flow is key to telling a good story and is key to organizing their company's information into a cohesive investment hypothesis. Of course this is not the only way to do it, but it’s a tried and true template that works well and has had proven success. Since you told them the way they were doing it wasn’t working for you, it cannot hurt to try it this way.

Investment Agreements and Due Diligence

The talks don’t stop with the initial meeting, unless it’s a demo day hosted by an accelerator or incubator, when businesses get to present in front of many investors. Typically, many further meetings are necessary to agree on the investment amount and other crucial aspects. To reach a mutually beneficial agreement, both sides must participate in giving and taking.

During the due diligence process, the investment team examines all areas of your startup, including financials, revenue model, competitors, team strength, and even the founders’ previous job history.

Upon the successful conclusion of this step, the final negotiations commence. At the pre-term sheet stage, you are expected to understand the investment kind (equity, debt, convertible note, or SAFE), quantity, value, and equitable distribution among the company’s founders. In this case, a competent investment attorney can help you understand the legal ramifications of the investment term sheet and safeguard your interests.

The Term Sheet

A “term sheet” is a contract that outlines the conditions and investment structure. In general, it consists of the following three sorts of terms:

• Economic terms
• This includes details such as vesting, excise period, anti-dilution, valuation, price per share, and the amount of investment.
• Control terms
• These stipulate the shareholder’s rights and responsibilities, protective provisions, board seats, and the drag-along agreement.
• Other terms

They include, among other things, dividends, rights to redemption, rights to assets, and other rights.

A term sheet is an agreement that is not legally binding, and a more comprehensive due diligence process often follows it. And this ultimately results in the formation of a legally binding agreement, known as the shareholders’ agreement.

Post-Term Sheet Diligence

The Post-Term Sheet Due Diligence is one of the most critical steps of the startup fundraising process. Why? Because the term sheet is just the beginning of your due diligence. Now, the investment team is conducting a more thorough review of your business. This phase is more crucial since it covers several laws, including assessments of employment contracts, intellectual property, business organizational papers, and other commitments.

Additionally, the investor’s attorney becomes engaged at this stage to guarantee that the legal requirements outlined in the term sheet are followed. During this phase, the investor team focuses on the following:

• Financial statements and bank statements
• They scrutinize the financial health and market valuation of the startup.
• Background checks
• The investment team evaluates each founder’s history and reputation in the market.
• IP diligence
• Security of the company’s intellectual property.
• Legal due diligence

Depending on the complexity of your business and the amount of information you’re ready to offer, due diligence might span anywhere from a few days to several months.

Round Completion And Fund Transfer

After the completion of due diligence, it is time to conclude the agreement and have the funds sent to your account. Signing the legal paperwork that formalizes the investment and transferring the funds is the last stage. This legal document stipulates the sum that must be repaid-with interest at a certain time. After signing these contracts, you are free to begin your startup’s journey toward success.

We used the following materials: https://www.alexanderjarvis.com/get-introductions-venture-capital-investors-startup-fundraise/, https://seraf-investor.com/compass/article/can-you-help-me-advising-pitch-decks , https://treinetic.com/startup-fundraising-process/

10 min to read

Advanced Pitching Skills - Avoiding The 9 Worst Pitching Thin Spots From Investor's Perspective

If you want to help an entrepreneur get through a demo day or pick up a few seed investors, you can do it by covering the basics. But if you want to help an entrepreneur raise serious money, you are going to have to dig deeper into your bag of tricks and address some of the advanced issues. These are the critical areas where pitches are almost always too shallow. Knowing which are the trouble spots and how to make sure they are covered is essential advice for entrepreneurs looking to raise serious money. Let’s go through them one at a time.

Explaining The Market Moment
To be credible, a pitch must answer the “why you, why now?” questions which provide context for the business. What has changed in the universe that makes this business suddenly not only possible, but a great idea? An entrepreneur must explain why they are the gal or guy to do it.

Detailing The Go-To-Market
An entrepreneur has to be specific about how they are going to crack their market. Selling is really hard, especially to certain types of customers. They are going to need to convince investors that they have a very specific and detailed plan or business model innovation that is going to allow them to acquire their intended customers affordably (relative to their lifetime value).

Assuming Fast Consumer Behavior Change
Making assumptions about how target customers' behavior is magically going to change has been referred to as "delusional economics." After the few early adopters, mainstream customers have incredible inertia. The power of the status quo can be immense. The arrival of the internet/wireless/mobile is not going to suspend the laws of physics and gravity in an entrepreneur’s industry. It is not safe to assume that if they build a more efficient clearinghouse / marketplace / trading platform / matching service, everyone’s behavior will instantly and automatically change. Convincing customers to buy from them is going to be hard and expensive. They need to explain what secret sauce makes it less hard.

Paying Insufficient Attention to Buying Priorities
Certainly someone will want an entrepreneur’s product. Unfortunately, their immediate addressable market is limited to the people for whom buying their product is a top priority. How many of them are there? Although a lot of businesses identify a real, legitimate problem for customers, they still fail because other higher priority problems gobble up customer wallet share.

Omitting Marketing Skills
When talking about their go-to-market, entrepreneurs either need to convince investors that they have the marketing experience on the team, OR that they know they don't and they plan to go get it. Everyone thinks they know how to market. Most don't. Entrepreneurs need to identify the marketers who can help them.

Building a Realistic Model
Most entrepreneurs totally underestimate what it will cost to achieve success. Investors have seen and experienced many business models and know it is always harder, takes longer and costs more than anticipated. It is crucial to really think through the necessary people, time and financial resources required, and to come prepared with a realistic plan. Entrepreneurs should use both a bottom-up and a top-down approach. Then sanity check it against benchmarks. Underestimating costs and showing an improbably fast time to big revenue and profitability doesn't impress people with the model – it highlights the naivety.

Assuming It Will Translate
Even if an entrepreneur can paint a credible case for their initial target market, don't assume that the next vertical, next geography or next customer segment will be as easy. Logic dictates that they are starting in the easiest place. By definition, any expansion will be harder and farther out of their comfort zone and experience base. They must be realistic about their expansion assumptions. Yes, their brand and momentum will help a little, but no where near as much as they think.

Engineering a Sustainable Competitive Advantage
Even if a company can fight to win a segment, if it cannot make any money at it over the long-haul, they’ve still lost. Too many entrepreneurs talk as if their market is standing still, when, in fact, any market worth tackling will always be evolving and growing more competitive. It is critical to talk about how they will defend their position, their pricing, and their margins against the inevitable competitive reactions. It might be intellectual property, it might be some kind of tolerable customer lock-in or switching cost, it might be a product roadmap that keeps their value prop more compelling over time. Whatever it is, they need to explain it, and the explanation needs to be believable.

Failing to Think Exit Scenarios Through
Most entrepreneurs don't think through their exit strategy adequately. If they succeed, who buys them? Ultimately this is the bottom-line for investors. Equity from investors is like a loan that the buyer of their company pays back. They need to talk in detail about the different classes of buyers, why they would buy the company, what they would value it for, what kinds of multiples they might be expected to receive, and what milestones they will need to hit to command those prices.

It is not easy for an entrepreneur to step back and look at their story objectively enough to spot where it is thin. But there are a few critical big picture elements that they simply cannot afford to blow past. As an advisor, your job is to make sure they cover the above topics adequately - this is the key to convincing investors that their company and team is one that just might reach exit velocity and escape rather than fall back out of orbit and burn up on the way down.

We used the following materials: https://seraf-investor.com/compass/article/advanced-pitching-skills-avoiding-9-worst-pitching-thin-spots

A standard market-research may not always work, as relevant data for your business may not be available. Reaching out to existing entrepreneurs in the same industry/ segment of interest can help in better understanding of the market.
Once you have finalized your product / service, explore the market for competition.

There is no point in offering the same service or launching a product, which is already existing in the market, without any value addition. Once the competition mapping is completed and if a similar product or service exists in the market, ascertain how best you can better your product and service. You will be competing with an established market player with a set consumer base and if you must disrupt that model, then your product or service should be far superior.

It is also mandatory to determine whether your product / service complies with the law of the land. As witnessed in recent times, technology-backed businesses in India are facing legal hurdles simply because legislation to support them has not yet been drafted. Therefore, a business must work within the limited legal framework, which could be a potential hurdle for expansion if decisions are taken hastily. So, make sure that your product / service conforms to the regulatory standards set for the market.