How To Pitch Successfully to Investors for Follow-on Funding (Part 4)

This is part 4 of this series of articles: “How To Pitch Successfully to Investors for Follow-on Funding.”

Step 4: Calibrate your presentation materials and how you deliver your story depending on the mindset of the investors you’re approaching.

Here are a couple of examples of common investor mindsets:

Trust- or passion-driven investors

When approaching funds like these, assume that decisions are made by investors who either: like your industry (due to personal passion or corporate strategy); or like you and your team personally. So, prepare a pitch with heavy focus on team credibility, space attractiveness, total addressable market, landmark deals – most of the information that likely got you your previous round.

Prepare your team for in-person meetings, and steel yourself for background check calls made to your friends and colleagues present and past. In the midst of all of this, your story should still come across very clearly – even the most passion / trust driven investors will be alarmed by a heavy mismatch between objectives you seek and the company’s present state.

Risk/return driven investors

Almost by definition, the majority of the investments these investors make are neither in spaces they know well enough to dearly love, nor with teams that they know well enough to fully trust. To cope with this, they normally come up with a way to measure and manage risks that are referred to as an “investment strategy”, or “thesis”. Sometimes it is relatively generic (for example, “are you profitable yet?”) and sometimes it is painfully specific (for example, “does your LTV exceed CPFTB by at least a factor of 3 with 95% probability?”). In either case, it helps when in a meeting with risk/return driven investors if you present not only your story, but what risks it already carries and what you’ve done to minimize them.

A sensible way to approach this is to do a deep dive into significant metrics related to your business as soon as the initial trust building with the investor is over. Exactly which metrics these are deserves a separate article, but let’s just say they have to:

• Be relevant to your business and vertical (e.g. number of paying users doesn’t matter as much for a payment system as it does for a game publisher).

• Address the risks your business faces (e.g. number of impressions an ad network has access to is not an entirely relevant metric to counter the risk of not being able to sell)

Metrics should be credible. A best practice is to provide your investor with observer access to whatever system you use for sales, conversions, clicks, and downloads tracking (please don’t make the mistake of asking for an NDA for this – plenty has been written on the topic and there are several schools of thought on VCs and NDAs – but in practice, most VCs act following their lawyer’s recommendations and step away from anything that requires an NDA).

They should also click with your story; if you claim you’ve established a way to monetize your audience of 30,000 and do it on the basis of 15 purchases since company’s launch a year ago, there’s a good chance you’ll lose a bit of credibility for engaging in a game of smoke and mirrors with statistically insignificant observations.

Some of the best pitches we’ve seen at DMP involve a live business model demonstration, which for this stage of investment is almost as important as the product demo in earlier stages of company’s development. An example would be an e-commerce company opening its Google Analytics (KissMetrics, RJMetrics, etc) on the screen, together with a feed showing buyers traveling through funnels and payments being collected. Show your investors how during the meeting, 50 visitors showed up, 4 filled the order form and 2 actually checked out. This is very powerful, in particular with investors who are relatively new to your vertical.