When pitching your business or product, it's a good idea to tread carefully. Just because an investor wants to meet with you, that doesn't mean the deal is done.
Whether you're participating in a local pitch contest, approaching family members to help fund your venture, or lining up financial heavy-hitters to hear your idea, keep these ground rules in mind.
1. Fall in love with your idea. "One of the biggest mistakes is not having a realistic understanding of the competitive landscape," notes Jay Bigelow, director of entrepreneurship for the Council for Entrepreneurial Development in Durham, NC. "Every innovator truly believes he or she has brought forth a unique and powerful idea — and some truly have. But there exists a wide gap between great ideas and great market acceptance. Having great conviction and passion about your idea is critically important, but so is knowing what the alternatives are. How your option stacks up realistically shows potential investors you are not delusional."
2. Overlook the market. Vish Mishra, venture director for California-based investment firm Clearstone Venture Partners, sees a lot of entrepreneurs "fail to clearly address the pressing market need of their product or services, and don't clearly describe their approach to address it," he says. "Go speak to people and prospective customers. Don't just read research reports without having an appreciation or knowledge of the market. If there is a need, people will spend money on someone who solves it. Provide a clear articulation of the solution offered and why it is far superior to what's available in the market." Finally, he says, make sure you can explain the building blocks of your business — such as the team, capital and how to quickly get the product in the hands of the buying public.
3. Think it's a favor. Investors aren't doing you a favor; they're looking for a good return on their investment. Tracey Noonan successfully pitched Wicked Good Cupcakes to the Shark Tank panelists. "Show how you're going to make money, and have a solid plan and good numbers as to how you're going to pay these people back. Don't just go, 'Oh, we're going to sell a lot,' or, 'Oh, we're going to get customers.' Know how that's going to happen. Know where your customers are going to come from. Know how you're going to sell. Know how you're going to pay these people back. I think a lot of people just get caught up in the grabbing of the investment, and not how the business is going to support and sustain itself. That's very important."
4. Seek an unrealistic valuation. "Very often, we see entrepreneurs who feel their companies are worth more than the market is willing to pay," says Mansoor Ghori, managing director at Austin, TX-based Petros Partners. This could be devastating for a company if it can't raise the capital at their perceived valuation and investors walk away. Even if you get an investor to buy in at a too-high number, you may not be able to raise the the price or structure of the original transaction. "These things happen all the time and can cause the company to go out of business or sell at a loss."
5. Talk too much. Too many business owners focus so much on what they want to say that they don't listen to investors."The investor likes to get his questions answered in the limited amount of time available to review each deal," Ghori explains. "If you're not answering the questions being asked, they cannot determine if it is a deal that they would like to hear more about."
6. Get bored with your pitch. Sure, you have to deliver your pitch a lot, and you might even be getting a little bored with it or start assuming investors are tired of hearing the same sell. Of course you want to evolve your pitch based on feedback from investors and advisers, but don't change it up without a good reason, cautions Caleb Light, who successfully pitched Power Practical on Shark Tank with co-founder David Toledo. Of pitches he's made to other investors, Light recalls: "You assume when you have a conversation with someone — and it's been less than a month — that they remember all the things you said to them before. But they don't. A mistake that I've made was I didn't use the same collateral as before, I tried to generate something new that I thought was interesting. As a result, investors didn't think it was interesting because it wasn't what they were traditionally used to seeing and hearing."
7. Have a bad attitude. Bigelow says one of the worst things you can do is "let one of the investor's questions get under your skin. You can't react to questioning with anger or an emotional outburst. Almost every investor group has someone who 'looks for the holes' — finding some detail, usually small, that isn't quite right, or a number that doesn't add up. An old investor adage that still holds true is that they are 'betting on the jockey not the horse.' If the founder flies off the handle too easily, and can't handle the tough questions or tough crowd with grace and poise, then she doesn't look like a jockey who can handle the rocky road of a scale-up company."