In one of his recent VT Podcast episodes, “Best Opportunities Win,” Vusi Thembekwayo answered one of his ardent followers’ questions on what type of business he should get into. (For context, the chap wondered whether he should get into a business with “readily available templates” or take the road less traveled: Innovate and pursue uncommon business venture). VT, the founder and CEO of MyGrowthFund Venture Partners, posits that three principles guide his core beliefs and philosophy in investing in any business.
- He doesn’t like easy businesses (Models). He has learned over time if it’s easy for him, it will be easy for the next guy to duplicate. Your chances of failure as a startup founder are infinitely higher if your business model is easily replicable.
- Every business takes time, commitment, and being convicted. He doesn’t operate as a moonlighter; for any business to succeed, one must invest his time and intellect. Commitment means you are married in the business. Doing and pushing what’s required of you even when you don’t feel like doing it. Convicted means you have invested your personal money (more than your net worth) and your name and reputation.
- He looks for a business where you have the best opportunity to win (BOTW) and not compete. For example, construction businesses, especially in the public sector, are highly commoditized but need to scale.
Recently, our digital platforms have been awash with news of startups closing down, struggling to raise funds, and entrepreneurs resorting to desperate measures like raising funds from the public to stay afloat. It all looks like doomsday in the once thriving and well-funded space.
While the current scenario has been very violent on the private equity investment or fundraising from external investors, there are many success stories where entities have built powerful businesses and raised vast amounts of money from investors. While some entrepreneurs prefer to invest their funds (bootstrapping) and grow their businesses slowly, some resort to raising capital very early as they develop their technological stack and continue exploring different business iterations, markets, products, and customer offerings.
There is no standard formula for preparing a pitch deck or investment pitch. There is also no standard format that can be used. It all depends on what kind of prospective investor you are pitching to. A founder must understand and know all the investors, whether they are angel investors or venture capital funds for private equity funds. Rule of thumb: You will meet and pitch to hundreds before you get funding. The investment firms receive hundreds if not thousands of applications, and very few proceed to the next level.
Stay resilient. It’s not about the quality of your pitch or proposal; it’s about seizing the moment. In the startup world, pitching is an art. You have this short window to pack in your passion, vision, and product’s essence. It’s not just about conveying information; it’s about leaving an impression, often in as little as 10 to 20 minutes.
Angel investors Vs. venture capitalists
The venture capitalists: A private equity investor known as a Venture Capitalist (VC) lends money to businesses with strong development potential of trading for an equity stake. This could involve providing beginning capital or aiding small businesses that want to grow but need access to equity markets.
The angel investors: High-net-worth individuals who financially support small companies or entrepreneurs are called angel investors (also called private investors, seed investors, or angel funders). These individuals often do so in exchange for ownership stock in the startup or entrepreneur’s business. Angel investors are frequently found together with an entrepreneur’s friends and family.
Angel investors may contribute one-time capital to help a firm get off the ground or continue support to assist the business in getting through its challenging early phases. Whether you are speaking to an angel or a venture capitalist, how you prepare your pitch will change slightly.
Pitching to Angel Investors?
Here’s a tip. These high-net-worth individuals think and act swiftly. Unlike investment committees, they don’t wait for group consensus. Their gaze? Squarely on the horizon. They’re hunting for big ideas with even bigger market potential. When you are presenting, ensure you are showcasing a product and unveiling a vision. And remember, most Angel Investors operate via platforms. Know your platform, and tailor your pitch.
Introduction with venture capitalists
VCs are more meticulous, focused on the details, and interested in the numbers. They have a big responsibility to make wise choices since they are writing cheques on behalf of a group of other investors. While pitching to VCs, we should concentrate on specifics, data, and potential hazards.
Due diligence on investors
It’s rare to ace your first pitch and close a deal immediately. You will likely need to meet with multiple investors before you get funding. But don’t see rejection as a failure. Every interaction with an investor is an opportunity to learn and improve your pitch.
For example, you can learn how to present your business better, answer common questions, and understand the information investors seek. By meeting with a few investors early on, you can get feedback and make changes to your pitch before meeting with the investor you want to work with.
As a tech founder, it’s important to do your research on each investor you meet with. This includes learning about their investment criteria, past investments, and areas of expertise. You can also contact other founders who have worked with the investor in the past to get their insights.
Refrain from assuming that all investors are looking for the same information. Some investors may be more interested in your team, while others may be more interested in your market or product. It’s important to tailor your pitch to each investor’s specific interests.
Here are some specific things you can do to research investors:
- Read their investment thesis.
- Look at their portfolio companies.
- Follow them on social media.
- Talk to other founders who have worked with them.
By doing your research, you can show investors that you’re serious about your business and that you have done your homework. This will make you a more attractive investment.
Here are some additional tips for doing due diligence on investors:
- Be clear about your goals. What are you looking for in an investor?
- Be prepared to answer questions. Investors will want to know about your business, team, and market.
- Be professional. Investors are more likely to take you seriously if you present yourself professionally.
Crafting the Perfect Investment Pitch
Here’s a quick guide for tech founders on nailing that pitch:
Start With a Bang: Kick off with a sharp elevator pitch. Sum up the core problem you’ve spotted, your solution, and why your company stands out in a minute or less. This ensures everyone’s on the same page from the get-go.
Tell Your Story: You can tell your story. Make it relatable and gripping. Your goal? To have listeners lean in, intrigued. Showcase how you’ve deeply understood the problem and crafted a solution.
Highlight Your Team: Don’t just list names. Spotlight the expertise and experiences of your core team members, be they co-founders, directors, or advisors. When investors see a strong team, they will trust you can bring your vision to life.
Money Matters: Be crystal clear about your financial needs. Avoid vague requests. Specify:
- How much funding you’re after, in USD or KES.
- How long will this money last, including buffer time before the next funding round?
- A breakdown of how you’ll use the funds: marketing, product development, team expansion, etc.
- Your milestones: aiming for profitability or prepping for another fundraising round?
Market Potential: Go big but stay grounded. First, paint the full picture of the entire market your solution could serve. Then, zero in on your target audience. Remember, while impressive numbers catch attention, they should be backed by solid data. Be ready to explain your figures, as seasoned investors can spot puffery.
Marketing Strategy: Address the big question – ‘How will the world know about you?’ Dive into your outreach plan. Whether you’re banking on trade shows, digital marketing, or direct sales, give them confidence that you are not just waiting for customers to appear magically.
Remember, investors aren’t just buying into a product; they’re investing in a vision, a team, and a promise of growth. Make it count!
Business Plan and Financial Projections
Your Business Blueprint: Your business plan should lay out how your product or service will bring in revenue year after year, whether you are looking 3 or 5 years down the road. When pitching, connect the dots for investors: How does your strategy align with your annual income goals?
Why Financial Forecasts Matter: Solid financial projections are a huge selling point to potential investors. These aren’t just numbers on a page—they show if your business venture has legs to stand on for the short, medium, and long haul. By delving into projected revenue, expenses, growth, and cash flow, you will paint a picture of your venture’s financial health for the next three to five years.
What Investors Want to See: When you are wooing investors, they will want more than a strategy—they will want to see when they will see a return. But remember, financial forecasts aren’t set in stone. Like any prediction, various factors might cause some twists and turns.
Breaking Down the Financials: Usually, these projections boil down to three key documents, often broken down monthly, quarterly, and annually:
- Balance Sheet: A snapshot of assets, liabilities, and equity.
- Income Statement (or Profit and Loss Statement): A look at revenue and expenses.
- Cash Flow Forecast: An insight into cash coming in and out.
- Financial Ratios: Crucial metrics to gauge business performance.
Further, expect investors to deep-dive into the nitty-gritty of your revenue and expenses. Many often zoom in on ‘Unit Economics’ to inform their decisions. So, be ready to walk them through every line item and explain its significance.”
Remember, a clear and transparent financial plan is your ticket to gaining investor trust and backing. Make every number count!
Understanding Business Risks and Exit Plans
Addressing Risks Head-On: When pitching to investors, discussing potential business risks is crucial. Why? Because investors are bound to ask. While it’s great to wholeheartedly believe in your product or idea, completely ignoring external risks can come off as naive. Claiming there’s no risk is a red flag for investors, making them question if you truly understand the market landscape. Some risks to consider:
- Shifting regulations.
- Legal and compliance challenges.
- Rapid technological evolutions.
- Global situations and geopolitical tensions.
When these risks come up, be prepared to share your plans to navigate and minimize them. A well-thought-out SWOT analysis (breaking down Strengths, Weaknesses, Opportunities, and Threats) can be a valuable tool in addressing these concerns head-on.
Planning the Exit Strategy: Investors are naturally curious about their exit options, whether during the early seed funding stages or later as an angel investment. While it might not always be a deal-breaker, the exit strategy becomes paramount as your business scales and seeks larger investments. Whether you will consider going public (like through stock market listings), looking at potential acquisitions, planning a buyback, or considering a secondary sale in future funding rounds, be transparent about possible exit paths for investors.”
Clarity and honesty in addressing risks and plans can be the key to earning an investor’s trust.
Crafting an Executive Summary
When reaching out to investors or angel network platforms, they will often request an executive summary. You can think of this as a snapshot of your investment pitch, offering a quick overview before diving deep into the presentation. Here’s what you should include in that snapshot:
Business Overview:
- Purpose of the Briefing: This isn’t just a regular meeting. A business briefing aims to keep everyone updated. It could be about new goals, strategies, or even changing responsibilities.
- Who’s Involved?: In smaller businesses, everyone might gather for one comprehensive update. However, department heads often hold separate briefings tailored to their team’s roles in larger settings.
- The Essence of a Briefing: Unlike casual meetings, a briefing has a clear focus. For instance, when a retail business rolls out new service policies, each store manager might guide their team on implementing these changes. Or, if there’s a fresh product on the horizon, the sales manager might hold a session to get everyone up to speed. Significant changes, like layoffs, might be discussed with the leadership team before making any decisions.
Reasons You Might Need a Business Brief:
- Introducing new projects or initiatives.
- Onboarding new clients.
- Attracting investors.
- Mapping out business growth strategies.
- Exploring new target audiences.
- Seeking commercial loans.
- Raising brand awareness.
- Offering industry-specific solutions.
- Plans to boost revenue.
The key is to keep your executive summary concise, engaging, and, most importantly, clear. It should capture your business’s essence and the following pitch.
We can’t believe you have read to this point! Do you have a brilliant idea, and you are looking for investors? Would you like our support to develop a killer Pitch Deck? Write to us – info@fin-tech.co.ke
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Photo Credits: Margaret Nyamumbo (X)