10 Things Investors Must See In Your Idea To Invest
Pitching is one of the most studied arts for investors to raise money. Being able to do it well can result in millions of funding, failing to do it properly can cause your business to be in a constant uphill battle. To figure out the best way to impress investors with your pitch, I talked to the team at 25k Startups, an incubator that hosts competitions for entrepreneur’s best ideas, about what they look for in investment pitches.
The 10-point plan below will show investors that you know your stuff and that you’re capable of providing a path to success from ideation to development to growth. When done right, it tells a short but exciting story.
Business Description – Create a summary focusing on what the business does, ideally no more than two short sentences. Anything more and it makes your concept seem complicated, which can scare off investors. Answer this question: is it a service-based business, a web-based business, web and/or mobile application, brick and mortar or physical product? Some combination? Look at the description as your hook. If it isn’t short, sweet and interesting, it will probably get tossed. An example of a good description could be, “The eBay for hiring. Companies bid to hire top talent.”
Problem, Need, Desire or Innovation – Explain the problem being solved, the need being fulfilled or the innovation taking place. Side note: there’s no need to make your concept appear as if it’s something that’s never been done before. Countless new businesses are successful simply by competing in an existing space when they have some competitive advantage.
Competitive Advantage – Explain the competitive advantage. What sets your business apart? This doesn’t mean you should list your competition and all that they do. You should clearly and very simply explain why customers will find your service or product to be significantly better than what’s available, so much so that they would convert from their existing solution. A random example of this is the shovel. Telling investors that other shovels are longer, shorter, or a different color than your design isn’t going to cut it. However, explaining that you’ve engineered and designed a shovel that performs with a quarter of the force required compared to the traditional shovel and that your shovel will allow the user to complete work 4 times faster will peak their interest.
Target Market – Break down the target market. Drill down and be specific. Identify a large specific group of people, their age, gender, income level, location, etc. Anything relevant to your business concept will help. Great business models are ones that identify a group that can be easily penetrated. Thanks to the Facebooks, LinkedIns, paid search advertising platforms and other advertising mediums, it’s more straight forward than ever to reach your target when you really know who they are.
Marketing Plan – How will you reach your target market? Will you buy email lists or use paid advertising? Will you buy ad-space or cold call? Will you cold email, or will you find partners? Be very specific. If you plan to use paid advertising, identify which platforms you intend to use and why.
Revenue Model – How will you make money? Will revenue be generated through direct sales, advertising, a subscription model, lead generation and sales, etc.? Will you even make money? Perhaps your model is based on some other type of growth, such as user base, app downloads, or impressions.
Profit Margins – What are the projected profit margins and what are the anticipated fulfillment costs? Be specific. Talk about payroll, office expenses, and any other relevant costs involved in managing or delivering the product or service.
Growth Strategy & Three Year Plan – How to do plan to scale the business and ensure profitability within the initial 6 to 12 months? How will the business reach $3MM, $5MM or even $100MM in revenue after the first three years–sales, exit plans? Be specific. If your business idea isn’t one that can reach such levels, that’s fine too. Be honest and be realistic.
Partnership Strategy – I bet this is one to rarely, if ever, come up because it’s not traditionally a single arm of a business plan. Technically this goes in your marketing and advertising slide or even in your growth slide. How will you leverage businesses that already cater to your target market in critical mass?
Newsworthiness – This is another area that isn’t technically a single arm in the plan. However, I think speaking to the newsworthiness of your idea shows a certain level of critical thinking and “digging in” that goes above and beyond the traditional business plan. Why would Fast Company or the local news cover the story? What will the story be about? Explain its newsworthiness–a headline or two will suffice.
Obstacles – This one’s a bonus. Talk briefly about the potential obstacles in your business. What could go wrong? I was once involved with a project called Spoonfuls (originally we called it PB ONE) that intended to bring a spoonful of peanut butter to the market as an impulse purchase at stores like 7-11, REI, etc. Although the product came out great and it was a neat idea, the cost to produce the final product was too high to compete with the existing mainstream products. We had no knowledge of manufacturing so we had no idea what it would cost to bring the product to life. It would have been great to know that seemingly minor detail before we moved the project forward. Another issue we had with the spoon was sanitation. Luckily, one of the brilliant designers, who also designed the Smash Bug, Matt Callahan, went the extra mile and determined that the spoon required a full plastic wrap to protect the bottom portion of the spoon from being compromised before consumed.