It is important for founders to understand that how a business makes money and how investors make money on that business are quite different. Broadly speaking, a business makes money when its revenues are more than the expenses. However, investors do not make money that way. Investors invest money in your venture, and buy equity. They make money only when they are able to sell that equity to someone else at a significantly higher price than what they had bought it at.
Quite often we see high-quality teams with brilliant concepts/products/services pitch to investors without understanding how the business of the investor works, and therefore often end up presenting stuff that does not help investors make an investment decision. (Even if the decision is no, it is best that you get it out from them the soonest).
Investors are interested in the business around the product or service… not just details of the concept or the product. A product is not the same as the BUSINESS for that product. E.g. for someone presenting for a e-tailing venture, the investor would be interested in knowing your competencies or plans on supply chain, warehousing, procurement, customer acquisition, etc. Not just about how cool your web platform is or that “No one is currently addressing this market and hence it is a good opportunity”.
Most entrepreneurs make the mistake of diluting the pitch with a lot of detail of the operations, which of course will be of interest to investors… but only after and only if they have an interest in participating in your journey.
Most investor’s decisions are based on the following:
- Quality of the team: This is the most important criteria for investors. They look for entrepreneurs with understanding of the domain, business concepts & operations management, and most certainly commitment to the venture.
- Clarity of the concept/idea: How well has the team been able to articulate what they want to do. You cannot plan it well, if you cannot communicate it well.
- Size of the potential: Concepts addressing large markets with large potential are obviously better.
If the above two are positive, then the following few areas would be discussed:
- Scale of aspiration of the team: Does the team have the aspiration and hunger to be a market leader?
- Business case: Is the business case strong enough? Remember, when pitching to an investor you are competing not just with direct competition from your domain but also with startups with interesting business plans
- Exit potential: How are investors going to get a good return on their investment. I.e. who will buy the equity they hold in your startup?
Hence, an investment pitch deck should the following:
- Overview of the problem you are solving, or the opportunity you are addressing
- Overview of your product / solution
- Defensible differentiators of your business
- Target audience
- Business model
- Market potential
- Business case
- Financial plans summary (2-3 years, with a overview of your long term aspirations)
- Overview of go-to-market plans
- How much capital you seek and what you will achieve with it.