Four General Principles on Pitching for Funding
Lucy Paulson, Director of the European Leadership Programme, an organisation dedicated to supporting the success of entrepreneurs with high-growth companies, sets out the four general principles of pitching for funding:
"Although starting your own business can be the most liberating, exciting and challenging pinnacle in a business person's career, the race to secure venture capital funding in an increasingly competitive and economically cautious world can prove a daunting experience to many entrepreneurs, whatever their level of business experience and acumen.
Despite first round funding being increasingly hard to come by these days, this is by no means a permanent slowdown. Through my work with the ELP, I have discovered some general principles that can really help make pitching for funding the exciting and rewarding process it should be.
1. Do your research
As any aficionado of Dragon's Den will know, there is no quicker route to a taxi home than a shaky business model. Before taking your business to pitch it is vital that you understand and can articulate what the market wants to buy or, in some cases, where the pain points are. If you have passion and conviction for a product or service but no one else 'gets' it, you should ask yourself some serious questions. Great entrepreneurs often have exceptional vision, but this has to be articulated in a logical sequence for others to buy into it and for it to stand a chance of getting funded.
Anyone thinking of investing in your company has a right to do some serious digging, and if you haven't got your facts straight regarding the opportunity, the competition or the market you will quickly come unstuck. Practice defending your proposition against the most aggressive questioning and back your assertions up with facts, stats and real-life examples wherever possible.
2. Demonstrate you know how to pave the way to a top value exit.
Not long ago, if a business owner admitted that their company was for sale, it would be tantamount to a mass betrayal of employees. Today in the high growth sector of angel and venture funded businesses, a business is born to be sold.
From the outset the exit requirement should remain omnipresent. It is important to landscape who potential buyers are going to be and understand their buying metrics. Do they look at the number of clicks to your website? Do they attach strong value to sales figures or brand value? Are they buyers of revenue or profits, brands, or market share? The statistics prove that most businesses that are acquired are targeted because they had a pre-exiting relationship. By demonstrating that you have thought through and tested not just how you will start - but also how you'll end - investors can see the real opportunity and will take your proposition far more seriously.
3. 'Shop around'
Whether we're talking about marriage or investors, it's important that in any high-stakes deal you don't just go with the first person to make you an offer. Research the investor market because not every investor will be right for you. What is their track record working with companies similar to your own? Are your beliefs and working methods complementary? What additional value will they bring to your venture?
At the time of the investment round ideally there should be more willing investors than you require and then the company's lawyers can help you construct a fair structure for the investment. Capital structures become overly complicated because new shareholders usually want preferential treatment to those that have gone before, whereas if there is healthy competition to get into your deal you are in a better position to dictate the structure to be used. Raise more than you need because you'll always find a use for it.
4. Get good advice
In many early stage businesses though there is a conundrum. To establish valuation for funding, budgets and forecasts were provided to maximise the 'pre money' valuation. More often than not however this proves to be wildly over-optimistic. Venture capitalists are not naïve and to forecast their own return on the capital they take a cynical view of the numbers provided by the company. But the CEO is then often measured against numbers that are too optimistic even though neither party really believes them.
There is nothing more important than the numbers for the ultimate survival and prosperity of the business, and forecasting is especially important not least because it dictates how to grow the business, it states an intention, and it is the basis on which funding is decided. It is therefore crucial that you have expert support to make sure you are getting the numbers right from the pitching stage and beyond. The best corporate financier you can afford may seem expensive but they will help you make sense of and defend your books, and will protect your interests as well as save you money in the long term."
As Membership Director, Lucy Paulson is responsible for expanding ELP's community of Chairmen, Founders & CEOs. Lucy has a 10 year career of Executive Search in the Technology sector, most recently as Head of Talent for Harvey Nash Executive Search where she worked with the MD to accelerate the firm’s growth in Europe. Prior to that she ran her own recruitment consultancy. Whilst completing her post-graduate diploma in Marketing at Salford University she also provided marketing communications support to leading retail property services business, Styles & Wood, in the run up to its IPO.
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