PITCHING INVESTORS Helsinki , May 9, 2012 BILL PAYNE Finnvera / StartupSauna www.fiban.org/billpayne
Bill Payne is an active angel investor, board member, and advisor to entrepreneurs.He assisted in founding four angel groups: the Frontier Angel Fund (2005), TechCoast Angels (San Diego – 2000), Vegas Valley Angels (2003) and Aztec VentureNetwork (1999).For three decades, Bill Payne has successfully founded or invested in over 50 start-up companies. He served as an Entrepreneur-in-Residence to the KauffmanFoundation for twelve years. While there, he directed the development of thePower of Angel Investing education series for entrepreneurs and angel investors.He has served as lead instructor for over 100 seminars in seven countries.In 2009, Bill was named the Hans Severiens Award winner as the “outstanding angelinvestor in America.”
Classic CompaniesLife Style Businesses• Single store retail is typical• Most service businesses are lifestyle• Personal income is objective not building equity (Value of business)• Job creation become steady stateHigh Impact Businesses• Product companies (seldom service companies)• Growth is key (jobs and revenue)• Building Equity• High personal income is not the goal
Product and Capital Lifecycle Idea Innovation Prototype Introduction Growth Maturity Proof of Pre-Seed Seed & Early Later concept Start-up Government SourcesPROFIT Friends & Family Venture Capital Self Angel Investors & IPO, Bank Seed Stage VCs First s Revenues VALLEY OF DEATH TIME
Typical Investment Size Friends and Family o $1000 to $10,000 o Seldom larger than $100,000 Angel investors and Seed Stage VCs o Typically $150,000 to $1 million o Seldom larger than $1.5 million Classic venture capital investors o Typically greater than $2-4 million, depending on location
Angel Rating System Management team 30% Size of opportunity 25% Product & technology 15% Competitive Environment 10%Sales channels, marketing 10% Need for more funding 5% Other 5%
What is a Business Plan A complete description of your business NOT solely a description of your product or technology Comes in several flavors – each used for different purposes Must be written by you, but Use a template Employ editors Engage advisors
Do you need a Business Plan?Ignore investors who say “I never read plans”The business plans is written for: You – do you really understand all aspects of the business For employees, partners and investors Clarity of purpose and direction Alignment of interests
Business Plans for StartupsBusiness Plan Description of Form Use of Form with InvestorsElevator Pitch 2-5 minute verbal summary First introductionVideo Pitch Covers entire plan Capture interest Not use product/technology Goal: Another meetingExecutive Summary 2-page summary of plan Intro to opportunity Comprehensive but brief Capture interest Include contact information Goal: Another meetingPowerPoint For multiple investors Presentation plus Q&APresentation Full plan, not just product Discuss: Investment offering 10 slides, 20 minutes Goal: Enter Due DiligenceFull Business Plan Full plan with financials Prepared for entrepreneur 20 -50 pages and investors Written first/by entrepreneur Due diligence guide
When to Use Which PlanATTRACTING INVESTORS (casting the lure) First contact Elevator pitch (verbal) Video pitch (video) Executive summary (written) Investors never write checks when pitched Objective: Get a meeting Provide contact information Get a business card Ask for meeting or to follow up
When to Use Which PlanSETTING THE HOOK WITH INVESTORS First formal meeting PowerPoint presentation Investors still won’t write checks Objective: Solidify interest Find potential lead investors Begin due diligence process Intense interactions with investors
When to Use Which PlanREELING INVESTORS IN Due diligence process (2-3 months) Validation of Business Plan DD Team validation Negotiate term sheet DD Team members agree to write checks Other investors will follow Be patient: Closing takes time
Business Plan ContentPRODUCT OR SERVICE What problem do you solve? What makes your product a “must have” to customers? What are the unique features of your product? What differentiates you from the competition? Why will customers insist on buying your product? What competitive advantage? What keep the competition from copying your product, especially those with lots of resources?
Business Plan ContentMANAGEMENT TEAM What skills and experiences do you bring to this business? Experience in the business sector Management and leadership Describe the rest of your team, including any “waiting in the wings” What are you doing to build a world-class team? Who are your advisors? Board of directors?
Business Plan ContentSALES AND MARKETINGWhat is the size of opportunity? Annual revenues of the addressable or target market Who are the key customers in this market?What customer relationships are established? Are customers using or at least testing your product?What sales channels will you utilize? How will you sell to these customers? Partners?What is your branding and pricing strategy?
Business Plan ContentCOMPETITIVE ANALYSIS Who is selling in this marketplace SWOT Analysis – Your company and products versus the competition Strengths Weaknesses Opportunities Threats Why would customers buy from you?
Business Plan ContentOPERATIONS Where will product be manufactured? Partnering: Vendors, manufacturers Sales cycle and idiosyncrasies Product development pipeline Inventory management and issues Facilities and outsourcing
Business Plan ContentPROFORMA FINANCIALS (five year projections)Income statements – build revenues from the bottom up (who will buy what and when)Cash flow projections – how much cash will it take to achieve break-even? How fast can the company grow on cash from earnings?Balance sheet for five yearsFinancing requirements and sources to break-even for growth
Business Plan ContentGROWTH PLANSKey milestone – how does investment increase valuation of the company?New products and management team additions necessary to exceed expectationsExit strategy for the company What large public companies would want to buy? Why? When?
Tips on Business Plans Find a template and good advisors Keep it balanced, don’t focus only on product or technology Keep it concise. Put summaries in the body and extended data and spreadsheets in appendix Find and use outside market validation Size and growth of market Use editors, make it readable
The Art of the Start Guy Kawasaki Rule10:20:30 Rules for Pitching Investors 10 - Ten slides Give investors the info they need 20 - Twenty minutes Leave plenty of time for questions 30 - Minimum font size Do not clutter slides with excessive words and data. Slides are an outline of the presentation
From the Tech Coast Angels PPT Presentations ContentA Cover Slide: Company name, business one-liner and your contact information (doesn’tcount as one of the 10).
From the Tech Coast Angels PPT Presentations Content1. Market – What problem does the product/service solves for customers – a solution theyabsolutely cannot live without – a “must have?”
From the Tech Coast Angels PPT Presentations Content2. Solution – Describe the product(s), thefeatures and benefits of the product. What isunique about your solution?
From the Tech Coast Angels PPT Presentations Content3. Competitive Position – Who are thecompetitors, what are their strengths andweaknesses, and what are your advantages overeach competitor. Why would customerspurchase product from you?
From the Tech Coast Angels PPT Presentations Content4. Marketing /Sales /Support – How will you makecustomers aware of the product? What is yourvalue proposition to customers? How will youestablish a recognizable brand? Describe saleschannels. How will you provide product andtechnical support to your customers? How long isyour sales cycle?
From the Tech Coast Angels PPT Presentations Content5. Business Strategy – Most of us know how tofind the first customer for a product. But, it ismore difficult to describe how to grow thebusiness. What partnerships, teammembers, facilities and capital will be requiredto achieve the five-year plan?
From the Tech Coast Angels PPT Presentations Content6. Financial Projections – It would be nice toprovide the usual spreadsheets: Incomestatements, balance sheets and cash flowprojections for the first five years of operations.However, in a 20 minute presentation, anabbreviated income statement showing revenueramp and anticipated earnings will probablysuffice. In some cases, cash flow statements orbalance sheets might be available in an appendix.
From the Tech Coast Angels PPT Presentations Content7. Funding Sought – How much money do youneed to achieve early milestones? How muchadditional funding will be necessary to achievepositive cash flow? From what sources to youexpect to raise these funds? And when?
From the Tech Coast Angels PPT Presentations Content8. Management – What is the relevant backgroundand experience of the existing team? Describe thecharacteristics of additional team members thatwill be required to achieve positive cash flow.Describe your advisors and board of directors.
From the Tech Coast Angels PPT Presentations Content9. Milestones – Investors want to know how thisround of funding will increase the value of thecompany. What accomplishments can thecompany achieve and how will that increase thevaluation of the company?
From the Tech Coast Angels PPT Presentations Content10. Exit Strategy – In most cases, IPOs are nolonger a rational exit expectation for startupinvestors. Which large public companies might beinterested in buying this company and why? Whatdoes the company need to achieve to attractpotential acquirers?
Tips on PPT Presentations Get to meeting on time, dress neatly Follow 10:20:30 Rule Do not read slides or use notes, use slides as an outline to make sure you cover all the material The audience wants to listen to you, not read your slides Finish presentation on time or early, leave lots of time for questions Practice…practice…practice a smooth delivery