Every quarter, the US adds nearly 260,000 new businesses. About 90% will fail — 10% in just the first year. In 29% of cases, failure is due to funding.
Outside investors can provide the capital and other resources that early-stage startups need to survive and keep growing. But competition is fierce: historically, less than 1% of startups receive venture or angel funding. How do you make your business stand out?
This post shares some key lessons from our Cyndx Shark Bait webinar series on pitching to early stage investors. Keep reading to learn how to strengthen your pitch and impress potential investors.
1. Define differentiators and market impact in depth
Investors need to know what makes your startup truly unique, and why. As you discuss your differentiators, include anything proprietary to your company’s product or process. Call out patents, trade secrets, and other unique IP.
Protected IP can slow or block competitors trying to access the same market, giving your company a greater chance to succeed and therefore minimizing the risk of investment. To investors, IP assets can also indicate your product’s potential superiority to the competition, and that you’ve put significant thought into its viability and market fit.
2. Keep an open mind when considering competitors
Don’t limit your competitive analysis to the two or three largest players in a particular market. If a fund is considering investing in your segment, they’ve done their research on the competitive landscape and the active companies in the market — both well-known and emerging. Aim to be equally as knowledgeable about all existing competitors (both direct and indirect) and be prepared to talk about them, even if they don’t all fit on your slide.
Investors also want to know about potential and future competition. Look for companies in adjacent markets with products or services that may compete with yours directly or indirectly. Try to identify companies which might move into your target market.
You should also try to find out what kind of innovation is happening in the market — what are other players building and developing? How might those innovations affect your offering’s value, and the viability of your business plan? Will they hurt or help your competitive edge? Knowledge is power, and by identifying potential threats early, you can better articulate your business strategy and unique competitive advantage.
3. Clearly connect your business and revenue models
Make it clear how your business will make money.
Explain your business model as completely as possible within the time allowed. In particular, focus on helping investors understand your pricing strategy, target market, and costs. This will help you transition to a clear and convincing explanation of your revenue model and projections.
Be prepared to discuss how your business and revenue models might change as you scale. In particular, you should consider the pressures and challenges that could arise as a result of scaling, and your model’s ability to overcome or adapt.
You may also plan to discuss the potential for future partnerships or additional revenue streams. Explain how these will interact with and impact the various parts of your business model, including customers, operations, cost, and profit margins.
4. Add some context to your ask.
Investors want to know how their money will fit into your larger funding story. Give some background on your investment history, including the amount you’ve raised to date and the post-money valuation on your last round. Some might ask how much “skin in the game” you have as a founder; if applicable, share whether and how much you have personally invested.
You should also provide a justification for the amount of capital that you are trying to raise. While preparing your pitch, speak to advisors or other trusted experts about whether your raise goal is realistic, and why.
The right cap table management solution can help you with this. Scenario modeling and waterfall analysis tools, like those included in Cyndx Owner, allow you to compare how various sources and amounts of capital could affect potential returns and shareholder voting power.
During your pitch, explain why this is the right number both in terms of enabling business growth and providing an attractive return for investors. State how you plan to use the additional funding; if you intend to deploy it in multiple areas, list and prioritize them.
Outside funding can be crucial to the future of your business, but the competition for it is fierce. Prepare a pitch that proves your opportunity’s viability and value by thoroughly outlining your unique Intellectual Property (IP) and differentiators, performing extensive analysis on current and future competitors, clearly explaining your business model and how you will make money, and justifying the amount of capital that you would like to raise.
Covering these core areas will put you in the strongest position possible to not only gain funding, but provide valuable knowledge that can influence your company’s growth and ultimate success.
Raising capital soon? Cyndx can help. View our cap table management and investor targeting tools for entrepreneurs.