The question that has puzzled the brightest young entrepreneurs since the dawn of the startup revolution is how to properly pitch their idea. There is no right answer, but there sure is a right approach.
Every fund has its own way of evaluating a pitch as each fund is different, and has different investment theses. So, what does a tech startup fund look for when studying early-stage tech investment pitches?
We think you can capture any startup at the pre-seed stage in nine steps. We will go over them one by one, below.
Describe the problem
A startup must start with a problem it wants to solve. What is that one thing that drives you to pursue the entrepreneurial path. Your approach should be simple, try to visualize your problem in a sentence. Simplicity is king.
Offer the solution
Now that you have set out the problem, you should now describe your solution through the product or service you are building. Again, simplicity is key — one problem should have one solution. Always address it from the viewpoint of the customer.
The team is the key
Invest in teams, as that’s essentially all what start-ups have at the pre-seed stage: a team who decides to chase a problem with a solution. The venture fund needs to be convinced how this team will be the right fit to tackle the problem.
Be mindful though that many teams are vying to solve the same problem, one should therefore bet on the best team, the one with complementary skills, the one who effortlessly distinguishes the “seller” of the team from the “doer” or the technical founder of the team.
The market
The market is the ocean that tests the voyage of the startups. The bigger the sea, the wider the trip. You need to demonstrate how large your market is. Is it growing? By how much? What are your market metrics? This is where you mention your total addressable market, your serviceable addressable market, and your serviceable obtainable market. There is plenty of content on the Internet regarding these metrics available for research. But a firm needs to show that significant thought has been done to arrive at these numbers. If you are referencing figures from sources, make sure these sources are credible and list them.
Identify your competitors
Competition validates markets. More importantly, global competition assures investors a liquidity path when they want to exit the startup. Therefore, when it comes to competition, the more the merrier in our eyes.
We have a favorite way we like young firms to show they understand the competition they are up against. Consider using a sheet listing your firm and its competitors — local, regional, and global — whereby you should be able to compare how you are better than your rivals and demonstrate your competitive advantage.
Explain your business model
A startup is a business, and every business has a business model. It basically tells the investor how you are going to make money. How you are going to generate revenues, your revenue streams, pricing structure, sources of sales, distribution channel, etc.
Financial projection
We do not expect to see a firm’s full financials here as we will pull out all the relevant numbers during the due diligence period. At this stage, we basically want to see a high-level model of the next six to 12 months of your profit and loss statement. What are your assumptions on things such as revenue, costs and hiring? We want to feel comfortable that you are able to model your business.
The future vision
We like to see one problem being addressed by one solution at the pre-seed stage. But this does not mean that a founding team should not have a wider vision. So, you should give us a glimpse of the end result. Don’t worry, we know that on a journey firms gain insight, there will be pivots along the way. But here you can imagine you have a magic wand, wave it to show us where your vision ends — what new markets, products, spaces you can go after.
The ask
You need to answer three simple questions in your ask. How much are you looking to raise? What are you going to do with the money? What are you willing to give for it? If you don’t know how much money you want and what you are willing to give as an equity percentage in your startup, rest assured you are not ready for the funding. It would help if you had clear answers to all three questions before knocking on investors’ doors.
Our advice here is: Don’t give ranges as it shows you don’t have a clear model for your business. Be surgical with your answer. Trust me, investors will negotiate with you but should have a clear understanding of the value of the idea you have.
You can do wonders if you follow these nine steps while pitching.
• Mohammed Alzubi is the founder and managing partner of Nama Ventures
