1. Show Me The Money: Preparing Client Companies for Investment Funding
Association of Small Business Development Centers
Annual Conference
San Antonio, TX
September ___, 2010
Presented by Sandra Cochrane, Technology Business Consultant
MI Small Business & Technology Development Center
Kalamazoo, MI

2. Goals for Today’s Session
Understand the overall investment process
Recognize when a company is ready for outside investment
Know the critical communication tools clients need to have before seeking funding
Outline a standard 10-minute pitch
Help clients avoid investor pitch mistakes
Focus for this presentation is primarily technology companies because they are the types of companies most likely to require outside investment.

3. Overall Investment Process
Research and Identify Investment Options, and prepare Communication Tools
Begin dialogue with Investors starting with Investor Pitch
Proceed with Investor Due Diligence
Receive Term Sheet
Proceed with Legal Docs and Close Deal

4. When is a Company Ready for Investment?
Funding landscape (who’s got money?)
Business plan and executive summary
Investor pitch
IP protection
Company leadership has “skin in the game”

5. Investor Communication Tools

6. Essential Investor Communication Tools
Written: Business plan that includes a solid executive summary
Verbal: Elevator pitch
Mathematical Model: Excel-driven financial model
PowerPoint: Investor pitch

7. The 10 Minute Investor Pitch

8. Investor Presentation Objective?
Educate, engage & entertain
Get a NEXT meeting

9. Investor Pitch: Key Points
Follow the 3 C’s:
Clear, concise and compelling
Answer these questions:
Why this?
Why us?
Why now?
Ask yourself “so what?” and “who cares?”
Goals:
Drill down discussions
Transition into due diligence

10. The 10 Minute Investor Pitch: Template and Guidelines
Special Thanks to Seattle Alliance of Angels for their work on this presentation

11. Anatomy of the 10-Minute Pitch
Act I: Introduction
Cover page slide
Problem slide
Solution slide
Technology slide
Traction slide
Act II: The Business
Market slide
Competition slide
Customers slide
Sales strategy slide
Partners slide (optional)
Revenue model slide
Management slide
Advisory board slide
(optional)
Act III: The Future
Milestones slide
Financials slide
Offer slide
Questions slide
This layout is a recommendation, not a requirement. Though the particularities of one business may suggest alternate slides here and there, what follows is a good way to organize a pitch in a coherent fashion and hit all the key points.
It is set-up as a sort of Three-Act play, where the story you tell is about the problem that exists in the world, and how you are the solution to that problem. Start with Act I: The Introduction. This is where you set the stage and introduce yourself as the solution to a real problem 2-1/2 minutes should do it, other than particularly complex technology plays. Act II: The Business. These are the moving parts of a startup: market, customers, sales cycle, competition, etc- give us a sense of how you can compete within the context of a changing environment. We recommend that this is the bulk of the pitch- 5 minutes. Act III: The Future (or the Resolution). The financials slide demonstrates that if “if all my assumptions are true, our future will look like this”. We always end strong on the offer, as this is why people are here.
Ending in 9-1/2 minutes would be a good problem to have, so shaving a few seconds here and there really adds up!

12. Act1:
The Introduction
Separator Slide – not to be included in your presentation

13. Date Audience Presenters
Company Name & Logo Contact Information
One line description of what your company does
Date
Audience
Presenters
Cover Slide. The one two punch goes here. Who are you, and what does the company does.
Though there will be a management slide later in the deck, it is appropriate and helpful if you can lead off by saying: “As the CEO of ABC company, I’ve started two companies in this space, both with successful exits.” A brief credibility-builder will really help put your endeavor into the best light- and will make your audience want to listen to you for another 9 minutes!
You never get a second chance to make a first impression, so being engaged, making eye contact, and conveying your passion are all critical. This can be a great time to tell a really short story about what it is that makes the business so compelling to you. “We’ve known each other since business school and share a passion for mountain climbing- the other two founders and I felt that the granola snacks on the market were either bad for you or tasted terrible- so we decided to fix that.” Something along those lines can capture the investors’ imagination right off the bat.
It’s important to keep this all brief– 15 to 30 seconds

14. The Problem Define the problem and WHO has this pain
Graphs
Pictures (one photo is best)
Describe a problem scenario /usage case
The goal is to get everyone nodding & “buying-in”
It is helpful to illustrate the problem as literally as possible- graphics help paint the picture for the nature and magnitude of the problem you’re addressing.
It is key not to be a solution looking for a problem- an entrepreneur needs to attack a real pain that existed in the world before the startup came along.
In addition to graphs, a story or usage scenario really engages the audience.

15. The Problem: Recorded Claims - Example
Weeks and Months
Million Interviews (Per Yr)
$350 Billion Claims Related (Per Yr)
Process is “Off The GRID”
Told a story about an insurance claims agent- tied to her desk, using analog equipment to record conversations with clients- time consuming, expensive, and no way to track the information.

16. The Solution Explain your solution to the problem & why it’s superior to existing alternatives
How do you alleviate the “pain”
Use multiple slides if necessary – see “the technology” slide
Short list of feature/benefits
This is where the entrepreneur gets to highlight the elegance of their solution. Depending on the complexity of the product or solution, it could take a couple of slides. Just be sure not to exceed the time limit, as we want to clock in around 2-1/2 or 3 minutes here. Again, graphics work really well– flow charts, screen shots for online solutions, product photos all crystallize your offering in the investors’ mind. Do include a very short list of benefits, which should map very clearly to the way the problem was initially set up. Most importantly, those benefits should map to the pain points you described- be consistent in your description of the priorities in the market place, so that you can show how you represent the solution to the specific problem.
Last but not least- be forthcoming about the status of your product- whether it’s in development, a working prototype, it’s being beta tested, patent pending, phase 1 FDA approved, etc.

17. The Technology Describe the basics of your product/ service
Quick overview of the company’s technology
Use lay man’s language
Tie to “the solution”
Do not exceed time limits (avoid in-depth technical explanations)
Product photos and/or screen shots help
Logical flow and architecture diagrams
Don’t get too technical. For the first meeting investors will grant you the assumption that your technology works as you say. They’ll dig into the real technical analysis during later meetings, if you’re invited to go further. Tell the investor what your technology does without getting too deep into how it does it.

18. The Solution: Digital Service - Example
Minutes
Claims
Rep
Interviewees
Bridge
.WMA
$15M Savings (Per Yr): Farmers Insurance
24 x 7 x 365 Availability
Giant, Untapped Data Asset
Digital Statement Service: with this company’s digital solution, offered as a hosted software service, these conversations could occur anywhere (cell phone, working from home), saves money, gets to the database within minutes, and available for tracking and analysis purposes. Note the parallels to the solution slide.

19. Traction/ Milestones Show the progress you have made to date
Today
200__
Proof of Concept
Tech. Development / Scale-Up
Launch
Incorporated
Mgt. team in place
Provisional patent filed
Beta test
Paying customers
Strategic channel partners
Received A round financing
Customer launch
As you finish out the first section of the presentation, it’s a good idea to further entrench your credibility with the audience. Next is the traction slide; in this section, tick off the tangible milestones that you’ve accomplished- things you can count. You can see some of the examples of the accomplishments that are important to list- this gives investors a sense of your productivity and efficiency and your commitment to the business. Timelines are often a good way to graphically depict progress.
Be clear about the status of product development

20. Act 2:
The Business
Separator Slide – not to be included in your presentation

21. Market Size Demonstrate your understanding of the size & composition of your target market
Build the number from the ground up
Total addressable market
Use drivers relevant to your product
Show the different segments
Pie graphs works well
Explain how you prioritize the segments
“This is our initial market” (explain why)
If you use 3rd party figures, cite the source
Market research is very critical to your credibility, and there are a few ways to go about it. For example, you could cite a Forrestor research or a Gartner report stating that the blogosphere is a $2 billion market- that’s a top-down approach, and though these are credible sources, it tells the investor very little about what’s the cause of this phenomenon. Instead, and whenever possible, describe and quantify the statistics that will enable you to monetize this opportunity. For Example - there are 55 million blogs on the internet today and, 200 million page views, or, 15 million YouTube videos downloaded daily, if your business is driven by registered users, 60 million MySpace users. Whatever metric you use to describe the market should be the same metrics you will later describe in your revenue model and financial projections.
These are some good ways to describe the total market opportunity, but in all likelihood, you’ll be going after some subset of that market, perhaps teens aged or soccer moms- so make sure you depict what portion your target market represents. Might seem simple but sometimes simple is best, and a pie chart works well.

22. 14M 45M Market Size - Example 8.5 22.4 2011 2006 14.1
Total Addressable Market: US home broadband users ages 12 to 34 who actively consume internet video
22.4
8.5
14.1
2.7
14M
2006
45M
2011 7
Here’s an example of a graphical representation of market size, and a few brief assumptions that help your investor audience do the math on gut checking those revenue projections. This shows that the market is large and growing, the segment you’re targeting, and the drivers fueling the market growth.
4.4
29-34yrs
18-28yrs
12-17yrs

23. Customers Demonstrate your understanding of your target customers
Current Customers
83 startup companies like the following:
Next, drill down on your market by highlighting your current or targeted customers. It should reflect the priority scheme you laid out in the prior slide. Here, it’s helpful to get an understanding about the segmentation in the market- do 5 players own 80% of the market? Or are there thousands of small-to-medium business who could be served by your solution? Again, be explicit about the status- either beta, paying, or targeted customers.
If you have recognizable clients – name them & use 2-3 logos
Potential Customers
Early stage technology companies between $250K & $2M in revenues

24. Sales Strategy Explain how you will reach your customer
How do you sell your product? Direct and/or channel Sales
If direct,
How many sales people? Territories?
How long does it take to close a deal?
Who is the key decision maker? (especially if that differs from the key user)
If channel,
Who are the partners?
How many are required?
How are the territories divided? (if relevant)
To further justify your revenue projections, describe your go to market strategy. Based on your customer segmentation, you’ll need to determine if you will sell directly to your customers or leverage channel relationships. There will be different players involved whether you go direct or indirect, and this must be consistent with your go-to-market strategy-- are you going after tens of thousands of individuals or small businesses, or are you going after a few big fish- and how can you most effectively penetrate that segment? Are you going to be competing for shelf space in a retailer? Or looking for national distribution through a chain? Give your investors confidence that you know whom you have to talk to, how long it takes, and what it takes to close a sale.
Whether you’re selling to business, or directly to consumers- it’s also helpful to understand conversion rate. What percentage of the time will you close a sale, or on the internet or software service, what percentage of visitors become members, or how many folks who receive a free trial subscribe to a paid service? How do you arrive at these numbers?

25. Partners If appropriate, describe the key players in your value chain & their functions.
Depending on your business model, partnerships may be important- the prior slide will set up that expectation if it’s the case in your business. A few logos are again a great way to summarize your traction, but just as important is demonstrating how your partner relationships are mutually beneficial, which, particularly if it’s for deals that have not yet been signed lends credibility to the idea that you could feasibly enter a contract. Briefly list the nature of the relationship for each type of partner, whether they contribute deal flow, content or distribution.

26. Revenue Model Show how, financially, you will make money
Per Widget
Per Customer
Average Customer Buys
10 Widgets per $6,000
PbTD $1,000 OE
$3,000
CoGS $2,000
Revenue $6,000
33%
50%
17%
100%
Average Customer is worth
$60,000 in Annual Revenue
After you have painted the picture of your sales strategy, it logically follows to describe your revenue model, including both revenue and cost drivers– greatly affected by your go-to-market approach. If you’re part of an ecosystem dealing with brokers, value added resellers, wholesalers, or affiliates, each member of the value chain tends to get a piece of the pie or a share of the revenues. A graphical representation of how this pie gets sliced can give us a clear understanding of the profitability of the business, which in turn will feed directly into your break even calculations.
If you have a truly revolutionary business model, explain it in terms of a familiar one.
CoGS & Operating Expenses
$50,000
Profit Before Taxes & Dep.
$10,000
This is an example for demonstration purposes only

27. Revenue Model (cont.)
Provide a diagram of your business environment (value chain)
Who are the stakeholders?
How are they related?
License
Holders
Technology
Licenses
License
Revenue
Components
VAR
Mfgrs.
Company
Tech. &
Mfg. Fees
Finished Goods
& Services
End User
Sales
Dollars

28. Competition Demonstrate your understanding of the competitive environment
Indirect Competition
Summarize the current alternatives (other technologies or types of products)
Direct Competitors
List competing company 1 and an analysis
List competing company 2 and an analysis
List competing company 3 and an analysis
Use a matrix if possible
Another tremendous red flag is for an entrepreneur to suggest there is no competition. Competition validates the market, and those who fail to understand the direct and indirect competitors show they lack the imagination or the research to truly capitalize on the market need. Some entrepreneurs are hesitant to recognize the elephant in the room- the presence or threat of a Microsoft or Google in the space. Acknowledge the threats and remember that today’s mammoth competitor could be tomorrow’s acquirer depending on your competitive positioning.
In illustrating your understanding of the competitive landscape, it can be helpful to call out a few dimensions or user criteria, then comment briefly on each competitor’s offering. A grid or two-by-two matrix works well. As you’ll see, a graph can save you some time, and allow you to focus on what’s most important here: reinforcing your value proposition and clearly stating your differentiators.

29. Competition - Example B Co XYZ ABC Ease of Use Reliability Price Speed
Here is one of two ways you can demonstrate it graphically. Make sure your selected criteria matches the pain or business problem and solution slides that you mapped out in the introductory act of the presentation- it’s not just ours is the only widget that’s purple- it has to be criteria that are meaningful to the customer. The dimensions you select here should echo those same pain points you describe in the “problem” slide, and the same benefits you describe in your “solution” slides.

30. Management Team Explain why this is the management team to bring your product/ service to market
Name, Position
Prior Company, Position (VP or above), Years
Entrepreneurial experience (if any)
Open positions
VP Sales
Head of QA
The management team is a really critical slide, because even if everything stacks up with your market and your offering, investors need to trust that your team can execute on the vision.
If any team member has entrepreneurial experience, successful exits or previous fund raising experience be certain to include.
This slide will likely be a bit heavier on text, so let the audience read it for themselves-- don’t read it to them-- and make it easy for them to note the pedigree of your team. You can take a moment to highlight one particularly impressive recruit, but if you’ve introduced yourself well, you shouldn’t have to spend much if any time reminding them of your own qualifications.
It’s really powerful if you can talk about your team in aggregate- some highlights might be how long some of you have worked together (it comes down to execution, and teamwork is a huge part of that. ) You can also focus on who many startups in which you’ve been involved, how many total years of domain expertise you have as a group.

31. Advisory Board Explain how these individuals will contribute to your companies chance of success
Name, Area of Expertise
Company, Position (VP or above), Years
Prior Company, Position (VP or above), Years
Company, Position (VP or above), Years
Prior Company, Position (VP or above), Years
The set up for this slide is very similar. Perhaps choose one board member to highlight, but resist the temptation to read each description aloud. If your advisory board is in the early stages, but you’ve had some success in retaining key paid advisors -- such as legal counsel- you may highlight that relationship on this slide as well. Be explicit about the status of your board and make sure that they are willing to verify their involvement in your organization-- they should know that they’re on your board, and provide a good reference. Handling this correctly can greatly boost the credibility of an early-stage endeavor.

32. Act 3:
The Future
Separator Slide – not to be included in presentation

33. This is an example for demonstration purposes only
Financial Projections Show financially that your company is a smart investment
Five Year Projections (Millions, US)
Assumptions:
Avg. $__ per sale
In Yr. 1, __customers
Yr. 3 market share: __ %
By Yr. 3, __% from new sales; __% & from recurring sales
U.S. market only
Does not include future product extensions
This is the slide that nobody believes but everybody wants to see. Investors have been primed to expect something of a hockey-stick like curve, and will most likely do their own mental discounting. That being said, be aggressively reasonable, and if everything ties back to the addressable market and revenue model, investors can determine if it passes their own “sniff test.” The things being showcased on this slide are:
The size of the ramp
Margins
Change in revenue over time / revenue mix
Assumptions that create this chart.
All of these assumptions should be stated clearly- and we’ve seen it most effectively done when off to the side of the graph- but each of these must hold water for the investor to want to pursue the opportunity.
This is an example for demonstration purposes only

34. Financial Projections (alternative)
Year 1
Year 2
Year 3
Year 4
Year 5
Revenue
COGS
Gross Margin
OpEx
Net Inc.

35. Milestones Show the audience what the next important steps are for your company
Secure
international
distributor
Generation II
of Product
Hire
CFO
Series “B”
Financing

36. Milestones (alternative)
Company Milestones
20__
Prototype Software
Prototype Hardware
Prototype completed
Initial results of the clinical trial
Defining production partner
Clinical trials completed
1st commercial lot production
Extended clinical trials (FDA)
FDA approval
peer-reviewed papers released
Conference presentations
Peer-reviewed papers describing extended trials
Initial distribution of units at large centers
Seed $250K
A round $2.5MM
B-round $3MM
Table 3: projected milestones and funding rounds

37. Funding Requirements Show why an investment of $X will lead to the cited milestones
Prior Funding:
- $ from founders, $ from outside investors, $ grants
Current Round:
Seeking $1 million ($500,000 raised)
Use of Funds:
Finish v 2.0 prototype
Launch in xxx market
File patents
Future rounds:
- Series B of $X million expected in early 2011
Exit Strategy:
Acquisition (perhaps Microsoft, IBM, Nike, or Gatorade)
Here’s where the rubber meets the road, and what everyone is waiting for. Remember, with angel investors unlike with venture deals, you explicitly state the terms. A cautionary note- do not convert your own sweat equity into dollars. Actual, personal financial capital invested in the company can help an investor feel more comfortable about handing over that nest egg, but be careful not to do any hand-waving and mysteriously turn it all into owners’ equity. Break down each source of funding, be specific about the ask (if it’s a debt round or bridge, don’t be shy- let them know it’s convertible debt) and also make your best guess as to future rounds so investors can predict dilution and their ultimate return.
With exit strategy, using logos for potential acquirers can break up the slide visually, as well as get your point across.

38. Summary Experienced management team
Company generated $x in revenue in Yr. 1
Strong IP position
Large and growing market
Signed partnerships with key players
It is highly recommend that you end strong on the offer slide- different forums like to end on a summary, so if you must include this slide given your audience, try to avoid platitudes like great team, huge market, best technology.

39. Questions COMPANY NAME & LOGO
COMPANY CONTACT INFORMATION

40. It’s All About the %% & $$!
Make it Easy to Absorb & Comprehend
Invest in the Person as Much as Investing in the Business!

41. Investor Pitch Mistakes (and how to avoid them)

42. Mistakes 1 & 2 Pitching when the company is not ready
Pitching to the wrong investor
Pitching when the company is not ready
Only get one chance to make a first impression
Local (national) investment community is small
Pitching to the wrong investor
Not all investors are created equal
Understand the investor’s “sweet spot”

43. Mistakes 3 & 4
Not having a clear, concise, compelling business plan to back up the pitch
Not understanding the investor’s exit strategy
Not having a clear, concise, compelling business plan to back up the pitch
Does the business plan make sense?
Will the business model create value?
Is the idea truly unique?
Not understanding the investor’s exit strategy
- Is there a way out?
- When will an exit likely to occur?

44. Mistakes 5 & 6 “I only need 1% of the market….”
6. “EVERYBODY is going to need my….”
5. “I only need 1% of the market….”
Perform bottom up market analysis
Don’t rely on a top down approach (it shows a lack of research into the target market)
6. “EVERYBODY is going to need my….”
Pinpoint exactly who will buy their product/service and why
This statement also shows a lack of research into the target market
Avoid the “Field of Dreams” approach

45. Mistakes 7 & 8 “I have no competitors.”
8. Failing to state the pain that’s being alleviated
7. “I have no competitors.”
Some competition is good, a market exists!
“Why will customers need your product/service if they have been doing without any similar solution forever?”
There is ALWAYS competition, even if it’s just status quo (Indirect competition)
Think in terms of the ‘Business Problem’ that you solve
8. Failing to state the pain that’s being alleviated
Who Cares?
So What?
Why You?
‘From Wendy Kennedy’s Best Selling Inventor’s Tool Kit’

46. Mistakes 9 & 10 9. Failing to actually state how the company is
going to make money!
10. Not understanding the concept of tranches
9. Failing to actually state how the company is going to make money
Be very clear in the business model regarding how customers will buy the product/service
Explain in simple terms how revenue will be realized by the company
10. Not understanding the concept of tranches
Staged infusions of cash that are part of a single round of investment
Usually based upon successful completion of mutually agreed upon milestones

47. Mistakes 11 & 12 11. Building technology products, not a business
12. The future exit is an IPO
11. Building technology products, not a business
Focusing too much on technology and not enough on why the technology has commercial merit
12. The future exit is an IPO
IPOs rarely occur
Most investors shy away from IPO exits
Better to have identified established firms that may want to acquire the company

48. Due Diligence A working definition:
An investigation of the company’s business, legal, financial affairs, and a verification of its assertions.
Investor outcome:
An assessment of risk.
An investment and partnership opportunity.
Company outcome:
A substantiation of the stated value proposition.
A commercialization and partnership opportunity.

49. Getting Through the Checklist
Don’t ask the investor to modify the checklist; if an item doesn’t apply, mark it “N/A”
Be subtle in asking about timeframe. Okay to ask: “When do you anticipate completing due diligence?” vs. “We really need the money; can you complete due diligence in 2 weeks?”
Understand that other companies are in the pipeline.
Remember due diligence is augmented w/valuation negotiations.

50. Getting Through the Checklist
Decide on disposition of documents upon conclusion of due diligence.
Fully disclose checklist items to avoid surprises.
Begin addressing problems
Ask for investor’s help and resources to solve problems
Remember investor will likely assume a board seat upon investment
If in doubt, check with company legal counsel about whether to disclose.

51. Getting Through the Checklist
Examples of well-managed disclosures: Disclosure of license agreement in default Disclosure of chief scientist leaving university Disclosure of need to replace current CEO Examples of non-disclosures that backfired: CEO & CSO executing concurrent employment agreements w/another tech company License Agreement restricting commercialization. Inconsistent w/BP.

52. Managing Due Diligence
Be prepared; use binders or data room.
Have a “clean” IP position
Select a point person to assemble documents and answer business questions
Submit documents thoroughly and quickly
Work w/company legal counsel
Substantiate value proposition as stated in the BP and the pitch

53. Thank You! Sandra Cochrane cochrans@gvsu.edu