Building the Best Investment Pitch Deck

Early Pitch Decks Of 10 Startups Before They Became Billion-Dollar  Companies | Robin Hood Ventures Philadelphia

This is a Guest blog post by William E. Dyess, “Pitchmaster General” and Principal at TXN Advisors, a Washington, DC-region business consulting firm that provides corporate development, marketing and strategic advisory services.

This post is an analysis of the last 50 pitch decks we received at The Dyess Group’s deck review portal and our strategy on building a winning deck.

The Basics of Deck Building

At The Dyess Group (TDG) we generally follow the Sequoia Pitch Template when building decks for clients, but with our own spin. Whether you use the Sequoia template or not, it is important to follow a thoughtful narrative flow that induces and compels the reader to take the desired action. There are several effective, proven models and suggestions such as the Dale Carnegie Transactional Selling Steps from the 1950s:

  1. Attention (What is the sizzle?)
  2. Interest (Why does it matter? Why does the world need you? )
  3. Desire (Are you better than a traditional solutions to the same problem?)
  4. Conviction (How do you handle objections, what’s the traction?)
  5. Action (Ask for the order, go for the close!)

The important practice here is to design a narrative flow that you believe fits your company the best and make it yours. Below we will present what we have found are the elements often forgotten, missed, or misunderstood when building an effective narrative flow. We do this using the first three slides of the Sequoia model.

Tip #1: Make sure people understand what you do, as quickly as possible (Don’t Waste Your Title Slide!)

We usually don’t hear about what the product or service does until the 5th slide.

The single most important thing you can do in your deck is to make sure people understand what you do. It needs to be in layman’s terms — meaning without using a lot of “marketing speak” and it needs to happen immediately.

When an investor, or any audience, clearly understands what you do, it provides much needed context to the rest of your story. The following is a front slide example from a deck The Dyess Group created for its client company Guac.

An example front slide from a Dyess Group deck

Here is another example illustrating how a very small amount of information immediately helps the reader (e.g., investor, partner, customer) orient themselves properly for the rest of the deck. This is for our customer, Socrates.

Tip #2: Find ways to combine key information into your narrative to make your deck more concise

Roughly 20% of the decks we review have the “Market Size” slide as the one of the first 3 slides.

And it almost always says one thing…the market is big. Unfortunately, putting this information so early is often disruptive to an effective narrative flow. Although Market Size is important and relevant, it is tangential information that can be a distraction at odds with understanding the opportunity. An alternative technique for getting attention with the size of the market is to combine the information with more important aspects of the narrative flow.

Tip #3: Combine traction and the solution to drive conviction to invest early

Only 15% of the decks we review feature customer referrals or actual market traction in the first three slides.

A solution without traction is really just an idea. You haven’t proven that you’ve solved anything. You want to eliminate as much risk from your offering as early as possible by enhancing the reader’s conviction. Introducing your product without any supporting traction in the same slide, or soon thereafter, doesn’t help the reader understand how far you’ve come in solving your problem. Inline with embedding statistics into the narrative, consider including some of the following along with your product:

  • Customer Testimonials
  • Success Rates
  • Total Users
  • Growth Rates

Applying lessons from User Experience (UX) research techniques to your pitch deck

UX research is the unsung hero of your favorite apps. A world leader in research-based UX consulting, Nielsen Norman Group have researched and documented the effectiveness of many UX techniques. We apply their forward-thinking UX methodologies to pitch decks we build for our clients.

UX Techniques

VCs only spend about three minutes reading your deck before a meeting. People can only keep seven things (plus or minus two) in their working memory. You have limited time and space to make your point, so raise the bar with respect to what information makes the cut. Key things to keep in mind through the body of your deck:

  • Reduce the hard work for consuming key information (Rate of Gain)
  • Don’t over-burden the reader with information (Cognitive Load)
  • Be as succinct with your messaging as possible (“BLUF”)
  • Organize information for max understanding (Progressive Disclosure)
  • Give the deck some design basics for strong ethos (Halo Effect)

Each of these is discussed in greater detail below.

Rate of Gain

The Rate of Gain is the value a reader gets from new information divided by how much work that user needs to do to get it.

A measurement used in User Experience to measure ease of use and value to users

In the case of your pitch deck, the user is an investor, partner, or customer, and Rate of Gain measures how valuable the information on each page is divided by how many words are on the page.

This would mean that a good slide would have the most valuable information possible in the least amount of words.

How to have a high Rate of Gain in your content

One of our partners hired a highly coveted speech writer for a Series B raise and the main piece of advice — delete more words.

The best piece of free advice we can give you about your deck is to delete more words.

Cognitive Load

It’s well documented that there are limitations of one’s ability to remember things while doing a task, aka working memory. People have a very finite working memory to consume the content of your pitch. This is why you should use techniques to be as succinct as possible to convey the most value.

A reader may naturally try and determine what information they need to know in order to preserve their working memory. This means giving the reader the ability to triage a page to decide whether or not they need all of the information is a good technique for keeping a user’s memory free to remember the main points.

This really forces you to boil down the words on a page to the point where you keep track of the cost and benefit of each word. Each additional word adds additional cost to the reader to try and understand.

Bottom Line Up Front (“BLUF”)

There is a concept in journalism called the Bottom Line Up Front, you can also think of this as TL;DR (Too Long; Didn’t Read). It’s the same reason that we put an abstract at the beginning of a research paper, or an executive summary at the beginning of a business plan. Respect the reader’s time and tell them the main point up-front so they can triage the page and decide if they need to look at the details or not.

If you use a “headline” based approach you will allow readers to skim the page and decide if it’s something that they think they need to invest the effort to further investigate. If the reader avoids taking in more information than they need, they can arrive at the end of the deck quickly having only read the information they cared about. This will reduce frustration and increase retention and overall satisfaction.

Progressive Disclosure

The concept of progressive disclosure in apps defers advanced or rarely used features to a secondary screen, making the learning process easier and less error-prone. For applications, this means showing the most important features front-and-center and leaving the seldom used, or less important features to be shown later or at the users request. This removes added complexity of needing to understand more features than may be necessary.

Take Google for example. The home page is literally just a search box, and the ability to search (or click I’m Feeling Lucky like I always do).

Now you’ve given the user the option, should they want more information, to go find it. In deck-writing, progressive disclosure serves two ends: keeping the deck clean and succinct, but also allowing the user ready access to any information they would need — perhaps even in an appendix.

Halo Effect

The halo effect is a phenomenon that causes people to be biased in their judgments by transferring their feelings about one attribute of something to other, unrelated, attributes. In the case of decks, the overall aesthetic and cleanliness of the deck will set the sense of sophistication to your reader. The easiest way to create this is to be concise; use abundant white space and be consistent throughout.

  • Consistent margins (white space is your friend)
  • Consistent use of font sizes (we use 32pt and 18pt fonts for everything)
  • Consistent messaging (Whatever you call it, call it that every time)

We’ll cover this topic in more depth later in the series.

Pulling It All Together

The slide design below does a good job implementing the UX techniques we just covered.

  • Rate of Gain: With only two to three lines (tops!) for the main message, the value of the information is high, and the workload to obtain it is low.
  • Cognitive Load: By using the headline approach, we allow readers to triage whether supporting information below the headline is worth further investigation.
  • Progressive Design: Byincluding the path to more information, you let users know that there is a way to learn more. In doing this you also free their minds to focus on the slide at hand.

Fundraising is always hard. Fundraising in the current climate is harder. There has never been a better time to make sure your company can stand out, effectively deliver its message, and spark the interest of investors who will be more selective than ever before. Use the Sequoia Pitch Template and our techniques outlined here to make it easy for them to understand what you do and why your company deserves to be at the top of the stack.

William E. Dyess is “Pitchmaster General” and Principal at TXN Advisors, a Washington, DC-region business consulting firm that provides corporate development, marketing and strategic advisory services. We work in partnership with executive management to save them time and advance the corporate mission by helping them create killer pitch decks, management and investor presentations, board reports, corporate dashboards and the underlying business strategy and messaging to maximize growth and value. William can be reached at wdyess@thedyessgroup.com

Email your deck to deck@thedyessgroup.com for a free deck review.

Words Have Power: Concise Pitch Decks Pack More Punch

This is a Guest Post from CONNECTpreneur Coach and partner, Ines LeBow of Enterprise Transformation Solutons.

Every. Word. Counts.

So does every second during your funding pitch to potential investors. On average, you’ve got less than three minutes to make your case before your audience gives a mental thumbs-up or thumbs-down on your business idea.

Do the Math

If you’re looking to raise $1 million in seed funding, a pitch deck with 10 slides averaging 55 words per slide puts the value of each word at $1,818. For $10 million in Series A funding, each word is worth more than $18,000. For $55 million in funding, each word is worth $100,000.

Packing more words and details into your pitch isn’t going to make it more appealing or more valuable to your audience. The opposite occurs: it actually devalues the most important information. In essence, you end up burying the treasure.

Word Power

Some of the most successful people have harnessed the power of words to vault themselves to prominence in their respective fields:

  • Rick Rubin, 8x Grammy Award Winner: “There’s a tremendous power in using the least amount of information to get a point across.”
  • Dianna Booher, Prolific Author and Communications Expert: “People aren’t likely to be influenced by a message they can’t remember. Be clear, concise, and clever.”
  • Frank Lloyd Wright, Renowned Architect: “Lack of clarity is the No. 1 time-waster.”
  • Rudyard Kipling, Nobel Prize-Winning Author: “Words are, of course, the most powerful drug used by mankind.”

Be Epically Focused

Investors want your presentation to be brief and on point, but they also want to hear an epic story. Remember, these are people who listen to dozens of pitches each week that are too long, too boring, and too scattershot in their approach. They want you to draw them in and dazzle them with a narrative that is clear, concise, and compelling. So inspire them, inform and educate them, and, most importantly, connect with them.

To start shaping your epic story, consider what prompted the idea for your product or service and what inspired you to start your company. Weave these concepts into a vivid movie trailer-like story that elicits excitement, emotion, and eagerness for what comes next, with the investor playing a starring role in the production.

Funding Pitch Opportunity

If you are an entrepreneur looking for funding and would like to present to potential investors through CONNECTpreneur, please reach out to me.

For more on funding success, here are links to some recent posts I’ve written on the topic:

·        Be Unique, Get Funded

·        Get Funded in 2021: Super Angels

·        7 Factors for Startup Success

·        5 Keys to Convince Investors Your Product Can Make Money

To learn more on how to stand out with an epic fundraising story, contact me for a complimentary consultation by phone at 314-578-0958 or by email at ilebow@transformationsolutions.pro. You find her on LinkedIn Profile at www.linkedin.com/in/ineslebow or her ETS website at www.transformationsolutions.pro.

Be Unique, Get Funded

Be Unique, Get Funded

This is Guest Blog post from CONNECTpreneur Coach and partner Ines LeBow.

Attracting investors to get your business funded is all about being unique, even if the product you’re presenting isn’t a new invention or innovation. Earlier this year, I highlighted 7 Factors for Startup Success based on the philosophies of Shark Tank star Mark Cuban.

He believes that you need to find a way to make at least one aspect of your product or service uniquely your own. You can do so by thinking about the special characteristics your product will have, to whom you will market it, and how you differentiate it from the entrenched competitors. Trying to be the same results in competition based on price, which is not how you want to compete.

In Mr. Cuban’s own words about being unique:

Creating opportunities means looking where others are not

and

When you’ve got 10,000 people trying to do the same thing, why would you want to be number 10,001?

Not Just Socks

Socks have been around for a long time. Even the athletic sock category has been pretty saturated, but that didn’t stop Bombas from their start-up business focused on making a better athletic sock. I covered the case of Bombas in an earlier article entitled 5 Keys to Convince Investors Your Product Can Make Money.

They invested a lot of time and effort into identifying what made athletes, fitness junkies, hikers, runners, speed walkers, and other heavy users of athletic hosiery disappointed, frustrated, and annoyed about their existing sock of choice. They designed and produced their socks to address those issues, conducting significant product testing to ensure the user feedback hit the bullseye.

Successful Close

If you are an early Shark Tank devotee, you’ll know that the founders of Bombas went on the show and left with $200,000 in funding. That’s right…$200,000 of someone else’s money to launch an athletic sock. So it wasn’t about an exciting new technology product but about a unique take on a product for which there was already a defined, established market with committed customers who are continually looking to improve the equipment and accessories they use to perform their activity.

So what is unique about your product? Perhaps you can approach real-life users who are enthusiasts and get their perspective on the unique benefits your product offers. Often, it’s the little things that make the biggest impact to your target audience, which translates to how you differentiate yourself to potential investors.

To learn more on how to stand out with an epic fundraising story, contact me for a complimentary consultation by phone at 314-578-0958 or by email at ilebow@transformationsolutions.pro. You find her on LinkedIn Profile at www.linkedin.com/in/ineslebow or her ETS website at www.transformationsolutions.pro.

Get Your Business Funded in 2021: A Look at Super Angels

This is a Guest blog post frim Ines LeBow, a CONNECTpreneur strategic partner and Coach. She has prepped dozens of successful presenting companies who have successfully raised capital.

The year (2020) that will be forever defined as the year of the Covid pandemic brought about significant upheaval and change in many areas of private and professional life across the globe. It also sparked tremendous shifts in the start-up investment world. One class of investors emerging is what we call “Super Angels”.

What Are Super Angels?

Super Angels in the business investment world are best described as a hybrid between traditional angel investors and venture capitalists. They tend to invest early in the seed round of funding at startups at levels that are above what gets raised in the friends-and-family round but less than a typical venture round of funding. However, when it comes to how they raise funds, they approach the process much like a typical VC would.

Super Angels are not just serial start-up investors; they invest in businesses as their full-time gig and tend to have a large and growing portfolio in which they take an active interest. They don’t tend to be interested in long-term investments or board roles, thus they like to look for business investments in which the principals are experienced entrepreneurs.

Why Should I Consider Super Angels?

As a result of financial, economic, and market trends, institutional venture capital activity is still on the rebound. Some rode the wave of growth and allowed for a bloated infrastructure and high fees that are now preventing them from being nimble in the market. Others have their portfolio tied up in businesses that are still recovering from the pandemic, and they’re not yet willing to exit those investments.

These changes with traditional VCs open up opportunities with angel investors and super angels, especially as the investment model is changing to one of funding more startups but with less cash invested in each business. One added advantage of this investment approach is that super angels have a broad reach to the kind of talent, investment contacts, and potential M&A opportunities that can go beyond the access a traditional investor can provide.

How to Get Super Angels to Invest

Many of the top super angels don’t just take an appointment from anyone off the street. They require a referral from someone they trust, so cultivating a good network in the start-up world is going to be important. But don’t give up hope if you aren’t well networked. This isn’t just about who you know, although it helps. These are smart, experienced investors looking for good people and great ideas behind which to put their money. If you employ a sound strategy and disciplined approach, you can be successful in getting funded by a super angel. Here are a few articles you can review to ensure you’re prepared to engage with a super angel investor:

If you are an entrepreneur looking for funding, are interested in presenting at CONNECTpreneur.org, or would like to learn more about how to stand out with an epic fundraising story, contact me for a complimentary consultation by phone at 314-578-0958 or by email at ilebow@transformationsolutions.pro. You can find me on LinkedIn Profile at www.linkedin.com/in/ineslebow or my ETS website at www.transformationsolutions.pro.

2021: The Year to Get Funded

This is a Guest blog post from Ines LeBow.

RIP Tony Hsieh. This article is dedicated to you and the inspiration you provided to me and so many entrepreneurs, helping us to put our passion and focus into the vision and values that led us to our start-up dreams. The investors and the funding are out there!

$69.1 billion! That’s how much has been raised by entrepreneurs in venture capital funding in the US so far in 2020 according to VC, PE and M&A news outlet PitchBook. This figure represents a new high, breaking the record set back in 2018.

And it’s not just in the US that businesses are getting funded. PitchBook also reports early-stage and late-stage venture investments in Europe are booming, riding a wave of optimism from both established VC firms and non-traditional investors who look to put their money into sectors that have thrived during the pandemic and into pandemic-proof technology innovations.

Here are some other key stats for 2020 that indicate a solid and growing foundation for investment in 2021:

Seed Pre-Money Valuation

Although there have been declines in deal valuations and a rise in equity ownership stakes with angel investors, the velocity of value creation for seed-stage companies has been very strong. Overall, pre-money valuations for seed-stage companies is strong compared with 2019, which was a strong year too. In addition, valuations for the smallest and largest seed deals have both increased over 2019, with the middle two quartiles holding steady.

  • Median seed-state pre-money valuation is consistent with 2019.
  • Top and bottom quartile seed pre-money valuations at historic highs.
  • 44% annualized growth in seed-stage company valuations.

Early-Stage VC Activity

Pre-money valuations for the median early-stage venture capital investment set an all-time high in 2020, despite many believing that Covid would hinder the market. The one major impact that the pandemic has had in VC funding is an increase in the time between funding rounds for early-stage companies. There are some indicators that VC investment in early-stage companies is slowing a little, including the step-up multiple and the velocity of value creation, but the drops in those metrics are from the all-time highs set in 2019 and are consistent with performance in 2018.

  • Early-stage venture capital valuation is at a record high.
  • Median time between funding rounds for early-stage VC investments has increased to 1.2 years, meaning entrepreneurs are running leaner to extend their runway.

Late-Stage VC Activity

Late-stage venture capital investments continue to dominate the US market, with almost 69% of total deal value in 2020. The average deal size is up from 2019, driven largely by an increase in mega-deals.

Non-Traditional Investor Activity

Non-traditional investors have been highly active in the venture market throughout 2020, including their participation in mega-deals at a rate of 96%. When it comes to early-stage funding for non-traditional investors, the pre-money valuations have remained steady with 2019, which was a banner year in that regard.

Deal Terms

One other area to keep an eye on when it comes to the funding environment is deal terms. Terms on deal sheets that are “founder-friendly” continue to proliferate, as cumulative dividend terms are at a 10-year low.

The bottom line is that now is the time to get your business funded. Exit values have recovered and are gaining strength, meaning investors will have more capital to invest throughout 2021.

This year, I’ve published a group of articles to help you get out there in front of potential investors, including content on creating and delivering a digital investor pitch (“Now’s the Time to Get Your Business Funded: Coronavirus Edition”), on unique ways to attract potential investors (“How Far Will You Go to Get Your Business Funded?”), and on featuring the sustainability of your business in any market (“Pandemic-Proof Your Funding Pitch Deck”).

What are you waiting for?

To learn more on how to stand out with an epic fundraising story, contact Ines for a complimentary consultation by phone at 314-578-0958 or by email at ilebow@transformationsolutions.pro. You find Ines on LinkedIn Profile at http://www.linkedin.com/in/ineslebow or her ETS website at http://www.transformationsolutions.pro.

How Far Will You Go to Get Funded?

This is a Guest blog post from Ines LeBow.

Entrepreneurs are going to extremes to make themselves memorable to investors.

Earlier this spring, at the beginning of the pandemic in the US, I published articles on creating and delivering a digital investor pitch (“Now’s the Time to Get Your Business Funded: Coronavirus Edition”) and on featuring the sustainability of your business in any market (“Pandemic-Proof Your Funding Pitch Deck”). Some of my contacts have shared how great the advice in those articles was, but were struggling to get the opportunity to pitch or even engage with investors.

I read a Wall Street Journal article a few weeks ago called “Startups Turn to Remote Fundraising” (9/21/2020 print edition). It mentioned the lengths that many entrepreneurs are going to stand out with investors or even simply to get in front of investors. Here are a few examples:

  • Elocution Lessons – A start-up CEO took voice lessons to improve his speech, tone, emotion, and inflection to be more compelling and effective on voice and video calls.
  • Guitar Playing – A founder played his acoustic guitar to the Eagles song “Hotel California” during a fundraising meeting.
  • Custom and Animated Backgrounds – One executive even built his own solution to create animated and custom backgrounds for video calls that turned into its own startup that got funded.
  • Highway Billboards – An entrepreneur advertised his start-up idea on several miles of California highways frequently traveled by Silicon Valley investors using the Adopt-A-Highway program.

Initially, I got a really good chuckle. Then I thought about it more and realized that these were examples of people who inherently understood that they needed to stand out to the investor audience. To do so, they needed to do something different than all the other entrepreneurs. As Dr. Seuss famously said, “Why fit in when you were born to stand out?”

Investors are still investing. But, more than ever, entrepreneurs need to do something to capture and hold their attention and stick in their minds.

What are you going to do to stand out?

To learn more on how to stand out with an epic fundraising story, contact me for a complimentary consultation by phone at 314-578-0958 or by email at ilebow@transformationsolutions.pro.

Ines LeBow is the CEO, Transformation Executive for ETS. She is a known catalyst for business operations, bringing 30+ years of hands-on experience. Ines has a long history of being recruited into senior executive roles to improve the execution of business operations and to drive revenue growth. You can see her LinkedIn Profile at www.linkedin.com/in/ineslebow, view the ETS website at www.transformationsolutions.pro, or email her directly at ilebow@transformationsolutions.pro.

5 Keys to Convince Investors Your Product Can Make Money

This is a guest blog post by Ines Lebow.

Even if you’re too young (or too old?) to know where the line “show me the money!” comes from, everyone knows the phrase “follow the money”. When it comes to attracting investors and getting them on board with your vision, it’s all about the money potential.

Many entrepreneurs, especially in the tech field, are under the mistaken impression that it’s all about the product. If the product is sexy, fresh, or disruptive, investors will be falling over themselves to put their money behind it. That couldn’t be further from the truth.

Consider the case of Bombas. What was their big idea? Socks. Hardly disruptive, right? Yet the co-founders of Bombas went onto the show Shark Tank and secured $200,000 in funding to launch their idea. Yes, they presented some nice ideas about making a better athletic sock, but they were still trying to pitch a sock. So what made Bombas so attractive to invest in?

Laser Focus

The co-founders of Bombas had a laser-focus on their product and market. From personal experience and lots of interaction with potential consumers, they understood that people were generally unhappy with the comfort of socks, especially for athletic activities. After lots of product testing and user feedback, they identified several areas of improvement for their future products.

Sales Record

By the time Bombas reached Shark Tank, they had already been through two funding rounds. Before their official launch, they secured more than $140,000 through crowdfunding. In the year after their launch, they raised $1 million from friends and family. They also had a track record of sales to show to eventual investor Daymond John, offering a better understanding of the potential return on investment.

Unique Business Model

At the core of Bombas is a business model committed to giving back. It’s not a marketing gimmick but part of the guiding principles of the company and its founders. For every pair of Bombas socks sold, one pair is given to the homeless. Not only does this uplift the spirits of consumers who are willing to pay $12 for a comfortable pair of socks, but it addresses a real need in the community, as socks tend to be the single most requested item at homeless shelters.

Take a Punch

Bombas proved that they were ready to take a punch, from consumers and in the market. Their extensive work in market research before even creating a product provided them with a network of targeted consumers who were willing to give detailed opinions and feedback on a product and how it was delivered. When the Bombas team created their initial prototypes, they were applauded for creating a better sock, but willing to listen and make changes to the product. Their team of consumers didn’t disappoint, but came back punching hard. As a result of the critical market feedback, Bombas made two additional improvements to their products before a general market launch.

Leadership Team

The co-founders of Bombas were able to convince investors of their ability and dedication to execute on the business vision. So while the product was “just socks”, the co-founders had a vision they were able to articulate to investors that made them consider “but look at what socks can do.”

Through these five areas, Bombas was able to convey who was driving the bus, who the competition was in the market, the investor’s potential for a financial return, and how consumers would relate to the product, their company, and their marketing model. As a result, Bombas grew from zero in 2013 to $4.6 million in 2015 to $46.6 million in 2017. In 2019, Bombas exceeded $100 million in revenue. By April 2020, they have donated 35 million pairs of socks.

What will your story be?

To learn more about creating an epic fundraising story for investors, contact me for a complimentary consultation by phone at 314-578-0958 or by email at ilebow@transformationsolutions.pro.

Ines LeBow is the CEO, Transformation Executive for ETS. She is a known catalyst for business operations, bringing 30+ years of hands-on experience. Ines has a long history of being recruited into senior executive roles to improve the execution of business operations and to drive revenue growth. You can see her LinkedIn Profile at www.linkedin.com/in/ineslebow, view the ETS website at www.transformationsolutions.pro, or email her directly at ilebow@transformationsolutions.pro.

Getting Funded: Now is the Time

This is a Guest blog post from Ines LeBow

 

Napoleon Hill Quote: “Are you waiting for success to arrive, or ...

 

It’s still happening. We hear about companies that are shutting down, laying off workers, or filing for bankruptcy because of Covid-19 or our sputtering economic re-launch. What we don’t often hear is that investors are still looking to put their money into action.

Even if your product or service isn’t targeting the “Covid economy”, this still may be the best time to get your business funded. Your competition for investor dollars may be back on their heels or simply waiting for what they perceive as a better environment to secure funding.

In recent articles, I outlined a Blueprint on How to Open Doors to Start-Up and Next-Stage Growth Funding and a companion piece on Telling an Epic Fundraising Story, Starting with the Value Proposition. The basic principles to getting funded remain the same, but there are some additional considerations you’ll want to address in your fundraising pitch:

  • Prepare (and practice) your pitch using digital solutions.
  • Include information on the business and financial impacts of extended government mandates related to Covid (work or school shutdowns, travel restrictions, economic depression, unemployment, supply chain shortages, etc.).
  • Consider ways your product or service can disrupt the existing market.
  • Highlight members of the executive team or advisory board who have experience helping companies to navigate and thrive during tumultuous times.
  • Showcase the market opportunity presented by changes to the competitive landscape or potential changes from government or industry regulations.

Now is the time, because if not now, when? As the Nobel Prize-winning novelist Doris Lessing said, “Whatever you’re meant to do, do it now. The conditions are always impossible.” Or, as Napoleon Hill, the controversial self-help author on success, said, “Are you waiting for success to arrive, or are you going out to find where it is hiding?”

To learn more on how to create an epic fundraising story for digital presentations to investors, contact me for a complimentary consultation by phone at 314-578-0958 or by email at ilebow@transformationsolutions.pro.

Ines LeBow is the CEO, Transformation Executive for ETS. She is a known catalyst for business operations, bringing 30+ years of hands-on experience. Ines has a long history of being recruited into senior executive roles to improve the execution of business operations and to drive revenue growth. You can see her LinkedIn Profile at www.linkedin.com/in/ineslebow, view the ETS website at www.transformationsolutions.pro, or email her directly at ilebow@transformationsolutions.pro.

Equity or Debt: Questions Entrepreneurs Should Ask

This is another awesome Guest blog post from Andre Averbug.

In a previous post, I covered the kinds of investors that support startups. In the last post, I discussed the different types of financial instruments available to startups. But how does an entrepreneur know which type of instrument is ideal for his or her business? Let’s now turn to the main questions one should ask when trying to decide between the two key instruments – equity and debt.

Whether raising capital through equity is right for you depends on how you answer the following questions:

  • Does your business have the potential to grow exponentially? Equity investors, such as angels and VC funds, will only buy equity in startups, i.e., companies that are working on scalable solutions and have the potential to increase the value of that equity substantially over the next several years. In other words, they will not invest in lifestyle businesses, which are businesses that may be successful and last decades, but without experiencing fast growth and giving investors an exit opportunity. Equity investors get their return when they sell their equity (exit) at a higher valuation to new investors, either private, such as a private equity (PE) fund or, if they are very lucky, through an initial public offering (IPO). Therefore, be realistic and ask yourself: Is my business a startup or a lifestyle business? By the way, there is nothing wrong with being a lifestyle business, and a friend or an uncle might even put some equity in it. However, professional equity investors will only invest in true startups.
  • How important is it for you to retain ownership? Some entrepreneurs are overly protective of their equity and want to maintain full ownership at all costs. This is usually not a good mindset, especially if you run a startup, given that sharing ownership with investors, management, and even staff might be key to the success of the business. You will need investors to help grow your business and more partners to align interests and have everyone onboard and working for the long-term success of the company. Remember, it is better to have smaller share of a highly successful business than 100% of nothing. So, if you feel you are the overly protective type, consider rethinking your approach – otherwise, equity may not be for you.
  • Do you work well with others and welcome mentorship and opinions? When you get equity partners you are embarking in a relationship that you don’t know how long is going to last and how smooth (or rough) it will be. Angels and VCs, particularly, will want to participate in key business decisions and often mentor you. They will likely want a seat at the Board. To maximize the chances of success for this relationship, be sure you can take opinions, you welcome feedback (constructive and sometimes not so much), and that you can share some of the decision making. Remember these investors are literally betting on you. They are putting money in the early stages of your venture, when risks are extremely high, and deserve – in fact, usually have the right – to have their voices heard. It doesn’t mean that they are always right and that you should avoid disagreements. Simply be open to healthy discussions.
  • How much support do you need, on top of the money? Equity investors usually bring a lot more than just money. They help you with corporate strategy and business development, open doors through their Rolodexes, provide industry knowledge, sit on your side of the table in major negotiations, such as sales, partnerships etc. If none of that seems important to you (really?!) and you strongly believe in your ability to grow the business on your own or with your current team, then perhaps taking a loan – if you can – would be the best approach. That is because, if your business is indeed successful, it means your equity will gain value over the years, and the cost of selling equity should be higher than taking debt.

When it comes to debt, these are some of the important questions to ask:

  • What is your current (and future) cash flow situation (projection)? You should not take a loan if you are not confident in your ability to commit to debt repayments, including interest and principal. If you are in the earlier stages of your company, have not broken-even yet, and don’t see it happening in the near future, perhaps debt is not for you. Debt requires some degree of predictability in your financial situation to ensure you can service it accordingly. For that reason, it is not a very popular instrument for early-stage startups (unless when offered in hybrid instruments such as convertibles), being more suited for later-stage companies and lifestyle businesses.
  • Do you have collateral (assets), credit history, or receivables? Banks and other lenders may still give you a loan if you don’t have enough cash flows. However, they are notoriously risk averse and will only provide you with a loan if they are comfortable with their ability to recover their loan, even if it means acquiring your assets to cover or minimize their loss. Therefore, even if you think debt is the right instrument for you, if you don’t have enough revenues, promising receivables, a credit history, or some collateral (machinery, building, inventory etc.) to borrow against, chances are you will not be able to get that credit.
  • Are you comfortable using collateral, including personal assets? When it comes to collateral, the question is actually deeper: It is not just whether you have it or not, but also if you are willing to borrow against it. Some entrepreneurs believe so much in their business that they literally bet their car or house on it! Even when the company itself does not have assets, the entrepreneur uses his or her own property as collateral providing personal guarantees to the bank. This is certainly not for the fainthearted and doesn’t make sense for everybody. Also, tragically, sometimes entrepreneurs expose personal assets without knowledge. Be sure to check the laws and regulations in your country to see whether your company provides you with limited liability or if creditors could go after your personal assets in case of debt default.

While this list of questions is certainly not exhaustive, it covers some of the key issues I had to ask myself during my fundraising experiences. If you have more ideas for questions, feel free to share them in the comments below!

 

Andre portrait

Andre Averbug is an entrepreneur, economist, and writer. He has over two decades of international experience working in the intersection of economic development, entrepreneurship, and innovation. He has worked and lived in multiple countries across North and South America, Europe, Africa, and Central Asia.

Andre has started and run four startups, in Brazil and the US, and was awarded Global Innovator of the Year in 2009 by World Bank’s infoDev. He has extensive experience supporting companies as mentor and consultant, both independently and as part of incubators such as 1776 and the Kosmos Innovation Center, and programs like Shell LIVEWire, StartUp Weekend and WeXchange.

As an economist, Andre has worked in topics ranging from innovation ecosystems, entrepreneurship and MSME development policy, competitiveness, business climate, infrastructure finance, monitoring and evaluation (M&E), and country assistance strategy for the World Bank, the Inter-American Development Bank (IDB), and the Brazilian Development Bank (BNDES). He has also consulted for clients such as DAI Global, the Economist Intelligence Unit (EIU), TechnoServe, among many others. He holds a master’s degree in economics from the University of London (UK) and an MBA from McGill University (Canada). Andre lives in the Washington, DC area.

He writes an awesome Blog called Entrepreneurship Compass and you can sign up here: https://entrepreneurshipcompass.com