8 Common Mistakes Entrepreneurs make During the Pitch Process
Each year, the Seattle Alliance of Angels sees roughly 40 entrepreneurs who present in front of its 130 accredited investors – but the funnel doesn’t start there. Behind the scenes, AoA staff review 30-50 pitch decks per cycle (approximately every month). Following the initial screening, about 15 companies progress and are asked to do a pitch to staff, of which only a handful make it on to the monthly member meeting (and pitch again – for real!).
With such exposure to a broad range of companies making pitches for outside funding, Angel investors have an acute sense of what makes a good impression and what founders can do to keep the ears of investors perked up. To better understand the pitch process and how entrepreneurs can achieve their funding goals, we spoke with Gregg Bennett, Board Vice-Chair of the AoA, and serial entrepreneur in the Seattle area, who explained eight common mistakes founders make during the pitch.
These below are points all presenting companies can follow to optimize their chances of funding, regardless of the domain or stage of the company.
- Not Understanding the True Purpose of a Pitch Meeting
Founders need to squarely focus on the purpose of the meeting and not just build a deck that compliments themselves and their team on what a wonderful idea they have. The long-term goal is to raise money, which is different from the purpose of the pitch.
The purpose of the pitch, when in front of a group of potential investors is twofold. The primary objective is to generate enough interest to get to the next meeting. The secondary purpose is to identify a lead investor with enough interest to help manage other potential investors. With the Alliance of Angels, most deals presenting to the membership obtain some level of funding if a lead investor is identified. Without a lead, the results are much less promising.
Getting potential investors to the next meeting is key! Nobody is going to invest without the second or third, or even fourth meeting. Present enough information to get investors hooked and leave the minutiae for the next meeting. At the “next meeting,” you will have much more time and leisure to present your opportunity in more detail and answer investor questions without a “stop” card being held up.
- Obvious Logistical/Technical Errors
Details matter. Angels, and most investors, are not forgiving if logistical problems occur during the pitch.
Logistics is about being on time, making sure your technology works, having backup technology and slides at the ready, adhering to the presentation time, and allowing enough time for Q&A. Logistics set the tone for the meeting and investors will judge you based on how well you execute.
If presenting your pitch in person, get to your meeting location at least 30 minutes early to find the place, assess the room, the AV equipment, your embedded video, etc. use the restroom, and BE READY! Make sure the projector works and your computer is compatible with the technology found in your meeting location. If you have a video as part of the pitch – triple check to make sure it will work on-site, and it will not interrupt the flow of the presentation or take up too much time to play. If the video doesn’t work, move on. Don’t struggle with the technology while we all watch.
As a consultant many years ago, my company pitched a deal to about 20 potential clients and the projector wouldn’t work. Luckily, I printed 20 copies the night before, and the meeting kept its flow. Ultimately, the client was impressed by our preparedness and accepted the deal.
If using zoom or other video conferencing platform, test your virtual conference link beforehand. Make sure there are no issues with investors being “let in” to your meeting room at the correct time, and ensure they have the correct meeting password.
Regardless of the setting, its important entrepreneurs understand and adhere to the pitch timeline (at AoA, companies have 10 minutes to pitch to investors during monthly meetings). Make sure to get through your pitch and leave enough time for questions – presenters should allocate ~25% of the time for questions.
I just can’t understand how an entrepreneur with a 10-minute pitch gets cut off before they even get to their deal sheet. I have seen 1000’s of short pitches in my career and at least 5% won’t make it to the “ask” before being cut off. These details matter because if an entrepreneur can’t even pay attention to the details of a pitch, a major event in the life of a company, then how sloppy are they going to be in other aspects of the business.
Though this may seem like common-sense advice, logistical issues happen all the time and there is nothing more distracting than an avoidable technical issue. Founders have limited time with investors and must execute flawlessly to maintain their interest
- Creating a Slide Deck that Doesn’t Stand Alone
The pitch deck should be error-free, concise, and should tell an unaided story. Each slide needs to be able to stand alone with the takeaway being evident. If you’re telling investors the market is huge, put that in the title and don’t make me surmise it through a complicated table. Understand that if potential investors are interested in your company, they may share the pitch with others and if the slides don’t stand alone, without a running dialogue, you will lose any network effects.
Entrepreneurs tend to create wordy decks with too many slides – this actually creates more confusion and is distracting. I recommend presenters go through 1-1.5 slides per minute. A standard pitch deck should be in the 10-15 slide range with approximately three supporting bullets or a graphic that clearly conveys the thought without aid, per page. Presenters should supplement the deck with slides in the appendix to address questions that come up in the Q&A.
Another common mistake I see is founders reading their slides. We can all read slides, we want entrepreneurs to show confidence in their idea and where the company is headed by creating a pitch that is well-rehearsed and easy to understand. You read; I snooze!
- Assuming your Audience has Working Knowledge of your Domain
Entrepreneurs often agonize about their pitch deck – rightfully so! As such, they share it with people in their company or people who know the company and create a pitch deck that is perfectly understandable and comprehensible to them but not to anybody else! One out of every 10 pitches or so I see, I have to ask myself “now what do they do?” Dumb it down and shorten it up! I often suggest that pitches be understandable to your “in-laws”. If they can understand it – then most Angels will also. Simple is always better.
This is a classic problem for first-time company founders with technical backgrounds. The idea is typically “theirs” and they have 5-10 years of becoming intimate with the problem and their idea for a solution. This often doesn’t translate easily into a few slides, but it must! Your ability to be successful as a CEO is to be able to convey complex into simple terms. If you can’t convey your business idea succinctly, how are you going to be able to sell the problem or the solution to customers or investors?
- Ignoring or “Poo-Pooing” Competition
As a founder, you have to demonstrate thorough command of other solutions to the problem your company is addressing and why your solution is unique. You can’t be a “me too” company – a company that does the same thing as another company already in the market that is a few years ahead. You must clearly articulate the value proposition and why your competition is not suited to do what you’re going to do and why you’re going to succeed.
I think it’s a bad sign when an entrepreneur says, “we don’t have any competition.” There’s always competition. Customers always have the option to buy or not buy. For example, people who are looking to make a trip from Seattle to Portland can either drive or fly, but they also have the option to not go, or not buy, if driving or flying does not meet their needs.
In a room full of investors, one or more is on their mobile device looking up your domain and competitors and they will ask you about it the first chance they get. Head them off at the pass, do your research on what shows up in Google search results, and hit questions about competition head-on. If a founder shows a firm understanding of the competition, I feel confident they can differentiate and provide a unique solution.
In a pitch deck, I like to see a two-by-two matrix of some sort that shows the company in the upper right quadrant with all significant competitors elsewhere. From a graphic such as this, I can clearly see how entrepreneurs are positioning themselves in the market and what their value proposition is.
- Failing to Understand Investor Expectations
Entrepreneurs sometimes forget to address the reason why investors are in the room: they want to make money. Founders talk about their great idea, how the company is going to be the next big success story, and then forget to explain how an investor can make money and in what timeframe.
I want to see clearly how I could make 5-10x in 3-5 years. Founders need to show me in their slides how this will happen. Yes, this means there will be a hockey stick slide, and you need to be able to talk through why this will happen without us looking at the vertex and deducing, “this is where the miracle occurs.”
As Angels, we don’t just invest because we may like an entrepreneur, we want to get something out of the relationship too. You have to show investors what they could make/how much they could make and in what period of time. We need to get an understanding of your capital raising plans. We understand that future capital raises may dilute our potential investment return. You need to convey this understanding.
In a pitch, I also want to understand the vision of the CEO. Are they trying to become a billion-dollar company, or do they want to sell in three years? If I put in $50,000, when should I expect I’m going to get a return/exit, and how much will I get back? If I am putting in $50,000 to become the next Microsoft, I need to understand this. It’s all about clear communication and managing investor expectations.
If founders don’t have a clear idea of the return, they should highlight the exits of similar companies. For example, if you are a digital platform company, and a digital platform company sold to the likes of Microsoft or Google in the recent past, share the sale price and their earnings/sales multiple with investors. Entrepreneurs need to show there is some M&A activity in the industry and there is a market. This helps assure investors that if they put their money in, they’re going to get it out.
- Not Supporting the Company Valuation
When pitching to Angels, we want founders to set the valuation and have a bulletproof explanation for why the valuation makes sense. It’s not enough to say “this is what my financial advisor or lawyer says.” Founders must be thoughtful and deliberate with the valuation because investors may automatically back out if they perceive the valuation differently. I lose interest in a company if the valuation seems to be out of whack. Investors are wary to negotiate for a lower valuation and get off on the wrong foot with the CEO/Entrepreneur who may feel they are getting “screwed” by the Angel.
The best explanations of value are derived from a projected future sale of the company with certain reasonable assumptions. For example, if a company meets their milestones, has earned $5M revenue in Year 4 with 100% growth, and current M&A activity is trading on 10x current year revenues, I would expect a $50M exit which would yield a 10x multiple on the current $5M valuation.
Angels have very good intuition on the range of acceptable valuations after hearing a pitch. If the valuation provided by the founder is higher than the upper range, Angels will simply not show up to “the next meeting”. If the value is below the lower range, investors will probably show up to the next meeting, but they will try to uncover what is wrong with the deal. You need to hit the sweet spot to keep investors coming back. I advise entrepreneurs to run their valuation by an Angel before the pitch to get closer to the sweet spot.
There is a difference when presenting to Angels vs. Venture Capitalists in terms of valuation. When presenting to Angels, I want the founder to provide a valuation because I don’t want to negotiate it. When presenting to Venture Capitalists, it is very typical for them to provide the term sheet with what they think the valuation will be, thus the founder does not need to be so forthcoming with their own valuation.
- Not Listening to or Acknowledging Input
I need to invest in an entrepreneur who can absorb input and make thoughtful decisions based on all information they have. Is the investor closely listening to the market? Is there a user group? Do they have a trusted set of advisors and is there evidence he/she uses them? First-time entrepreneurs tend to be in love with their idea and hesitate to pivot when it is obvious they need to do so.
It is a very rare company, in fact, none that I have invested in, that hits all their milestones and does precisely what the first pitch deck suggests. All company’s pivot as they obtain new information about the market and/or their customers. There is no shame in making a pivot and entrepreneurs need to be transparent about these issues and seek guidance, counsel, and advice without surprising investors.
Often, getting through the pivot requires additional funding from current investors. If you are transparent with them through this process and we believe it is clear you are hearing what the market is saying and adjusting concurrently, then you probably will not have a problem raising additional capital.
Angels are assessing your transparency in the pitch and whether we think you will listen to advice from us, and the market – or if you will bullishly drive the company into a brick wall to give your idea the best chance.
As we investors listen to your pitch, maybe 50% of what we take in is “in the deck;” the other 50% reflects many of the points mentioned above. We are often asked the ultimate paradox – is it the idea or the team that gets us interested in a deal. Certainly, we need both, but a good entrepreneur can survive a bad idea, a bad entrepreneur can’t. For first-time entrepreneurs, we tend to look at the idea first and look for supporting data points as described in this article. For experienced and successful entrepreneurs, the idea is secondary as we know this entrepreneur will just figure things out.
The Alliance of Angels (AoA) is the largest angel group in the PNW with 145 members who invest over $10M a year in 25+ startups across industries. AoA members provide invaluable business support and connections to help our portfolio companies succeed. To learn more about the Alliance of Angels go to https://www.allianceofangels.com.