When you’re looking for investors, knowing how and when to pitch, and who to pitch to, makes all the difference.
There has never been a better time to be seeking investment funding for your business, says Nick McNaughton, CEO of ANU Connect Ventures.
“These are the best of times when it comes to raising money,” he says. “The reasons are many.
“There is a general sense that the property market is at higher levels of where it can get to, so buying into property requires some thought. The NASDAQ is at historical highs, so listed equities are relatively expensive right now. And if you put your money in the bank you get virtually no return at all.”
Then there is the fact that we are currently witnessing a wave of commercially focused innovation in all sectors, mainly thanks to technological advances. Most important, McNaughton says, is the fact that the tax implications for angel investors just changed dramatically in their favour.
Where to find investors
One of the best ways to find investors is going to start-up networking events run by start-up and co-working collectives like Silicon Beach, Inspire9 and Jelly, or go directly to investment companies such as Business Angels, Starfish Ventures and Melbourne Angels.
Who and when to pitch
The investment world is split into various types and phases of investment. There are “bootstrap funds”, often from family and friends at the very birth of a business. Then there are innovation awards, start-up loans, angel investors, venture capital funds and many more.
There is equity funding, in which the investor is essentially buying into the business, and non-equity funding such as grants. Knowing what you’re after, which section of the capital lifecycle you’re targeting and who to approach is vital.
McNaughton, who runs seminars around Australia on various topics connected with finding investor capital, says the highest chance of success comes when the business already has a product, customers and revenue. That’s not to say start-up capital is impossible to find, but the very highest chance of success with a funding round comes at the next stage.
Getting the pitch right
No matter what stage you’re at, the single most important part of the fundraising round is the pitch. TV series Shark Tank has made this part of the process famous and has clearly outlined the benefits of getting it right and the pitfalls of screwing it up.
What are the essential ingredients of a successful pitch? McNaughton has heard thousands of pitches over the last two decades and while entire volumes could be written about how to do it well, he says there are a few fundamentals.
“For me, a great pitch needs to be convincingly delivered by the entrepreneur or inventor, meaning it needs to be short – less than two or three minutes – it needs to be concise and focused and it must give me all the information I’m looking for,” he says.
What exactly is the information an investor is looking for? McNaughton splits this into three categories.
- Is there a problem that the product or service is solving?
- Are people willing to pay for that solution?
- How can a scalable business be built, allowing a repeatable model that makes money over the long term?
Find the right investor
“Somebody cold called me two days ago, and I don’t like to be cold called,” McNaughton says. “I like to have an email sent to me with some background information so I can research it before I take the call. Anyway, this person called me and read their pitch to me. They didn’t deliver it, they read it from a piece of paper and didn’t ask me a single question.
“I stopped them after about 90 seconds and coached them on a series of questions that qualify the investor. They must make sure they’re not pitching to a venture capitalist when they’re looking for their first $100,000 of funding, because the venture capitalist will not do that. They have to check they’re not pitching an angel investor for two million dollars when such investors typically do $50,000. Before you jump into the pitch, make sure you assess whether you are speaking with the right target investor.”