Dave Valliere – Ryerson University
Only twice in the history of technology financing have entrepreneurs actually found themselves in elevators with VCs, with the opportunity to make an 8-floor pitch for funding. But still the brief and succinct capsule or "elevator pitch" is such an attractive and efficient way to present your company to investors that we still love to hear them at networking events and indeed on the occasional elevator.
The whole point of an elevator pitch is to pique the investor's interest enough to schedule some follow on conversations, where you can present your company and technology in detail. But it is critical to pitch correctly, hitting on all the information we need to hear, and leaving out the rest. Not only does a good pitch garner interest from investors, it also demonstrates that you can discern and adopt the perspective of your target audience – a skill that carries over to your company's ability to reach and convince customers too.
To potential investors, there are five key topics your pitch should address. Focus on getting those messages across clearly and concisely. Everything else can be left for a later discussion. Here are the key elements of a pitch, some questions to ask yourself when crafting each element, and a hypothetical example of what you might say. Of course, this example assumes you are pitching to the right investor, one who funds companies at the same stage of development as yours, and in the same industry sector as yours. (Finding the right investors to target is the subject of a different paper.)
1. The Market Pain - What is the problem you solve? Who specifically has the problem? Do they know it? How much time or money does it cost them? How do you know they are willing to pay to have the problem solved? How big an opportunity does it add up to? Does solving it create any additional opportunities for you?
We sell <software development tools> to <the aerospace industry>. Due to <increased safety concerns in the face of deregulation, and dramatically increased competition>, this industry is under tremendous pressure to <increase quality and time-to-market for mission-critical software>. The problem of <software rework> causes <$3M/yr lost productivity> to <the average CIO in the industry>. Globally, this problem represents a <$200M> opportunity for <development tools>. We expect to be able to later leverage our success in this market into the <defense> market, which represents another <$600M> opportunity.
2. Your Compelling Solution - What do you offer to solve the problem? How is that better than existing solutions and your competitors' approaches. Don't waste time on the technical or operational details during your pitch. Focus on what makes you unique and more attractive. What matters to your buyers when they select a solution? How much better is your solution? How can you protect that advantage from competitors and copycats? Is your solution completely developed? If not, when will it be ready? Do you need partners to provide the complete solution? If so, do you have partners or a firm plan to get them?
Unlike existing methods, which are <too disruptive to implement in risk-averse corporate IS departments>, our product <integrates trivially with existing development platforms used in these markets>. For our customers, this means <the ability to capture the benefits of higher software quality, without introducing high levels of risk and churn in ongoing operations. It is not a "bet your career" decision for CIOs>. We are able to do this because <we have deep knowledge of the tools and procedures used in these IS shops>. Our <patented development suite> is combined with <standards-compliant middleware , which we licence,> to provide <"drop in" developer products>. We expect to also have <testing and QA products> at market within <9 months>.
3. Your Team Can Deliver It - Do you understand the kinds of people necessary to build a solution like yours, get it to market, convince customers to buy it, and make a profit while doing so? Do you have this complete team, or at least a plan to get the people you currently lack? Do you recognize the gaps in your team? What unfair advantages does your team have (such as networks, industry knowledge, experience)? Do you have good advisors, and do you listen to them well? Can you sell?
Our team is almost complete. We have <a CEO who has previously run successful software companies, a proven development team, and a marketing VP with relevant industry expertise>, but we will need to add <sales and channel management skills> within the next <4 months>. We are looking for an investor who can bring <strong recruiting networks> to the table.
4. A Plan for the Money - What do you need money for? How will spending it solve the problems the company faces? Are you sure the problems you face can be solved by throwing money at them? What else do you need (management advice, networks, partners, etc)? Are you seeking the right amount? (Too much is just as bad as too little.) Will you reach a major valuation point with this money?
We need <$500k> immediately to <complete the packaging of the product>, plus <$1.2M> for <channel development>. That should get us over the next <6 to 9 months>, at which time we'll have <solid initial revenues and proof of market acceptance> and be in a good position to raise an additional <$3M> to <develop global distribution partnerships>.
5. A Big and Liquid Return - How does your company make money from the products you sell? How much will the company be worth in the future? To whom? When do the investors get their exit? What liquidity options are you considering, and how likely are they? How much money can your investors make?
We expect to provide liquidity through an IPO in <18 months>, when we'll have <references from several tier-1 customer sales> and have a great <top line growth> story to tell the markets. If the IPO market is closed then, we would consider selling the company to a large channel partner, one of whom has already expressed some initial interest in us.
Make sure in your pitch you hit on all five key elements. The two most common errors entrepreneurs make are talking too much about the technological "how it works" aspects (which are not very important until later stages), or spending too much time on the first few of the five points (and not getting to the remaining ones). Make sure you allocate your time wisely.
That's all there is to it. The only trick to pitching well is understanding the investor's perspective and the importance of hitting on the five key points. Your pitch addresses four out of five? Then your plan goes to the bottom of the pile. Fewer than four? Hmmm… But ring all five bells, and you'll have an investor waiting for you to send your business plan (and you can be sure it will actually be read when it gets there).