“Can You Pass the Turkey … And How Much Money Did We Make Last Month?” The Pitfalls of a Family Member Investor
Ahhh the holidays are among us again (I have no idea how!). Next week, most of us will gather to give thanks for all that we have, as we sit around a table full of turkey, stuffing, sweet potatoes, gratitude, and laughter. And if you’re an entrepreneur with a family member investor in your business, that table may also be filled with some difficult questions, uncomfortable conversations, and awkward silence.
As an entrepreneur, starting a new business is about excitement, courage, and dreams on one hand and anxiety, uncertainty, and often, a lack of funds on the other. And when it comes time to getting those funds, some look to their inner circles first. In many instances, it’s the only viable option, and family and friends become the lifeblood of the new venture. In fact, it has been noted that over one-third of startups have raised money from friends and family – to the tune of $60 billion per year.
Family Member Investors – Some Advantages; Some Pitfalls
There are, of course, several advantages to having a family member invest in your business. First, he or she knows you personally and is likely investing in you more than your venture. This level of trust and familiarity is something you won’t have with other investors.
A family member or friend will also likely be more flexible with the terms of the deal (although, as discussed below, there needs to be strict boundaries). They may agree to a lower rate on return, longer repayment terms and a lower interest rate (if debt is part of the deal), and less equity, and/or have fewer overall demands.
While the above factors can be extremely advantageous to any start-up, issues often arise when the disruptions of an early-stage venture cause entrepreneurs to mismanage these relationships, including overpromising, undervaluing, and lacking communication overall. Additionally, the family member investor may begin to think that they are entitled to everything under the sun, including every piece of information and much more of the money.
How to Avoid that Uncomfortable Conversation over Turkey
You’ve decided to move forward with a family member or friend investor. So, what can you do to have a nice Thanksgiving? First, awareness of the potential pitfalls of having those closest to you invest in your business is key. Most of what you can do comes down to communication and keeping them well informed not only about the business decisions you’re making, but also about how you are allocating the money. With that in mind, here are some tips:
Always treat your family member or friend just as you would any other investor.
Provide a well-thought-out and strategic business plan for them to review.
Stay confident, but don’t overpromise. Enthusiasm is great; overpromising is not. They need to understand the risks (hint: put them in writing).
Set boundaries on both sides. Yes, they’re family and friends, but now they’re also investors. There needs to be some boundaries. Remember – keeping them informed does not mean unfettered access to you or your business.
Don’t take money from those who can’t really afford it (even if they want to give it to you). This investment should never come from their life savings or retirement accounts, which will create an enormous amount of pressure on you. The question should be – What can they afford to lose?
Invest yourself. Family and friends (and any investor, for that matter) want to see you have skin in the game.
Don’t take money from family to invest in your business (especially a C Corporation) and then use that money to pay personal expenses.
Set up a meeting to discuss the specific conditions and expectations of the investment. Some questions to consider:
Is the money an investment, a loan, or a gift?
Are they getting equity? If so, how much?
How are you valuing the company?
What rights do they have with regard to decisions and to information?
How is the money going to be used – product development, marketing, salaries?
Clearly agree on everything, and put it in writing (preferably drafted and/or reviewed by attorneys on both sides).
Set regular meetings to keep your investor informed (at intervals decided upon in your agreement).
Keep with the data and the facts. Don’t embellish.
Provide them with all relevant information – they should know about the struggles, just as much as the successes.
These practices will let your investors know you’ve thought things through, while giving them the satisfaction that they’ve helped make a real difference in your business. But, at the end of the day, before you decide to go down this road, consider if you want your investors asking you questions about business as you carve your turkey next year.
Barker Associates has extensive experience in investor deals and management. If you need assistance, or have any other questions, please click here to schedule a 30-minute consultation at a rate of $100.
Once Upon a Time … The Importance of Storytelling when Pitching Investors
Think back to one of your most memorable experiences. At its foundation was likely a great story. It may have been your own or it could have been someone else’s, but a connection was made. You probably remember how you felt, where you were, maybe even a scent or what you were wearing. That’s what stories do – they connect people in a way that facts and figures never can. Whether you’re in a classroom, boardroom, or a room full of investors, your story (and how you tell it) is what will make people remember you.
Remember – investors invest in people, not in businesses. So, what do you offer that would make others take their money and risk it on you? What attributes do you possess that will help ensure they will benefit financially from doing so? Ultimately, why should they take a chance on you? Often, all of those answers come down to the connections you establish. And those connections come from the story you tell.
What About the Numbers?
Personal anecdotes, combined with a unifying passion, is what will make your business stand out in a pitch. This is not to minimize the importance of the numbers, data, and metrics. To the contrary, a great story without that critical data will lead you only to neverland. No matter how compelling a story, it cannot be a substitute for basic business essentials – a strong business plan, financials, and a proven track record. But to set that data apart from all the others, you need a compelling story to take the investors on your business’s own unique journey with you. It comes down to providing that information in a more memorable context to help you stand out among the rest.
Top 5 Storytelling Tips
Keep it Real. Authenticity is key in storytelling. An authentic story is what will set you apart from someone who is making a marketing, sales, or investor pitch for a specific business or solution. Through your story, and the way in which you tell it, investors can truly see the authentic you. And authenticity builds trust – a key component for any relationship.
Connect with Emotion. According to Inc.com, 90% of decisions are made based on emotion. Then, people use logic to go back and justify the decision they’ve already made. Use a story that includes the positive emotions your product, services, or solutions can generate.
Remember the Story Behind Your Why. Allow the investors to feel that same insight or pain that you felt when you developed your product or solution. You can only share your why effectively through storytelling. They will not only remember your message, but understand why it is so important.
Connect to a Higher Purpose. Your personal why or story likely has a far larger impact (or you wouldn’t have been able to make a business out of it). Your story becomes that much more powerful when you remind others of your personal commitment to a certain cause or providing your solutions on a larger scale to help others.
Share Another Story. Maybe the story isn’t yours. Maybe it’s from one of your clients or customers. How has your product or service improved their lives or businesses in some significant way? What have they shared with you? Focus on one particular person’s story. To be relatable, you want to be specific, and put the investors in the shoes of that person, not everyone overall.
Storytelling is not about performing as a comedian or an actor in a theatrical production. It means personalizing how you communicate your business. Storytelling builds relationships, which are at the foundation of all businesses – customers, clients, partnerships, and investors.
You want them invested more than financially … you want them invested emotionally. To capture their undivided attention during your pitch, tell them your story passionately and authentically. By creating connections, you will infuse passion and trust, leading to your own happy ending – the investment your business needs.
Barker Associates thrives in helping companies develop the right stories for their pitches. If you need assistance with yours, or have any other questions, we can help. Please click here to schedule a 30-minute consultation at a rate of $100.
Finding the right investor, who is interested in your company and you, begins long before you actually may need money. Preparations include thinking about businesses that investors want to invest in and then modeling yours accordingly, maintaining up to date financial data, and building a strong consumer base. Once you’ve made the decision to search for capital to grow your business, you create two pitch decks (yes two), and the clock is now ticking. Your goal should be to secure funding within three months from making this decision. And the best way to do so is to have targeted contact list.
First, Some Introspection
Before you can ask anyone for money, you should first ask yourself some important questions. First and foremost, why are you raising money? Be very clear as to why you are doing so, why now is the time, and what the funds will ultimately do for your business. These answers should be weaved into the fabric of your business’s story and included in your decks and any accompanying materials you may present to potential investors.
You should also do a check on your core values. Are they aligned with the company’s vision and mission? Are they still as relevant as when you developed them? Are changes needed? Only when you are confident in what you stand for can you try to find someone who shares …
Who Should be on the List?
Your targeted list may include any combination of some or all of the following: family and friends, angel investors, angel groups, venture capital firms, private equity firms, and corporate investors.
Gather data by performing research on Crunchbase or Pitchbook, and simply networking with others. You should identify vertical industries to see what is happening there. Startup accelerators are also an invaluable resource. Follow groups on social media to see what they’re talking about and what they’re interested in.
Keep in mind that you are not just looking for money. You are looking for someone (or a group) who shares your values, will be excited about what you offer, and who fits with what you do and who you are. Identify who has money and is actively investing.
Factors to Consider in Building Your Contact List
Industry. Who is investing in your industry? Why? Is there some personal connection or is it just about the potential profit? Note that those interested in one particular type of industry often have a background, experience, and connections that can help your business.
Location. Some investors want to be close to the businesses they are investing in. Others give preference to local startups. It’s important to understand if this is a priority for them.
Amount. How much do they typically invest? Some may invest only smaller amounts than what you are looking for, whereas others may invest amounts that are larger that what you need. Ensure there is a good fit.
Longevity. Are they looking for long-term or short-term relationships? Will they be involved for your next round of fundraising or will they want out before then?
Track record. How many successful exits do they have? How many businesses they’ve invested in have failed?
Value. What value do they bring? Investments into a venture are rarely just about money. Do they have operational experience? Industry experience? What are their connections and network? Will they provide advice based on their knowledge and experience? All of this will factor into how quickly you scale.
This process is about targeting the right types of investors, focusing on quality over quantity. You want the best fit to bring the most value. As is with much in business, and life, it is about networking and cultivating relationships.
Once you’ve identified some strong potential investors, gather as much contact information as possible, including email, social media accounts, website, phone number, and address. Understand that they will want to see your pitch deck to determine if it is a good fit with their investment thesis before moving forward. Being prepared sets the right expectations from the start.
Your list should be an ongoing concern. Contacts will fall off and new ones will be added. By keeping it up to date, you can ensure that you will be ready for each round of funding in the future.
Your most limited resource is your time. And the time you spend finding investors is less time you have to focus on operations, marketing, or sales. Protect that time fiercely by targeting the right investors from the start. With increased focus comes increased efficiency and clarity on what and who you really need. You may need to talk to 100 or more contacts to get some interest, but you don’t want it to be thousands. That’s where your targeted list comes into play. So you’re not spending too much time and energy and burning out before the right person comes along.
Ultimately, if you need money for your business, you need people to pitch to and the more targeted your list, the more possible yeses you’ll have, and the greater ROI on your time.
How Angel Investors Navigate Deals with an Investment Thesis Creating a Roadmap for Success
How do you know where you’re going without a navigation tool – GPS, a smartphone, or even the “ancient” map? For angel investors, that navigation tool is an investment thesis. When done correctly, it will not only guide you along your chosen investment course, it will help you identify the roadblocks and detours to avoid.
An investment thesis is one of the most useful tools in the angel investor industry, summarizing your reasons and conditions for investing in certain types of companies. If you do not have an investment thesis or some type of investment strategy from the beginning, you may fall in love with a charismatic founder and invest in a deal you have no business investing in. This scenario happens all the time and it shouldn’t because it leads quickly to frustration and likely, the loss of the investment down the road. There is a myth that an investment thesis is only for venture capitalists—those who have a fiduciary duty to invest money in a certain way. While it’s true it is an important component to them, it is equally, if not more, valuable to all investors, especially those who are just starting out on investment roads less traveled.
Essentially, if you invest in start-ups, founders will inevitably pitch you for money (it’s the name of the game, after all). Without an investment thesis, you may find it difficult to concentrate only on the start-ups that match your investment objectives because simply, you may not know those objectives. On the other hand, a strong thesis will guide you into sourcing the right deals, with your criteria, conditions, and requirements clearly set in advance.
The Benefits of an Investment Thesis
All angels should have clear, documented investment theses due to the numerous benefits they provide. And like any good roadmap, your thesis not only benefits you, it benefits others as well. Behind the driver’s seat, it keeps you disciplined on your selections and focused on where you want to go with your investments. With a deep understanding of the types of industries and businesses you want to invest in, the risks you’re willing to take (and those you’re not), and the parameters you want to see in companies, you are much better equipped to find the right fit for your money.
An investment thesis also benefits the start-ups and entrepreneurs looking for funding. It allows them to understand what you’re looking for and what you’re not, and if you’re the right fit for them. If not, they can move on to someone who is, saving time, energy, and money in the process. This can only happen when expectations are delineated clearly from the beginning.
Finally, an investment thesis facilitates communication and dealings with other investors. Angel investors refer deals to each other frequently. What may not work for one in one instance may be perfect for another at that particular time. And no one wants to refer a deal that the person is not interested in. Not only does it waste everyone’s time, but it makes that person look as if they are ill-advised.
Tips for Creating a Strong Investment Thesis
Let me reiterate – an investment thesis is crucial for your success as an angel investor. A strong one will help develop a stong portfolio, while a weak one may indicate lower overall performance. Here are a few tips to help you create a strong investment thesis:
Do not rush it. It should take thought, research, and time.
Have a clear, simple purpose, conditions, and expectations.
Choose an industry you either have experience in or in which you are passionate about.
Determine how that industry’s impact influences your decision.
Conduct market research with both primary and secondary sources.
Analyze long-term trends and short-term events that could affect the industry.
Set specific criteria for an investment. Be clear as to what you will invest in and what you will not.
Remember diversification. While you should focus on a particular industry or sector, you can diversify other factors, such as geography, business model, technology, or customer segment to create a more balanced portfolio. This should also be calibrated with your personal net worth.
Once your investment thesis is created, you will have a detailed roadmap of where you are going on your investment journey. It helps serve as a reminder of why you do what you do and what your own investment parameters and boundaries are. And it guides you toward finding the investments that fit those objectives.
Remember, all early-stage investments are risky and can fail even with the best idea, product, and management. By investing only in companies that fall within your thesis, you are not only minimizing your risk and exposure, you will also have an increased ability to help more companies grow through your specific offerings. And ultimately, a better fit in the beginning will likely lead to a better return in the end.
Barker Associates has extensive experience working with angel investors on their investment theses. If you would like to discuss angel investing, either as an investor or as a company that requires funding, or if you have other specific areas of concern, please click here to schedule a 30-minute consultation at a rate of $100.
Angel Investors and the Upcoming Seattle Angel Conference
I have the distinct pleasure of participating in the Seattle Angel Conference as an Angel Investor. This virtual event is May 12th, and I am thrilled to be involved. The mission of the Seattle Angel Conference is to create stronger startups and more effective angel investors with a “Learning by Doing” approach. Through this approach, the angel investors provide invaluable benefits to participating entrepreneurs.
Angel Investors vs. Venture Capitalists
With all of the excitement surrounding the Seattle Angel Conference, I thought it was a good time to point out some of the differences between angel investors and venture capitalists. Before a company can determine which type of investment is for them, it’s important to understand the distinction between the two.
An angel investor provides a large cash infusion of their own money (or a group’s money) to an early-stage startup. Working with an angel investor benefits the entrepreneur through the wealth of knowledge and experience the investor possesses and is ready to share. Most have earned a substantial amount of wealth through entrepreneurship, and have experience with the exact same processes, preparation, and questions in the past. They can guide the entrepreneur through all of the bumps in the road, as they build their company and success.
On the other hand, a venture capitalist is a professional group that invests money into high-risk startups or developed companies because the potential for rapid growth offsets the potential risk for failure. While they may still offer support and guidance, the transaction is mainly one of larger sums of money and more control over the venture going forward.
While both angel investors and venture capitalists invest money in start-ups, here are three of the major differences between them:
How they work. Angel investors work alone (or in small groups), while venture capitalists are part of a larger company of professional investors. Angels invest their own money, while venture capitalists invest money from various funding sources.
The amount they invest. As a general rule (and there are always exceptions), angels invest less than venture capitalists. Angels will usually invest somewhere between $25,000 and $100,000 (angel groups could be much higher – up to $750,000 or even more). Venture capitalists generally invest millions of dollars per company.
The timing of their investments. Angels only invest in early-stage companies. Venture capitalists invest in both early-stage and more developed companies, as long as there is a proven track record showing strong indications for rapid growth.
Accreditation for Angel Investors
Many angel investors, but not all, are accredited according to guidelines established by the Securities Exchange Commission (SEC). To be accredited, the angel investor must have:
annual earnings of $200,000 per year for the past two years, with a strong likelihood of similar earnings in the near future (if the angel investor files taxes jointly with their spouse, their required annual earnings increase to $300,000) or
have a total net worth of at least $1 million (regardless of marriage and tax filing status).
Seattle Angel Conference
The Seattle Angel Conference provides education for the companies that participate, completely free of charge. The education experience alone is invaluable, allowing exposure to many professionals with a depth of knowledge to help build a company with the right attributes to move to the next level. As an investor-led event, the conference connects entrepreneurs and a collection of new and experienced angel investors, who truly are everywhere. Each investor contributes $5,500 to create a fund, estimated to be between $100,000 and $200,000.
Applying companies participate in a company review, during which the angel investment committee sorts the documentation, looking for key components of investment. This ongoing review and due diligence strengthen the entire process. In the end, six companies are chosen to present their ten-minute pitch at the final event on May 12th to get a chance for funding and a more thorough review by the investment program.
The participating startups not only receive a detailed review of their company, but also the opportunity for valuable feedback from the investors, who are often seasoned entrepreneurs themselves. While many entrepreneurs want to avoid the “tough questions,” it is only through those difficult questions that the company’s narrative increases in clarity and strength. In addition, these entrepreneurs get introduced to dozens of angel investors through the process. While they may only end up working with one of them, building that network is a huge benefit – you never know whose path you will cross in the future.
For me, personally, I have loved participating as an angel investor, as it inspires me to learn about the innovative ideas of early-stage companies. I enjoy having a pulse on what is happening in various industries and what is next through these inventive entrepreneurs. All angel investors have the opportunity, and are expected, to participate in the process, including review, analysis, and due diligence. The collaboration of investors with diverse backgrounds and experiences helps bring about a better investment decision.
Click here to purchase a ticket to this thought-provoking, inspiring virtual event and learn more about angel investing and the companies that need it. If you would like to discuss angel investing, either as an investor or as a company that requires funding, or if you have other specific areas of concern, please click here to schedule a 30-minute consultation at a rate of $100.
Financial Literacy for Raising Money The Questions You Need to Ask Yourself
As we continue to discuss increasing our financial literacy, we must also consider the ways in which a company increases its chances for securing money for growth. The list of possible ways to obtain money to finance the growth of a company is extensive, including multiple forms of debt and equity instruments. The question of which is right for you is dependent upon your particular situation and your level of understanding of each. In order to navigate through this scenario, we have come up with a list of questions you need to be able to answer to make the best decision for you and your company overall.
Do you really need money for growth?
While there are many professional organizations that make endless promises to help you raise capital for your business, and while they all sound tempting, you must first understand whether or not you actually need money for growth. Contrary to popular belief, you will not always answer this in the affirmative. If you decide your organization requires capital for growth, then begin the process by speaking to your trusted advisors about their opinion on your plans. This discovery process should happen with professionals you already have a relationship with and who know about your company. Think about your attorney, CPA, outsourced CFO, or someone in a similar situation who has previously advised you in these matters. Only after this discovery and pertinent conversations can you then move forward with first designing a strategy, and then executing that strategy in a way that does not allow the fund raising process to consume the C-suite and deteriorate the business itself. These results can occur whether you are a small start-up or a large organization.
How do you know in which direction to go?
If you’re the decision maker and have governance over an organization, the first step is to evaluate your ethics and check your ego at the door before you begin to have the necessary conversations. Raising capital has become so sensationalized that those with decision-making authority tend to think of fund raising as a necessity. However, that is not necessarily the case. While raising funds is a common impetus to growth, it isn’t for every company.
Start by looking at the historical and projected financial information. Ensure the use of funds you expect to raise is clear, and that the financial strategy for growth is viable. This initial step will require that you have quality up-to-date financial information. Click here to see my blog about the need for financial infrastructure.
How do you know who to trust?
Many entrepreneurs tell me about situations where a third party offers to help them raise capital, but charge them a percentage of what they raised. Keep in mind, if the person who made that statement is not a broker or investment banker, that arrangement could be illegal and cause issues as the company grows. My biggest piece of advice is to ask if the person if he or she has a license to effectuate this type of arrangement.
The other issue is that some of the investment bankers have had a difficult time getting clients in the pandemic environment. As a result, they have started consulting to assist with cash flow and to provide themselves with additional companies to move into the investment banking sales funnel. The issue with this is that these companies are signing up to be with the investment banker before they even know if that is the right fit for them or not.
As a true professional, both of these instances are painful to witness. Before executing a contract or providing a deposit to anyone to assist with fund raising, proceed with caution. Make sure their culture and track record are consistent with your goals and strategy. If you have partners that have different goals and ethics, it could be catastrophic to the organization. Do your homework to make sure it is the right partner from the outset!
Do you need debt, equity, or a combination of the two?
Banks are conservative, and it is difficult for any size corporation to secure debt these days. This form of capital is, of course, cheaper than equity overall as you do not have to give up ownership and the interest rates are currently so low.
Equity partners can potentially have in-depth experience with the industry you are in and can actually help you build a larger and more robust entity. The saying is, “You can have a smaller piece of a big pie and actually have more value than a larger piece of a small pie.” If you do your homework and make sure your equity partner is aligned with your values and the right fit overall for your company, you can accomplish this goal.
In a scenario with a combination of convertible preferred stock, it provides the investor with a liquidation preference. In the event a few unlucky events happen, this could mean the common stock investors could wind up with nothing in the end, which is exactly what happened when BlackBerry liquidated. In that case, the company emphasized to employees that they should buy in while they could. When they were granted stock, they had to pay the taxes at the value at the time, and then when they sold the stock, it was, at time, at 1% of the value on which they paid the taxes. So, that could mean they were granted stock worth $45 per share, paid the taxes on it at their rate, let’s say 20% or $9, then they sold it for $.40, which was all the cash they received for that share, despite the taxes they paid. If they had a number of shares, that is a lot of money wasted.
In the situation with a SAFE combination, there is a debt instrument that converts to equity at the next round of investment. This is a great instrument when companies are at an early stage and the discussion over valuation is difficult. When valuations increase quickly for successful companies, this can actually turn into an uncomfortable conversation that can hold up an exit transaction under certain circumstances.
Just as with our previous financial literacy articles, it’s not just about improving your financial knowledge of the present, but about strengthening that knowledge to predict a brighter future, especially as it pertains to the growth of your company. If you would like to discuss various growth strategies and what makes the most sense for your business, or if you have other specific areas of concern, please click here to schedule a 30-minute free consultation. NOTE: beginning May 1, 2021 consultations will no longer be free.
Celebrating International Women’s Day The Past, Present, and Future of Women Leaders and Founders
“We need women at all levels, including the top, to challenge the dynamic, reshape the conversation, to make sure women’s voices are heard and heeded, not overlooked and ignored.” – Sheryl Sandberg
Yesterday, we celebrated International Women’s Day, highlighting the accomplishments of social, economic, and political achievements of women around the world. It’s no coincidence that we celebrate this day as a part of Women’s History Month. How can we celebrate the achievements of today and look forward to the progress of tomorrow, without acknowledging the determination and sacrifices of the past? While there is no shortage of influential women leaders today, they stand on the shoulders of hundreds of others who paved the way.
A Look into the Past
Unfortunately, we cannot list every courageous woman leader from the past (not to mention those we each have within our own families and friends), but here is a celebration of a few, intended to honor all:
Sojourner Truth, after being born into slavery and escaping with her infant, became an abolitionist and women’s rights activist. She later became known for her “Ain’t I a Woman?” speech regarding racial inequalities in the year 1851.
As a young girl, Louisa May Alcott worked in the mid-1800s to support her family financially, something unheard of at the time. She later wrote “Little Women,” one of the most treasured novels in American history.
In the mid-1900s, Marguerite Higgins became the first woman to win a Pulitzer Prize for Foreign Correspondence after working as a war correspondent for the New York Herald Tribune during WWII, The Korean War, and the Vietnam War.
Rosa Parks became one of the most famous, influential women of the civil rights movement when, in 1955, she refused to give up her seat on the bus to a white man. Today, she’s known as the “Mother of the Freedom Movement.”
Sandra Day O’Connor was the first female justice on the Unites States Supreme Court (1981-2006).
The list, of course, goes on in all government and private sectors, industries, and facets of life. These women and thousands more played prominent roles in advancing women to where they are today. And, as we celebrate women this month, we share in our gratitude for them all.
The Here and Now
There is no doubt that progress continues for women leaders and founders. There have been great successes in the government, sports, finance, and corporate worlds. Women are breaking records every day, but there is still a long way to go. In 2019, the proportion of women in senior management roles globally grew to 29%, the highest number ever recorded (same percentage in 2020). On the one hand, we love breaking records. On the other, at only 29%, there is much room for improvement and many more glass ceilings to crack.
The gap doesn’t just exist within the boardroom. It is also very apparent in female founders and funding. We need improvement in women led companies locating and securing the funding they need to scale their companies.
While there was already a significant gap in funding, according to Crunchbase, global venture funding to female-founded companies fell further in 2020. Whether this is the result of COVID-19 is unclear; however, there is data that suggests the pandemic has disproportionately impacted women in the workforce.
Through mid-December, 800 female-founded startups globally had received a total of $4.9 billion in venture funding in 2020, representing a 27% decrease over the same period in 2019.
Optimistically, early 2021 Crunchbase data shows improvement. In fact, 30% of investments in U.S. companies at Series A and B stage between January and mid-February went to teams with female or Black founders. While it is a brief study period, this trend is worth watching over the coming months.
Overall, while female entrepreneurs are still far underrepresented in startup funding tallies, at least there are some signs of, and initiatives to, continue that progress. In fact, there is a new target set by All Raise (an organization that advocates for female investors and founders) of growing seed and early-stage funding amounts from the current 11% to 23% by 2030 for U.S. companies with a female founder.
So much has been accomplished, yet, it’s clear we still have a long way to go. According to the World Economic Forum, global gender equality is not estimated to be achieved until 2133. So, as we celebrate the great women leaders of yesterday and today, we do so with an understanding that thousands more women will be standing on our shoulders tomorrow. And the forward momentum that is women’s leadership continues on.
Are you a woman founder looking for funding? Are you ready to be a part of that 23% target? Schedule a free 30-minute consultation with this link to my calendar to talk about how we can work toward getting you the investment money you need.
A Successful Pitch May Come Down to Your Words What to Say and What to Avoid
Lately, we’ve been talking a lot about pitching investors. We talked about the importance of your story coming through loud and clear and why you need two pitch decks. And with all this “talk,” it now comes down to your actual words.
You have a limited time to tell your story and make the best impression. Knowing what will resonate with potential investors, and perhaps, more importantly, what will not resonate with them, can make all the difference in whether you receive funding. Even if your pitch deck is perfect, it can easily be derailed by poor word choice. How you choose your words says a lot about you, your views on your business, and how you would fare as a potential partner.
Overall, your pitch will tell your story, including information about the problem (briefly), target market, revenue or business model, early successes and milestones, customer acquisition, team, financials, competition (briefly), funding needs, and exit strategy. As you’re talking about each, there are words and phrases you should avoid, as what the investor hears when you say them will be entirely different than what you intend. Take the following chart as an example of some of those situations.
No one can do it alone. This person will burn out.
No market or you have not done your research
Amateur – there are no guarantees in investing.
Any word or phrase you cannot explain well
A Quick Note on Buzzwords
People tend to use them because they think it will make them sound like they know what they’re talking about. But those people aren’t fooling anyone, particularly sophisticated investors. A “buzzword” is defined by Merriam Webster as “an important-sounding usually technical word or phrase often of little meaning used chiefly to impress laymen.” By the definition alone, you should see why you should exclude them completely. You want to impress the investors (who are not laymen) the right way – with legitimate numbers and proven strategy, not by trying to sound impressive.
Powerful Words/Phrases that Strengthen Your Story
Instead of the above words and phrases, focus on the following powerful ones that show you mean business:
Customer Acquisition Cost (CAC) – explain how much your customer acquisition strategy costs and how it can be reduced over time.
Lifetime Value – explain how your customers will eventually cover the cost of operations.
Churn – explain how efficient you are about retaining your existing customers (eventually generate enough value to pay back their acquisition cost and help you generate a profit).
Burn Rate – explain how much cash you have remaining to operate and how efficiently you are operating your business.
Cost of Goods Sold (COGS) – explain the sum of all costs that go into offering your product.
Gross Margin – explain how well your business is performing.
EBITDA – understand what this means and have projections to back it up.
Use of Proceeds – explain how the investor’s money will be spent and make sure it is not to increase the existing C Suite or Founder’s salary.
These are the terms investors want to hear. Not only do they demonstrate that you know your business inside and out, but they also give more credibility to your numbers. A win-win for investors!
Other Pitching Tips
Now that you understand the words and phrases to avoid and those to focus on, other pitch tips include:
Be on time and respectful of your time limit. Show that you value the investors’ time.
Be confident, but not arrogant.
Focus on the solution, not the problem.
Don’t attack the competition. Instead, focus on your strengths.
Think and talk long-term. Investors are not interested in quick wins. They’re looking for companies that are going to make an impact on their industry.
Communicate your “why” passionately and infectiously.
Understand that there is a difference between creating a great pitch deck and creating a great pitch.
Going into any pitch is a nerve-wracking experience. Even with practice, you may struggle to find the right words, which is why focusing on them from the start is so important. There are many available pitching tips out there, but word choice alone can make or break the deal. At the very minimum, they can give some extra positivity, and who doesn’t need that on pitch day?
Barker Associates has extensive experience with assisting companies in preparing their pitches, including the keywords they want to use (and to avoid). Schedule a free 30-minute consultation with this link to my calendar to talk about how we can work toward getting you the investment money you need.
The Pitch Deck Something so Important, You Need Two of Them
As someone who regularly helps others prepare to pitch to investors, I see one situation far too often. This may all sound a little too familiar to you as well. You are an entrepreneur who has done everything right. You developed a product or service and turned it into a successful business, that business began generating revenue, and now you are ready and willing to scale, but need investment money to do so. Then, you seem only to hear a resounding NO from the investors you approach.
Why? More often than not, it’s because the investors have no indication of what you are actually offering them. And understanding what you offer comes down to two simple words, with not so simple connotations … “pitch deck.” Yet, if I can share one piece of advice with you, as I do in my book, Pitching to Win: Strategies for Success, it’s that one pitch deck is never enough. If you are serious about scaling your business by pitching to investors, then you must have two pitch decks – one to send to investors and one to use in your presentation (or pitch).
Let me explain. Some investors will not agree to meet with you until they have first reviewed your pitch deck. As such, they may ask you to email it to them before scheduling an actual pitch. And just as much as an email is not the same as standing in front of someone delivering a presentation, your pitch decks likewise cannot be the same.
Understanding how they are similar, and how they are different, is key to getting that next phone call, presentation, or meeting. To that end, I have put together the Top Five Tips for ensuring you have two pitch decks that will get you the right attention when you need it.
Pitch Deck Creation: Top Five Tips
1. Be Proactive
Research the investors who are already investing in similar products or services. If they have similar interests, they are the ones most likely to invest in you. Try to determine what types of questions they asked before and incorporate the answers into your pitch decks from the start.
2. Create Pitch Deck #1
This is also called the “Handout Pitch Deck.” It is the one that you will email to investors when asked for a copy. The key to this pitch deck – it must stand alone.It cannot rely on your verbal explanation of the content because, quite simply, you will not be there to explain it.
The Handout Pitch Deck must quickly communicate with words (but not too many), numbers, and graphics your “Why me?” to potential investors.
3. Create Pitch Deck #2
Use Pitch Deck #1 as a foundation to create Pitch Deck #2. Pitch Deck #2 is the “Presentation Pitch Deck.” This version is based on you delivering your pitch, aided by high-level slides with few words and many images. It does not, and should not, stand on its own. Pitch Deck #2 will have very few words and numbers, if any. Instead, it will function much like a television or movie screen, as your priority is having the audience focus on you and your messaging, rather than reading slides. Remember, at the end of the day, this pitch deck is a sales presentation.
4. Ensure that Both Decks are Concise, Professional, and have Visual Appeal
Pitching is never the time to get into the intricate details of your past experiences or even your product or service. Get to the business of what investors want to know:
(a) what your business is all about and
(b) most importantly, how it is going to make enough money to return
multiples of the amount of money you are asking them to invest.
5. Update Both Pitch Decks Regularly
Consider this scenario: a potential investor asks you to send your pitch deck via email or present it to a group of investors. You respond that you will get it to them in a couple of weeks. Chances are that when you finally prepare your pitch deck, the investor will have already moved on to other projects and entrepreneurs who are ready to take their money.
You want to be able to distribute Pitch Deck #1 or present Pitch Deck #2 at a moment’s notice. Just as every professional has an up-to-date resume to present at any time, a growing entrepreneurial company should have both pitch decks ready to email or present at any time.
The creation and management of your pitch decks are critical parts of the capital raising process. Remembering that the difference between the two decks comes down to your voice is of the utmost importance. Pitch Deck #1 must stand on its own, capturing your voice, without the benefit of you speaking, while Pitch Deck #2 exists to bolster your voice as you present. Barker Associates has extensive experience with assisting companies in preparing their pitch decks. Schedule a free 30-minute consultation with this link to my calendar to talk about how we can work toward getting you the investment money you need.
Pitch and Storytelling According to “Schitt’s Creek”
A Successful Pitch is the Result of a Good Story
Recently, I have been watching the Schitt’s Creek series on Netflix … for the second time, and enjoying it even more this time around. When I watched it the first time, I found myself getting irritated. But several Schitt’s Creek fans I knew encouraged me to stick it out, and I am so glad I did. What I learned watching the entire series twice is that each character surprises you from many different dimensions throughout the six seasons, representing numerous similarities to the world of pitching investors.
The story centers around an ultra-wealthy family that loses everything. The first episode shows the authorities taking all of their possessions, forcing the family to move out of their large estate. They soon learn that they can retain a small town they purchased as a joke years earlier. So, they get on a bus with their suitcases and head to their new life. They are immediately immersed into a stark contrast from the luxurious lifestyle to which they had been accustomed. Yet, despite the lack of luxury, their experiences in this small town teach them many lessons they never would have learned before about life and business, including how to pitch to investors. You can see why my interest was piqued! In fact, I was so interested in the story that I watched an interview with the two creators.
One of the creators insisted on developing the backstory of each character for hours prior to starting the script, while the other got increasingly frustrated with the time and energy “wasted” on backstories when they had an entire script to write. However, he soon realized that the investment of time in creating those backstories was one of the primary reasons for the success of the series.
The parallelism to pitching to investors was uncanny. An essential element of a successful pitch to investors is having a compelling backstory. It is far beyond the “script,” or in this case, pitch deck. Working on the story behind the company so that it is authentic and backed by sustainable facts is the key to reaching investors. And connecting with them authentically through your story, coupled with ensuring you are the right fit for their investment criteria, will ultimately secure the investment! Success!
I recently became an investor in the Seattle Angel Group and immensely enjoy the education the group provides for both investors and companies preparing for pitch competitions. Bob Crimmins, a repeat successful entrepreneur, was one of those educators, and he was fascinating. He called successful stories “Cogent Stories,” as they are believable and can help an investor understand how they are going to invest their dollars now and receive a significant return three to five years later. As I watched Schitt’s Creek, I thought a lot about Bob and the impact of “Cogent Stories.” Apparently, they work for more than investor pitches. They are also what is behind a hugely successful series.
Now, back to our regularly scheduled programming! (Spoiler alert here – if you have not watched the entire series you may not want to read further, but schedule a chat with me (link to my calendar) to discuss your backstory and pitch deck.).
In the show, Johnny Rose (the family patriarch), Stevie (the hotel clerk), and Roland (the mayor of Schitt’s Creek) are business partners and pitch investors, achieving success at the end of the series. There are many circumstances that bring these individuals together, and their collective growth leads to the overall success of the pitch.
Johnny Rose had been a successful businessman and made a lot of money with his business “Rose Video.” The events that led to the loss of his fortune were based only on his business partner’s actions. The business itself was successful. While Johnny’s story is fictional, similar stories happen every single day in the “real world.” What happened to Johnny could happen to anyone if they are not paying attention to governance, controls, and financials. Yet, the loss of Johnny’s fortune was itself a growth experience.
Stevie was working the front desk at the hotel in Schitt’s Creek, feeling like she was a failure. In an effort to “get her life together,” she decides to branch out and interview for a professional position with an airline. After she secures the position, she learns it is not for her after all. This experience actually creates a huge appreciation for who she is, her talents, and her previous role. Similarly, for the C-Suite to be successful, confidence and self-identification for the position must exude when the investors begin their due diligence.
Roland is the mayor of Schitt’s Creek, which is a position filled with pride, in part, because it was bestowed upon him through birth rite. Roland struggled with who he was, and there were many times that his self-discovery process irritated Johnny and Stevie. But despite all of those irritations, he showed he was trustworthy and loyal to them in many ways as their relationship grew.
Through trial and error, often hysterical ups and downs, these three professionals began to trust each other. They respected the talent and contribution they each brought to the team. Johnny knew that Roland would always have his back, and vice versa. One of my favorite episodes is when Johnny and his wife, Moira, are celebrating their wedding anniversary, and they run into some of their old “rich” friends, along with their new friend, Roland. The encounter is a life lesson in itself. Johnny and Moira attempt to fit in like they used to, but soon get irritated and offended when their old friends begin to talk negatively about Schitt’s Creek. Johnny, standing up for Roland, who is even more offended, mentioned that while their so-called friends never reached out once after they lost everything, Roland and Schitt’s Creek welcomed them with open arms.
This episode reminded me of the loyalty, communication, and respect needed among team members working toward pitching to investors. Working as a team to strategize and execute a fast-paced growth company takes perseverance, intellect, the ability to deal with ambiguity, and many other attributes that can only be achieved when there is open communication among team members who trust each other. At the end of the day, it must roll up into an authentic story about who these people are because that’s what investors are investing in … the people behind the company.
When you are preparing to pitch to investors, the best thing you can do is work on your “Cogent Story.” Take the time to create all aspects of your strategy prior to the pitch, similar to how the creators worked tirelessly on creating the backstories of their characters on Schitt’s Creek. Your story will be more authentic, your confidence will increase, your team will be stronger, and your chances of success will increase exponentially. Barker Associates has extensive experience with assisting companies in developing their backstories and preparing pitch decks. Schedule a free 30-minute consultation with this link to my calendar to talk about how we can work toward getting you the investment money you need.