If your startup is looking to raise capital, your success will depend on how you sell your idea and your team. Whether you are pitching to a VC, angel investor or long time friend, there are a number of things you should know. Below, we’ll highlight four considerations when pitching to investors.
1. The Regulations
The Corporations Act 2001 (Cth) (Corporations Act) regulates capital raising. The Corporations Act imposes strict disclosure requirements on companies raising capital in certain circumstances. For private companies, however, there are exemptions to these requirements.
If you are offering shares to the public, you will be exempt from the formal disclosure requirements if:
- You made a personal offer to someone likely to be interested in the offer, and you only intended that person to accept the offer; and
- You made the offer to less than 20 people in a 12 month period; and
- The offer will not result in the company raising more than $2 million in a 12 month period.
Offers to sophisticated investors and professional investors are also exempt. Importantly, however, you must not advertise or promote this offer to the public for the exemptions to apply.
These exemptions mean that a startup raising $2 million or less in a 12 month period from less than 20 entities shouldn’t have to go to the trouble of preparing formal disclosure documents. A pitch deck (and if required, an information memorandum) should suffice. It is crucial, however, that your pitch deck is accurate, truthful and not misleading or deceptive. You should include an appropriately drafted legal disclaimer and have a qualified accountant review your financials.
2. How to Sell Yourself
The purpose of pitching is to sell your ability and potential as a founder. Any investor’s ultimate goal is generating a good return on their investment. That means that they are investing in the thing that is going to make the company a success – its founders.
You might have an idea that the market is craving, but if you aren’t fully committed to, or capable of, turning this idea into a profitable business then your idea is merely that – an idea. When you are pitching to an investor, you must convey your integrity, tenacity and confidence. Demonstrate (rather than explain) your experience, knowledge and skills and, most importantly, convince your investor that you are fully committed.
Have you had setbacks? How did you handle them? Provide examples which demonstrate your abilities to your investor. Also, use the right language to project confidence. For example, you are not ‘trying to raise capital’, you ‘are raising capital’.
3. What to Include in Your Pitch
Each business is unique. However, an investor is looking to hear a few key points during your pitch and you should be able to expand on these if asked.
|Idea||Can you summarise this in 2-3 sentences? Explain to your investor the problem you are trying to solve and how you propose to do this.|
|Team||Who are your key team members? What are their strengths? If you are a tech startup, who is your CTO?|
|Competitors||Generally speaking, an investor is expecting you to have competitors, so who are they and how does your business distinguish itself from them? How will you compete?|
|Startup Lifecycle||Where do you intend to be in six months, one year? Who are your customers or clients? Can you demonstrate that they are returning to your business? What is your marketing strategy and, importantly, how is your business model scalable?|
|Investment of Co-founders||An investor will want to see that you are fully committed to your idea. An easy way to demonstrate this is to show how much you have personally put on the line.|
|Capital Raising to Date||How much does it cost for you to acquire a customer and how much does it cost to keep them? When do you intend to be profitable? Before selling your pitch be sure that you have set out your projected revenue and expenses and determined how much capital you will need for each key business milestone. Cash flow is essential for startups, and your investor will want to feel confident that you understand yours.|
4. Pitch Style
Your pitch should tell the story of your business in the most engaging, professional way possible. It should progress in a logical way, starting with the most relevant information and ending impactfully.
It is important to keep in mind that while you have been running every aspect of your business for the last six months, your investor hasn’t. It might be the first time they have heard of the technology you are using, or they may have limited knowledge of the customers you are servicing. Practice your pitch on your friends until you can present it without reading a script or notes.
The opportunity to pitch in front of an investor should be taken seriously. Be well-prepared and make sure you have questions to ask the investor too as it’s a two-way relationship. Ensure that you carefully consider your pitch, both in content and style, and you will be well on your way to success.