“He who exercises no forethought but makes light of his opponents is sure to be captured by them.”

This quote got me thinking about business competition and more specifically how this relates when a business is looking to secure investment, using the elevator pitch and beyond.

A common misconception that those seeking investment for the first time have is the strategy of underplaying the strength of their market competition. Logically it makes a lot of sense to sell the investors on the idea that there is little of no competition in the market place, or that existing competition doesn’t pose a significant threat. This may well be the case but more often than not underestimating the competition has the opposite of the effect desired when pitching for investment.

Competition is good

An investor will respect your honesty and you will gain instant credibility if, instead of hiding the strengths of your competition, you focus on how the other players in your industry go about things and how your business will differentiate itself. Having strong competition in your business field can actually be very positive and can go a long way to compensate for any lack of IP. It proves there is a market for your product or service and that other businesses are willing to spend big marketing bucks to capture the target market.

Displaying true insight in to your competition can only be a positive thing when seeking investment.

OK that takes care of your initial elevator pitch but when you do get a “sit down” face to face with your target angel you will need to further substantiate what you have presented in your elevator pitch.

Hopefully your pitch has baited the big fish angel, now you need to hook them with an entertaining story of how you came about your business idea or how your team came together. This is a great way of capturing the attention of the angel and excellent for building rapport as, being angels, they no doubt can relate to your experiences with their own.

What doesn’t kill you makes you stronger

It can also pay dividends to talk about previous faliures (if you’re anything like me, you’ve had many), as bizarre as this may sound it proves your strength of character and again, the angel will no doubt relate.

Your ultimate goal is to keep the angels attention focused, a good way of doing this is to quickly gloss over the superfluous aspects of your business and present deeper insights in to the meat of your business and it’s plans for investment allocation.

The Google & Facebook Killer

This brings me neatly on to my next point, leave hype for the marketing. Never exaggerate or big up your product. Angels are shrewd entrepreneurs in their own right and can spot over exaggeration a mile off. Overemphasising is another potential pitfall, angels want to see any barriers to entry and IP advantages but they don’t need to know the ins and outs, at least not until due diligence stages.

It is important to end the meeting leaving a powerful impression. If you end the meeting with passion and confidence it will solidify the positive impression then angel has of you and the perception that you will look after their money and deliver an excellent ROI.

Less Risk

Equity finance carries less personal risk to your own assets. Equity investments are risk capital with no guarantees that the investor will be getting their money back, let alone make positive returns. This type of investment is not secured to any particular assets, such as property or director guarantees.

Interest Free

Unlike debt finance such as commercial mortgages or business bank loans, there is no interest applied to money raised, the risk is solely placed with the investor who is looking for a lucrative exit to make a profitable return on their investment.

Realise your goals sooner

Taking equity finance will enable your business to realise it’s goals much sooner than following traditional funding routes such as business loans, invoice finance and overdrafts. Many small business owners are often reluctant to release a stake in their business with fear of losing control when their focus should be on maximizing their growth potential as early on as possible.

More favorable terms than banks

You will often be able to negotiate more favorable, stable terms than you would through a bank. Businesses with very rapid growth and capital expenditure are often very unpopular with the banks. Banks much prefer to see steady growth projections based upon a proven business plan.

Expertise not just capital

Raising equity finance from business angels doesn’t just generate capital but often adds beneficial skills to the management team mix. Business Angels often like to take an active role in strategy and business plan execution, this intangible asset can often be more valuable than the physical cash raised.

Angel Investors are typically successful entrepreneurs in their own right who would like to get involved with a business at an early stage, this could be for an opportunity to put their knowledge and expertise to good use, for tax reasons, or simply to benefit from having shrewd business investments with the potential of high returns.

Why Angel Financing

Releasing an equity stake in your business in exchange for angel capital will enable you to achieve your goals much quicker than growing organically or relying on increasingly hard to find bank financing.

Angels will also bring a wealth of experience that money can’t buy. They will often have industry contacts and will add a level of credibility to your venture, in the eyes of your clients, suppliers and future investors.

Where to find Angel Capital

Finding Angel Financing can be nutoriously difficult, in the UK you can browse the British Business Angels Association website where you will find information on angel networks. In the US there is the Angel Capital Association which segments angel networks in to regions.

What Angels are looking for

The criteria for Angel Capital is less structured and rigid than the requirements for Venture Capital. The Angel, being a private investor, is in a position to take a more optimistic view towards potential drawbacks.

There are certain key factors that an angel investor will be looking for in potential investments:

• You have researched and understand the target market
• Your business has clear goals and you stand firmly behind your business plans
• You have a clear understanding of how you will go about achieving targeted growth
• You have the necessary skills within your management team

You management team may well be laking in certain areas. The good thing about angel investors is that they will often step in to the role of adviser and mentor, which will go a long way to compensate for any areas that are lacking in your current management team.

Should you go for equity rather than debt financing?

If you have rapid expansion plans and want to achieve your goals in the shortest space of time, whilst minimising the risk to your personal assets then seeking angel financing could definitely be a good route to follow.

AIDA stands for: Attract - Interest - Desire - Action

Attract

Attract the attention of your audience. In the advertising sense this is the main attention grabbing headline or hero shot which draws the eye and encourages the audience to want to find out more. In pitching for investment this relates to the initial description of the concept.

Interest

Stimulate the interest of your audience. When creating an advert you would stimulate interest by providing some information about the product or service which the audience will be able to associate with. Providing a description of your target market should have the effect of stimulating interest from potential investors.

Desire

Promote desire in your audience. Your advert has already garnered some interest in the product or service it is now time to promote desire. In the advert you may well promote a lifestyle which is appealing to the target market, or offer a financial incentive. Promoting desire in potential investors can be achieved by having a clear revenue model and understanding of the scope of the market and your products huge growth potential.

Action

Encourage action. An advert should always encourage action from the audience, this is often achieved by the use of a time sensitive offer or limited availability, or merely just asking that the audience take action. When it comes to encouraging action from potential investors, displaying passion and enthusiasm in your venture and displaying the clear strengths of your team will make you very appealing. Potential investors won’t want to lose out to another investor which will be a very strong motivator for them to get in touch.

Summary

A lot can be learned by applying advertising theory to the process of pitching for investment. If your Elevator Pitch takes the investor through the journey of attraction, interest, desire and action you stand a very good chance of them contacting you to find out more.

The big risk? Running in every direction, chasing every lead, idea and opportunity only to realize at the end that you’ve made very little progress.

Having true focus and prioritising tasks is of up most importance, particularly in the early stages of a company. Taking time to develop a plan that covers milestones and targets can be very beneficial at motivating you to stay focused.

Another piece of golden advice . . .

Opportunities that take too long to materialize are bad opportunities. Startups don’t have the time - especially right out of the gate - to spend long periods of time in negotiations or chasing leads.

In previous ventures I have fallen foul of this, spending time I should of focused on other areas I spent “chasing rainbows”.

Investors really notice focused entrepreneurs, of course they want to see creative risk taking and enthusiasm, but back that up with solid focus and you are on to a winner.

I will be exploring techniques for staying focused in future posts, in the meantime take a look at The Challenge of Staying Focused in a Startup

The Googlebait Phenomenon

Google’s growing appetite for buying small technology startups has fueled a lot of innovation in the tech startup scene. So called “Googlebait” companies are appearing on an almost daily basis, positioning themselves to be the next beneficiary of the search giants bottomless “ad dollars” pockets.

Indeed it is important to work out potential exit strategies at inception but putting “all eggs in one basket” and forming the venture with this one goal in mind is risky to say the least. We are witnessing a unique time where technology startups can go from idea to launch with very little seed capital. This combined with other routes of exit such as IPO being increasingly difficult to obtain, fuels this Googlebait mentality.

Investors will be focusing as much on the execution of your business and its own revenue earning potential, as it operates and not solely at the exit. If you are hell bent at targeting Google as your exit strategy then they do make things easier for you, providing you have clear advantages that aid Google’s future business development goals. Google have a team of 15 full time employers in their acquisitions team and they have a policy of reading every pitch for acquisition.

“We see a lot of companies built to be acquired,” says John Burley, the head of Burley & Associates, a Washington-based business acquisitions services firm. “They come to us talking about how Google or some other large firm should buy them. More often than not, we decline to take these clients.”

The acquisition companies can often be reticent to take on these kinds of projects. The good news is Business Angels will have been through the acquisition process many times before so can add valuable advice, insights and the credibility which opens doors.

The Total Meltdown

You’ve successfully raised millions in capital, employed many people, invested in premises and then it goes bang and all comes crashing down around you. These “Total Meltdowns” often get the most attention and the founders are often highly criticised which is more often than not totally unwarranted. Founders should be praised for having the Big Cojones to go all out to make a difference.

The Empty Fuel Tank

Most common reasons for business failure are often due to the business running out of fuel. Perhaps there have been a series of small failures which culminates in collapse. Perhaps the sales process wasn’t tight enough, or the market didn’t quite understand the proposition. Typically in these scenarios the business runs out of money or the founders simply lose energy due to all the set backs.

The Lost Opportunity

This one is sometimes hard to live with, the business hasn’t failed like above, it is still opperational and making profits. However perhaps taking early stage funding, seeking out that expansion capital to exploit an open vertical or raising equity finance could of led to huge growth potential.

A big reason behind forming Edge Venture was to enable businesses to quickly capitalise on their opportunities and realise their true growth potential, but all the financial assistance in the world will not compensate for lack of energy and enthusiasm born out of previous failures. Embrace failure and learn from it, don’t let setbacks get you down and grasp every opportunity that comes your way.

Guess how much it cost us. What’s that? $2,500? No, not even close. Did you say $5,000? Well, it’s probably worth that much. But - future investors take note of our penny-pinching skills - it actually cost us all of $19 (nineteen) US dollars.

As logos go this is actually pretty good and a steal a $19!

What’s Qassia all about?

Qassia is an interesting web startup, currently in closed beta but due for imminent public release. The concept is to collect together “intel” from website owners looking to promote their websites, for traffic and search engine benefits. They have an internal credit system which allows you to earn Qassia dollars for submitting and rating articles. They also have an interesting revenue share model where members can earn 100% of the ad revenue when ads next to their submitted articles are clicked.

I believe Qassia has the potential to be another Wikipedia as long as the member rating system is robust enough to keep spammers out. As mentioned the site is still in private beta but you can join using this Qassia Invite.

Step 1 - Concept

This is quite simply what your business does. It pays to kick off with a succinct one sentence description of your business which will make it immediately apparent what your business is about. You can do this by linking it to something that the investor can relate to, so as to align the investors frame of reference. For example with Edge Venture we could say “Dragons Den Online” which in three words has conveyed to the audience what the business does.

A good rule of thumb is to create an impactfull one-liner that could be understood by either an 8 year old or an 80 year old. In doing so you can be confident that the investor will immediately grasp the concept.

Step 2 - Market

This is often an under-utilised aspect of the elevator pitch. Often it is glossed over and focused placed on other areas of the business. It is very important that you both understand your target market and express that understanding to your audience. A potential investor is going to want to appreciate the scope and size of the target market and expressing this knowledge in the Elevator Pitch is going to give the investor much needed confidence.

Step 3 - Model

This is obviously how your business will make money. We believe that it is best to leave specific financial detail out of the elevator pitch, financial projections should be left to further discussions later down the line. For now you only need to focus on the revenue models and the various income channels your business will have.

Step 4 - Execution

This step is arguable the most important. You need to convey to the investor that you and your team are ideally suited to make your business a success. You should focus on how the skills of your team will mean you can capitalise on the potential. If you are lacking in any one area it pays to explain any strategic alliances or support you have in the business, or with regard to Angels, what you believe they could “bring to the party”, beyond the capital injection.

Edge Venture are here to help

In future posts we will be discussing each phase in more detail and giving your more in-depth insights and advice to help you prepare an attention grabbing, investment getting elevator pitch.