One of the questions I get most frequently from entrepreneurs whether they need $50K or $5M is, “How can I get meetings with investors?”
The short answer is, “By getting a warm introduction from someone the investors know and trust.” But since most entrepreneurs asking me the question are doing so because they don’t have the connections to get the introduction, a longer answer is needed.
When is the Right Time to Pitch to an Investor?
Some inventors think they are ready to meet investors as soon as they have come up with a good idea. Many more think the time is right as soon as they have filed a disclosure with the US Patent Office.
The fact is that you are nowhere near ready to meet an investor at this stage. Investors are not in the business of investing in innovative ideas. They are in the business of earning a substantial return on their investment in a business that is based on innovative ideas.
The diagram at right indicates the milestones you should achieve between coming up with your innovation and eventually pitching to investors, and the approximate order in which you should expect to achieve them. I like to use pitch development to check on the completeness of the business plan and I certainly prefer to have the 30 second and 10-minute versions of my pitch ready to go prior to getting a warm introduction to investors.
But what if it’s a really good idea?
You may be able to raise interest among some investors with your new idea before you’ve developed a plausible business case for its commercialization if it is truly remarkable and has been demonstrated to work at least at a lab scale.
However, your chances of raising money are small and, even if you do, the valuation you get is likely to be disappointingly low. Worse still, by starting too early in the fundraising process, you run the very real risk of becoming “stale” if investors perceive that you’ve been around too long without raising funds. Even if you take a perfectly reasonable amount of time to get to the point of being investable, you can gain a reputation for not executing simply by pitching for a long time to a lot of investors.
But what if you are running out of funds?
In that case, I urge you even more strongly to find an alternate source of funding – your salary, grants, friends & family, even credit cards – to tide you over until you have built a robust case for a business based on your invention. In addition to my comments above, having a sense of desperation about you is just as counterproductive when meeting with an investor as it is when you are dating.
It's the Right Time When...
The right time to pitch for money is when you don't need it, which is why most startup CEOs are out there pitching the company nonstop, especially after having just raised a round. Of course, you may not have that luxury; chances are, the lack of sufficient money is a daily worry. Unfortunately, the urgency of your need is not the problem of any investor who has not already invested in your company (and often not even then). In fact, having a desperate need for money suggests a much higher risk associated with the company than the investor is likely to want to take.
You don't have to have all your ducks in a row to pitch to an investor, but you do need to have enough of your value proposition thought through and validated that you can speak with confidence and authority. At a minimum, you need to know:
- How big your addressable market is
- Why your idea is faster, better and cheaper (or at least cheaper) than what the customer is currently doing or your competition is offering
- How you are protecting your intellectual property
- How you are going to make money when the company is fully operational
- Roughly how much revenue and income you are going to make at that point
- Who is on your team and who is missing
- When and how you plan to exit
- How much money you need to get there
Do Not Waste Your Opportunity to Pitch!
Until you have something smart and defensible to say about each of these points, you are not ready to be taken seriously by a professional investor. This list is pretty much your full business plan with the exception of demonstrating your proof of concept or prototype. I've left that out because that kind of technical development can take a lot of time and money to address and it's something that you can potentially convince an investor is worth bankrolling, at least in small amounts.
If you've got a sufficiently good story for the rest of it, you can get away with an investor pitch at this point, provided you are not proposing to break a couple laws of physics to get your prototype done. Everything else in that list can be addressed by talking to potential customers and doing research into the market and your industry, so get on the phone, go out and talk to people, and use your computer to put together the compelling value proposition you know your technology enables!