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Aug 22, 2015

The Kejora Series: Steps to Approach Venture Capitals pt.1

Congratulations, now that you've done your research about the different venture capitals in your community in Indonesia we can start working on the steps you can do to approach them. In this chapter, we will talk about the checklist about the different materials that you need to have before approaching your venture capital, angel investors or other investors of choice. After you collected all the materials in the checklist, we will also provide you with our suggestion in the steps to take when approaching an investor. Please keep in mind that our suggested guide is not the only method in approaching an investor. In addition, the success in getting funding for your business depends on you and your business.

 

The Checklist

So what materials do you need before meeting or approaching your investor of choice? Here are some materials you can prepare ahead of time before setting a meeting with your potential investors:

  • Elevator Pitch

  • Pitch Presentation also known as a Pitch Deck

  • 1 Pager Summary of your Startup or company

  • Financial Projection of your company (includes business and revenue plan)

 

The Elevator Pitch

There are many reasons why you should prepare your elevator pitch before meeting your investors. One of them being that it takes a long time before you can perfect your elevator pitch for your startup. Second, you never know who might meet coincidentally, it may be other future investors or potential partners that you might want to work with in the near future. In addition to preparing your pitch beforehand, you should practice your elevator pitch with as many people as possible, so that by the time you meet your potential investor you can give your elevator pitch as easy as it is breathing.

So what is an elevator pitch? It's a very short pitch line, which should be less than 1 minute. Usually a good elevator pitch contains around or less than 10 words. An elevator speech should be clear and contain all of the following information: name of your company, define your offered solution, defining the target market, to solve what problem and by what unique feature or attribute of your company.


"The Pyramid Pitch" by Founders' Institute

Why should you make your elevator pitch? It is simply a clear and concise summary of your startup either used to start your presentation or attract investors to be a second meeting. If you were to meet your potential investor in an elevator or an event, you would have to gain their interest within seconds as they won't spend too much time talking to you. Therefore by having a clear, intriguing and concise elevator pitch, you can interrupt the routine for a few seconds to get them interested in knowing more about you and your startup.

 

Pitch Presentation (Deck)

When you are thinking of approaching an investor, always have a pitch presentation or pitch deck ready to present. This pitch presentation should be around 3 to 5 minutes long and every slide should be useful for your presentation. Do not put empty slides just for aesthetics of the presentation. Investors would not invest in you based on a pretty presentation, instead it's the content in the presentation that matters. A pitch presentation for seed funding is usually less than 15 slides, and it has to be both exciting and structured. Make sure the flow of your presentation is as fluid like you're telling a story to the investors. However keep it realdo not exaggerate or provide the investors with false information or facts about the market opportunity and your startup. In addition, make sure all the facts and information you provide in your presentation is factual and true.

How do you structure your pitch presentation? First, you stage your presentation. You can start your presentation by giving your elevator pitch to give the investors a summary about your business. Then you have to tell them about your target market and market opportunity. Don't forget in including the problems your industry have and your solution to fix it.  Talk about the industry of your business and what you know about. Do you have competitors in your industry? Are they your direct competitors or your indirect competitors? What makes you different from them, are they national-based or internationally-based? Make sure you do your research and provide your source in order to convince your investors that your report is factual and not made up.

After staging your presentation, you have to capture your investors' interest through showing your potential product if it is not ready yet. In this part, make sure you're clear about your product and can provide images of your product. If you haven't build your product make sure you state the current stage of your business and provide a photoshopped image of the final outlook of your product.

Other than showing your product, you should also be able to explain your business, revenue and marketing plan to your investors clearly and direct. If you make it too complicated, it will directly become a red flag for investors as they prefer investing in things that they understand. Try to simplify your business, revenue and marketing plan as clear as you possibly can. And make sure to notice any flaws beforehand as they will be questioned by your investors later in the meeting. If you can't provide a solution for your business, revenue or marketing plan flaw, then try to find a way to fix it before meeting the investors. If you company have already had some traction, make sure you mention it. Often if your startup had not make any revenue, investors like looking at your traction in order to determine your company's growth rate and how you will do in the future.

Lastly, convince the investors to invest in your company. You can do this by showing the growth forecast of your company. Make sure that you make the forecast as realistic as possible, if you build the expectation of your company too high, the investors will be able to find out and will deem you as a risky investment. If they do invest on you for the first round and you failed to execute, it will be very difficult for you to raise for the next rounds. In addition to showing your company forecast, make sure you include information about your founder team and their experience and relevance to the industry of your business. By doing this, you are affirming to the investors that your team is the right team to build your company.

You should also clearly state the status your startup is in currently, then proceed to do 'the ask.' 'The Ask' being the amount you are asking your investors to fund you for your startup. Don't forget to include the reasons of why you need that amount of sum for funding. Make sure 'the ask' fits the cost of the things you claimed you are going to use their funding money for.

Overall, the best thing you can do in your pitch is to stay alert and honest. Don't overdramatize things and don't falsify any information. Stay calm and deliver your presentation with great confidence in yourself and your startup.

 

"12 Slides of A Pitch Deck" by Founders' Institute

 

1 Pager Summary of your Company, also known as an Executive Summary

A 1 Pager Summary of your Company also known as an Executive Summary is just what it is. A one page summary of your company. If you provide a 1 Pager Summary do you still have to provide a pitch presentation when meeting a potential investor? The answer is yes. A 1 Pager Summary is a printed version of your pitch, something that you leave for your potential investor to keep in order to keep you fresh in their minds.

Now the question is: What should you include in your 1 pager summary? Start your first paragraph with your problem and your solution, this should be your hook for your summary. If you can somehow make it relatable to your investors, it may be bonus points for you and your business. State your value proposition and what you are offering for which target market. Make sure it's straight-to-the-point, don't use acronyms or provide the history of how you got the idea of your company.

Afterwards, talk about the market size of the industry and the growth opportunity for your startup. Through a few sentences state your basic market segmentation, the size of the market, the dynamic and potential for growth of the industry at which you are trying to conquer.

Next you are going to talk about your competitors and your competitive advantage over them. Do you have connections in your industry that makes you more advantageous compared to your competitors? Do you have a unique benefit over the competitors, is your solution cheaper compared to your competitors? Do you have partnerships with larger corporation or other startups that will provide you with value-added advantages when competing with your competitors.

After talking about your competitors, proceed in including your business, revenue and marketing plan in a clear and concise way. Talk about who your customers are and whether they are paying yet. Which stage is your startup in. Include your tractions that you have currently. Tell your investors whether you have any patents or license for your product yet and whether you are registered as a company.

Talk about your executive team and their experiences. State the previous companies they have worked for and how many years of experience do they have in their field of expertise. State the roles they have in your company and whether they have any shares in the company. If you have any advisors or other shareholders in the company, include them and their background in this section of the 1 pager summary.

Lastly, provide your information of financial projections and amount of funding you request. You need to include your summary of revenue and expense projection for the next 3 to 5 years. State the amount of funding you need, and what you need the funding for. The funding should be the minimum amount of funding you need in order to reach your next milestone. If you're using the next milestone as your goal for funding, don't forget to state what your next milestone is.

The One Page that Matters

 

Financial Projection of your Company

Even if you are not looking for investors yet, we would still highly recommend you to make a financial projection for your company. Why is this so? First of all, a financial projection translates your company's goal into specific targets to achieve. By making a financial projection, this would force you to turn your goals into milestone targets, which will force you to work hard to meet your target. Second, a financial projection can help you provide a feedback and control the operations of your startup. How can a financial projection By making a plan, you can find out whether you are under- or overachieving on your goals for your company. It can also help forecast any problems that you might have in the future so that you can have a heads-start in minimizing or eliminating the problem.

Your projections and budgets in your financial projection of your company depends on the current situation of your startup and your goals for the future whether it be in 6 months, 1 year, 3 years and et cetera. However, here are four things that you can find in all financial projections. You should have a planning model that is projecting the current year or a rolling 12-month period by months. This should be used as a springboard from your main plans for you startup and should be updated routinely. A long-range, strategic plan for the next 3 to 5 years. This strategic plan model will be used for your targets and milestone goals. Next, you should include a budgeting plan for the year. This should include: staffing plans, planned and unplanned expenditures, taxes and other fees that you need to plan out for the year. Lastly, don't forget to include your cash forecast for the year. This will help you predict your performance at the the end of the year and can be used as a feedback tool to figure out whether you are currently using the right strategy for your company.

Building a Persuasive Projection

The Preparation and the Act of Approaching Investors

Now that you've got the checklist of the documents and materials you need, go ahead and prepare it before we go on to our next part of our chapter about the steps to take to approach your potential investors. Once again, we would like to emphasize the importance of preparing these documents and materials as investors make their final decision based on the content and quality of your materials.

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