Practice makes perfect. And nowhere is that more critical than for startups pitching investors.
May 3, 2016
Why All Startups Should Practice Their Investor Pitch at IDEA Pitch
Eight lessons in pitching investors from IDEA Fund Partners' IDEA Pitch bimonthly pitch event.
The Triangle is fortunate to have monthly events like 1 Million Cups, TechBreakfast and VergeNC that let entrepreneurs pitch their businesses and get feedback from judges or an audience. American Underground also hosts a monthly PitchFest for its members. The Startup Factory, Groundwork Labs, Launch Chapel Hill and 1789 Venture Lab all teach the art of the pitch.
But there may not be an event as constructive as IDEA Pitch.
I’m a bit ashamed to say that my first IDEA Pitch event a couple weeks ago at The Frontier. Early stage capital fund IDEA Fund Partners hosts this no-frills 90-minute session bimonthly, and typically has an open application to pitch.
IDEA Fund did something different for this particular session, partnering with Bunker Labs to give feedback to three members of its inaugural class of military vet entrepreneurs.
Entrepreneurs get just two minutes to pitch their businesses and without using slides, and then there’s about 15 minutes of feedback from a panel that included on this day Lister Delgado and John Cambier of IDEA Fund Partners and Thom Ruhe, the new president and CEO of the NC IDEA Foundation. Audience members are also free to ask questions and offer feedback. (Note: The third guest rotates and often is an out-of-town investor)
The opportunity is an important one. Delgado and Cambier have made 27 investments through two funds and are investing out of a $15.1 million Fund II. IDEA Fund is one of the most active local investors with a portfolio that includes WedPics, Windsor Circle, Reveal Mobile, Pendo, FilterEasy and Sift. Its most notable exits include Automated Insights, which sold to STATS LLC last year, and iContact, which sold for $169 million to Vocus in 2012.
IDEA Fund invests up to $1.5 million over the life of a company, with a $100,000 minimum investment.
Ruhe, meanwhile, represents the foundation that twice annually makes $50,000 grants to startups throughout the state. He just joined NC IDEA in March, but spent seven years at the Ewing Marion Kauffman Foundation as the director of entrepreneurship overseeing various programs, investments and grants and the last two years as CEO of a startup based in Cleveland.
The men represent important funding sources in the area. They are also brutally honest, but in an unintimidating, helpful way.
First up was CJ Scarlet, who’s pitched her business Tiger Eye Sensor a lot in the year since unveiling a prototype of its voice-activated wearable security device. She won a pitch contest at Patriot Boot Camp and was a finalist in a national SBA business competition in 2015, all while racking up media headlines for her business aimed to protect women from assault.
The panelists noticed the difference in her pitch since those early days, complimenting her on the many bases she covered in just two minutes and a powerful introduction that includes shocking figures about the number of women who are abused during their lifetime.
“That’s mind-boggling,” Delgado told her. “It makes you listen right away to anything you’re going to say.”
Feedback and advice centered around her go-to-market strategy. Scarlet had mixed messages in her pitch. Judges were confused if her strategy is to target consumers directly or through existing monitoring companies. She also mentioned a focus on Realtors, many of whom meet strangers during open houses or home tours and might feel more comfortable with a security device.
That made sense to the panelists, but they offered a piece of advice for so targeted a group: find out what they want the product to look like. For example, is it more appealing as a nametag or a piece of jewelry to wear on a lapel? The panelists thought Scarlet had talked to too few Realtors to have a sense about the design and strategy for that market.
Next up was Nick Bradfield of Divvy Investments, a platform for helping average people or who he calls “DIY investors” manage their 401K plans and other investments.
Bradfield gave a pitch that focused a lot on the problem he hoped to solve but not so much on the actual solution. And in that way, it seemed more geared toward the consumer, not an investor.
Panelists liked that he shared his credentials at the start of the pitch—he’s a Northwestern University graduate who majored in data analytics. His service applies financial models he created during college to predict the performance of stocks, bonds and markets.
But he’s in a competitive space, and panelists weren’t sure what made Divvy different from companies like Wealthfront or Betterment that have raised millions of dollars in venture capital.
A common mistake during pitches is failing to explain how the product actually works and what makes it different from others. That starts with explaining if it’s an app or a website, and who is the customer? Also, how will you go to market?
Says Delgado: “What tends to happen in two minutes is you try to compress 10 minutes into two and talk fast or too much.”
Lesson 4: Focus on the solution, not the problem (and especially if the problem is a common, well-established one.)
Answering these questions helps the entrepreneur determine what is especially unique about the business. According to Bradfield, it’s the fact that no funds are held by his company and no accounts are linked. The service is also available at an annual fee of $360 and has already lined up 40 paying customers at that price.
But that explanation came during the Q&A after the pitch. The panelists suggested Bradfield consider using a case study to help show who the ideal customer might be and how that person might use the product.
Lesson 5: Explain what makes your product stand out, how it works and who will use it. Consider starting with a case study.
Last up was Nick Joy, who admitted it was only his second pitch ever. The UNC Kenan-Flagler MBA candidate has a startup called Greenworks that plans to create affordable micro hydroponic farms for both individuals and traditional farmers.
His vision is a big one, but panelists found it a bit jumbled factoring missions of alleviating farmer stress, attacking child hunger and eliminating pesticides from food. It was unclear if the company is trying to make money or have a social impact first. And they struggled to understand the core customer base.
Joy also has ambitious revenue projections despite pivoting happening by potential competitors, a fact pointed to by Cambier, who recently read about the industry’s challenges in the Wall Street Journal.
Remember your business is new and unproven, and introducing any new product to the market is hard. If big margins is what makes the company unique, the panelists suggest leading with it and explaining how those ambitious profit goals can be met.
Besides giving feedback on the pitch, the panelists gave some investment advice too. For example, Ruhe suggested Joy consider applying for grant funding—more foundations are making investments in for-profit companies that have a social or environmental impact.
The crowd was less than 50 at the April event, and Delgado tells me bigger crowds turn out for IDEA Pitches in Charlotte. He’d like to see a bigger audience at future Triangle pitches—it’s meant not just to educate the pitching entrepreneur but the entire audience. IDEA Pitch participants are encouraged to sit in on a session before they apply to pitch.
I can vouch that IDEA Pitch might just be the easiest way to both shop your business and refine the way you talk about it to investors. RSVP to attend or pitch at the June 15 IDEA Pitch here.