If I had a dollar for every pitch that said the Company needs five million dollars of investment, I might have five million dollars by now. This $5 million number must be trained somewhere, because it seems everyone seeks it. It will also shut down your pitch faster than a power outage. Why? Because investors have heard this number by hundreds of other companies. Nothing says, “I really have not thought out my numbers,” like saying that your Company needs five million dollars.
It is indefensible to go into a pitch without having your numbers down cold. It is also indefensible to go into a pitch with generalizations, including the industry, your business and your numbers. I can assure you that most investors will tune out the minute you say things like “We need the money to grow sales,” or, “this is a multi-billion-dollar industry so just imagine if we got one percent of the market share.”
If you wish to be taken seriously, you must be serious. That means well researched and thought out numbers.
Here are a few guidelines to numbers when pitching an investment into your company.
1. Start the pitch of by introducing yourself, the Company and the amount of money you are seeking to raise. Do not wait to be asked, do not hesitate; “I am Matthew Schissler, CEO of XYZ widgets and we are seeking $3.45 million dollars this round.” This sets the call in the right direction from the onset.
2. After providing the general scope of the business (it is always welcome to have 10-12 slides to guide the conversation along), be prepared with your use of proceeds, valuation, previous round information (if any), and exit strategy for the investor.
3. Use of Proceeds – This should be a detailed list of how the money will be deployed, including the timeline of deployment. By example; “The Company needs $1.2M for inventory over the next six months, $2 million for capital equipment and land, and $250,000 for the professional expenses acquiring both.” Go one step further here by showing how the addition of these assets on the balance sheet will exponentially increase the Company valuation.
4. Valuation – Since you are raising money, it would be helpful to see comparable businesses or other professional valuation metrics, so that the investor is prepared to understand the industry and potential value being purchased.
5. Previous Round Information – Will help the investor understand how money was raised in the past, who invested, and their exit strategy. By example; “Our first round we raised $1 million with friends and family. The deal structure was 10, $100,000 units, earning 1% equity each unit. This round we seek $3.45M for 10% equity, plus a royalty stream.”
6. Exit Strategy – How will the investor exit their position, and to the best of your ability, at what value. Is it an equity investment, a loan, a royalty agreement? Think about if this were your money, how would you like to see the return play out. By example; “This investment we believe will pay an average of $700,000 of royalties over the next five years plus you will retain your equity stake.”
Employing the basics above will separate you from most other companies. Adding more detail will only increase your chances of being taken seriously. Raising capital is a monumentally difficult task. To step into this task unprepared is an unforced error. Good luck out there!
All the Best,
Matthew L. Schissler