More and more founders are seeking investment to grow their startups – and as a 2023 recession looms around the globe, investors are preparing to reign in their spending. Hamad Al Fahad (Managing Partner at Tajawoz) joined us on the LEAP:IN podcast to explain what many founders get wrong when they pitch to investors, and how you can rework your pitch so investors will listen.
Because getting them to listen (and remember you) is more important than ever. But before you rush out to pitch, Al Fahad pointed out that many startups don’t raise funds at an early stage – and that’s OK.
A realistic picture of startup success
“For every startup that successfully raises any round,” Al Fahad said, “you have a hundred others that don’t even see a cent. And we only hear about that one company. So this creates a false pretence for everybody else – everybody thinks everybody is raising.”
This false pretence has created a new convention among fledgling businesses – that as soon as you have a startup, the next thing you’re going to do is find an investor and get money. This means that founders increasingly pitch too early, when they don’t have the fundamentals in place to prove they’re really investible. As well as losing out in the short term, these founders throw potential future opportunities away too – then they feel like they’ve failed.
But, Al Fahad said, “there’s absolutely no correlation with not raising, and failure. History taught us this. Some of the great companies have not raised at early stages; companies like Shopify, even Minecraft, which ran and grew to millions of revenue before even thinking of approaching an investor.”
Indeed, according to TechCrunch, 67% of Series A funded startups in 2017 were already generating revenue before they got funding. And researchers at Harvard Business School found that first time founders have an 18% chance of success; founders who have failed at least once before have a 20% chance of success; and founders who have previously built a successful business have a 30% chance of success on their next venture. Add to that this 2018 study by Kellogg Insights, which found that a 60 year old is 3X as likely to build a successful startup than a 30 year old – and it’s clear that success and failure isn’t just dependent on an investor pitch. Your experience, your idea, and your drive to see it through will all play into whether or not your business grows; and this is true with or without investor funding.
“So my biggest advice is this,” Al Fahad added: “understand and accept that raising money is not easy, and most companies actually never do raise. But don’t let that stop you from achieving something you believe in.”
OK, but you’re ready to raise funds. How do you make your pitch stand out?
First you need to understand what pitching is for, and what it isn’t for. Why do you think a company pitches?
“When I talk to a group of entrepreneurs and I ask them this question, the standard answers that I get are…’I want to tell people about my company’; ‘I want to make money’; and some jokers say ‘I want to get rich.’ It’s none of that. None of that at all. Pitching is only about one thing: it’s about getting attention.”
A pitch (almost) never ends with an investor pulling out their chequebook and handing over the money. A successful pitch leads to more conversations, and that should be your goal – to make the investor want to meet you again, to ask more questions, to do due diligence with you.
When you understand that, you can change the focus of your pitch from winning money, to winning attention; and Al Fahad suggests that the best way to do this is to “be formidable.”
Easier said than done. Casting a formidable impression comes more naturally to some founders than others, but essentially, “it’s about having a strong knowledge of your industry and your customers, and making sure it shines throughout your pitch.”
“Be efficient with your words, which shows me that you’re efficient and practical with your thoughts and actions. And then as an investor, I know you’ll be efficient and resourceful with the money I give you.”
Leave out the buzzwords and industry catchphrases, and make sure everything you say matters. Every point you make is there for a reason. And crucially, communicate an intimate understanding of your industry and market, and the challenges your customers face. If you can show investors that you’ve realised something your competitors haven’t yet realised, they won’t forget you – and you’ll become that formidable founder in their investment portfolio.