There comes a time for entrepreneurs when an influx of money, guidance or both is needed to take their business to the next level. It's in these times that many business owners turn to an investor for help.
Whether this is before a startup is even up and running, or after it's established and trying to scale, taking on an investor can be critical to the lasting success of many businesses.
While there is a range of venture capitalists and angel investors willing to put money into small businesses, actually selling them on your venture, and its promise, is no easy task.
As an angel investor and CEO of the telecommunications company Amobee, Kim Perell knows what it takes for businesses to secure an investment deal. Over her career, Perell has invested in more than 70 startups, 14 of which have successfully been acquired.
We recently spoke with Perell about approaching an investor and what entrepreneurs should expect from the process. In addition, we asked her several rapid-fire questions about technology, her career and advice she has received over the years.
Q: How do you know if you are ready to take on an investor?
A: When taking on an investor, it's very important to have a solid business plan and financial model of how you will turn your idea into a viable, lucrative business. You will need to be able to clearly articulate the market size and potential market demand for your product or service. You also need to show how you will use the potential investment proceeds. Investors want to know you have a plan.
It is also important to acknowledge that it will take a significant amount of your time to raise investment. Raising money is a full-time job and also comes with expectations.
As soon as you raise capital, you will be working with investors who will want to know performance and progress. There are also many different types of investors – angel investors, friends and family, crowdfunding – and each will require a different level of preparedness and savviness.
Q: What are the three most important things investors want to hear during a pitch?
A: A polished, confident elevator pitch: It's important to have a quick, easy-to-understand version of your pitch that you can deliver in less time than it takes to ride an elevator. You should be able to explain your idea to anyone, any time. Staying concise matters during the real deal too – your first meeting with investors will not be long. Your pitch should also have a solid pitch deck.
Accountability: Your pitch needs to address every question an investor could have. What is the market need, and who is demanding it? How does your idea solve that need? How will your idea make both revenue and profit? You need to really sell your investors. What have other companies in the space sold for? How much capital will you need, and how will you use it? Investors want to know what they will get out of their contribution, so calculate your request by estimating double the time and cost you expect. Plan for the worst-case scenario.
Confidence: Your biggest challenge is convincing investors to believe in your ability to execute, so tell them your story. What have you done that proves you can make this happen? Businesses may change and trends may pivot – investors need to be confident that you can pivot too. Surround yourself with a team that supplements any perceived weaknesses and convey both realism and passion so potential investors can see that you will persevere, no matter what it takes. Investors don't expect you to be perfect or know everything (in fact, it is concerning if someone is), they expect you to have the wherewithal to be resourceful and resilient when you encounter challenges.
Q: What should you avoid doing or saying during a pitch meeting?
A: Never go in unprepared. You often have only a few minutes to make a good impression. Investors hear hundreds and hundreds of pitches, and their time is valuable. Make it count. Make sure you have practiced and gathered great feedback before you go in for your first pitch meeting. Investors are looking for evidence, not just ideas. They will want to see proof of concept or a minimum viable product.
Never say that you don't have any competitors or there is no competition. This is a red flag to investors and generally shows that an entrepreneur is naive and has a lack of understanding of the market. Competitors aren't bad; they help you define your market opportunity and uniqueness. It's very important to identify what you are competing with and how you are different.
Don't try to answer something you don't know. If you are unable to answer something, note that you will get back to them and then follow up later. For example, you can say "I don't have access to that data, but I'll provide it in my follow-up," or "You raise an excellent point, or I hadn't considered that. Let me look more into it and I'll follow up with you on that."
Don't ramble. Stay direct and to the point. Speak clearly and concisely. Hit upon what is key to investors. If you say too much, it will distract from what's important and can cause confusion and doubt for investors. If it is going well, quit while you are ahead and don't inadvertently throw a wrench in a meeting.
Q: What are some strategies to ensure your pitch is tailored to each investor?
A: Do your research. Understand what is important to your investor, what they have historically invested in and what sectors they are familiar with. Why would that investor add value to you? Most investors invest not only because they can provide financing but also strategic guidance. How could the investor you are pitching be of value to you and your opportunity? It's important to take the time to do due diligence. Investors ultimately should be able to add value beyond merely financing, whether that is in their network, area of expertise or their particular sector or experience (i.e., they are marketing experts, have successfully run manufacturing companies or invest in tech startups).
Use the time you have not just to pitch but also to build relationships. Success in business and life is all about relationships. Seek to build an authentic relationship with a potential investor long term – even if they don't invest at the time, perhaps they invest in a later date/round. They can often help you build valuable connections. Some investors are not suited to a particular investment but know someone who is.
Be genuinely interested in learning about the investor. Ask how the investor evaluates an investment and how involved they are in their portfolio Ask for honest feedback. What could I have done better in my pitch? I know you have seen one thousand pitches, what feedback have you given for mine? What are the things you think I need to address? This is one of the most valuable audiences you will have the opportunity to meet with, so be thoughtful and prepare wisely.
Q: What questions should entrepreneurs be prepared for from the investors?
A: Entrepreneurs should be prepared to share and clearly articulate the following:
- Your background and the company history: Clearly articulate who you are. Investors bet on people even more so than the idea which will often change or pivot
- Size of the opportunity/market
- Product/technology patents/barriers to entry: Show a minimal viable product and evidence of success.
- Competitive environment: What is the competition and others in the space? How are you different? What sets you apart?
- Marketing/sales/partnerships: How will you make money? What is the business model? How will you get new customers?
- Demonstrate the need for investment and what you want to do with the investment: What is the overall capital you need? Who are you trying to raise it from? How are you going to raise the capital?
- Other factors for success: This could be things like great early customer feedback or technology development
Q: Should you expect a definite yes or no answer from an investor during your pitch meeting? If not, how should you follow up?
A: No, you should generally not expect a direct yes or no during your pitch. Almost all pitches consist of a series of questions the investor will ask.
I recommend following up immediately, stating how much you appreciated their time and outlining the follow-up for the next steps, including additional questions.
You can then request for a secondary follow-up with information that may take more time to gather. Again, your follow-up helps demonstrate to the investor you can execute.
Rapid-fire questions
Q: What piece of technology could you not live without?
A: I am on the road for work constantly, and my cell phone gives me the ability to work from anywhere.
Q: What is the best piece of career advice you have ever been given?
A: The best advice I received as an entrepreneur starting my first company was to follow the two by two rule, which explains that it is going to take twice as long to achieve whatever I want and it's going to cost twice as much, and I am not the exception.
To this day, I continually remind myself of this in whatever I'm doing financially, professionally and personally. Whether I'm going to remodel a house, it's going to cost me twice as much and will take twice as long. If I'm going to buy a business, it's going to likely take me twice as long and there will be unexpected costs.
As an angel investor, with the entrepreneurs I invest in, I tell them this too. It's going to take you twice as long and cost twice as much as you think. Just knowing that it will cost more and take more time than anticipated helps create both the financial framework as well as the mindset and mental preparation to ensure success despite the inevitable roadblocks ahead.
Q: What's the best book or blog you've recently read?
A: I love reading and read as much as possible. I just finished Extreme Ownership over the holidays. It was a great read, and the Navy Seal stories translate well into lessons for business and life. It was a good reminder that a true leader must be ready to take responsibility when things fail, regardless of circumstance.
I have to say my favorite book of 2018 was my own. I spent a lifetime writing it, and it has truly a dream come true. My first book, The Execution Factor, The One Skill that Drives, is designed to help others achieve success in business and life. I highly recommend it.
Q: What's the biggest risk you've taken professionally? Did it pay off?
A: The biggest professional risk I've taken was starting my own business at 23. After getting laid off from my first job out of college, I ended up starting my first company from my kitchen table, asking my grandmother for a $10,000 loan – which was the only funding I took.
Working all day and night for three years, I tirelessly grew the business. Eventually, the online advertising market grew and proved to be a great growth opportunity for digital companies like mine. I sold the company in 2008 and then sold my last company for $235 million in 2014.
To pay it forward, I love investing in aspiring entrepreneurs and helping them succeed, and I've angel invested in more than 70 companies, 14 of which were successfully acquired. I believe my success is due to my ability to execute, and that is what I look for in the people I hire and invest in.