February152022
Pitching for Results – The Fundamentals
Industry Insights
2.15.22 | Industry Insights – Technology & Life Sciences
One of the most crucial, yet time consuming and stressful, roles of a technology executive is securing adequate capital from investors who add value to their company’s growth as it scales toward a liquidity event.
Central to securing capital is the development of an investor pitch that illustrates the foundation for the company’s approach to solving a big problem and compels an investor to play a pivotal role in fueling the company’s growth.
While there is no standard format for an effective pitch, an impactful pitch must convey critical information to showcase the company’s product or service, technology, market, customers, competitors, and strategic differentiators.
Having advised hundreds of technology companies and witnessed thousands of pitches – many of them good – most of them needing a lot of work, Berdon’s Technology & Life Sciences Practice developed the Pitching for Results content series, which will provide best practices that highlight necessary elements of an effective pitch and insights to develop a pitch that investors will find impactful.
We hope you find value in this series. Let’s get started:
Company Overview, Vision and Mission
Starting out with a clear, concise statement about what the company does is the most important element of a pitch. The Company’s vision for solving a “Big Problem” needs to be clearly articulated and compelling in order for investors to want to hear more. An excellent pitch is able to easily quantify the problem and the management team’s ability to solve it. An investor must be able to quickly grasp the magnitude of the problem and begin to understand the driving forces necessary to solve that specific problem – otherwise, they stop listening. Once an investor stops listening, it’s nearly impossible to re-engage them in the discussion and the remainder of the pitch is in jeopardy.
It is imperative that a pitch enables potential investors to connect the dots quickly. They need to understand how the “Big Problem” unveiled itself to the team and how the team’s passion, experience, and vision have been woven together to solve that problem. The best method to help them connect the dots is to tell a story through pictures and graphics rather than text. The ability to illustrate the problem should create an emotional connection between the Company, the investor, and the problem. The emotional connection serves as the catalyst to focus a Company’s efforts and ultimately secure investment capital.
Competition is inherent in every business and will be covered in detail in a future installment of Pitching for Results. Due to the intensely competitive nature of today’s market, it is essential that from the onset, a Company’s pitch is able to communicate why it is uniquely qualified to solve the problem and how its solution is innovative enough to provide a competitive advantage. Doing this will increase a Company’s chance to capture an investor’s interest and make them want to learn more through ongoing discussion and exploration. Tackling some of the world’s biggest problems can seem daunting and unreachable. However, a passionate team that can successfully communicate how its unique approach not only solves the problem but is also scalable, will successfully draw interest from investors.
The Market
Demonstrating an understanding of the total addressable market (TAM) helps an investor understand the magnitude of a company’s opportunity to create a sufficiently large liquidity event for its investors. TAM is a critical metric that companies must thoroughly research and understand before pitching to investors.
Entrepreneurs often struggle to identify and define TAM. TAM should be framed as the maximum size of the opportunity for a particular product or solution. TAM is generally defined as the average revenue per user multiplied by the total number of potential customers in a target market. When defining TAM for their company, entrepreneurs must be specific when refining their company’s revenue model and defining their target customers. Having a clear definition of these key elements is a critical step for companies to understand their position within the spectrum of competitive products or services available in the market and must be carefully considered when preparing the pitch.
Engaging investors in this discussion during the pitch helps them evaluate an investment opportunity relative to other investment opportunities under consideration. Investors often provide valuable challenges to an entrepreneur’s notion of TAM that can redirect the definition of the addressable market. Furthermore, the pitch should help an investor envision the company’s growth pace and ability to scale within the defined markets. The goal at this stage is to deepen the investor’s interest and further the conversation to a state where more details can be evaluated.
Precise market research and critical evaluation of the Company’s market thesis will provide it with the insights necessary to develop its go-to market strategies. Skilled and skeptical investors will question and challenge the market research to ensure it aligns closely with TAM. Therefore, the pitch needs to convey the depth and accuracy of market research to identify and validate TAM and the Company’s ability to capture market share.
When pitching, entrepreneurs often make the critical mistake of inflating the percentage of market share they will be able to capture in a relatively short period of time. These overly optimistic forecasts are often quickly discounted and considered a red flag as they indicate the entrepreneur has not invested enough effort to identify a realistic market share. Many investors expect early-stage companies to capture a much smaller level of market share early on as they refine their go-to market strategies and revenue models. For investors, it’s more important that the management team demonstrates their ability to learn, adapt and execute in order to achieve the potential for significant growth.
In summary, a successful pitch defines the Company’s competitive advantage and ties together the addressable market with its strategies to capture a reasonable share of that market, its expected growth rates, and the timeline needed to achieve that growth.
Stay tuned for the next installment of Pitching for Results, which will discuss products, services, marketing, and customer acquisition.
Questions: Contact Jeff Kovacs at 646-954-9910 | jkovacs@berdon.com or reach out to your Berdon Advisor.