The Pitch

After a very relaxing week in Mexico, I'm back in the saddle and working again, so that also means I'm back to blogging. BEFORE the trip, though, something happened that I want to discuss a bit today: We secured an investment. Not an enormous one, but certainly enough to lift our spirits.

For me, this whole pitching process was a first, but my Father has done this several times before, so when we went into this meeting I mostly stuck to the technological portion of the demo and allowed him to do the talking (carefully watching to pick up what pointers I could). As the presentation progressed, and the investor signed, I think I derived some common components that could be used anytime one is trying to get a person to believe in them strongly enough to back them with money.

Prove the Problem

When we started the talk, we didn't just fire up the computer and show our service. What would that have shown? "Here's a piece of software, it's really cool and people will pay for it!". Wrong approach entirely, software (product or service) has no intrinsic value, it is only as valuable as it is useful. Thus, in order to sufficiently impress upon your potential investor just how great this software is, you need to establish the proper context: What problem exists right now that this product/service is going to solve? This is important, I think, because once you've shown that there is some pain in the current state of affairs, all you need to convince your client of is that your solution alleviates that pain. It doesn't need to do anything and everything to be useful, it just needs to be able to solve that targeted problem.

Show, Don't Tell

A picture is worth 1000 words, and a prototype is worth 1000 paragraphs. It's not good enough to get into a pitch and say "We're proposing to build X software which will solve this problem", who knows how much work that will take or whether it's even possible? Glorious words about the supremacy of an as-of-yet-not-constructed product are not likely to inspire much confidence, but a working demo that somebody can play with proves a couple of things:

- the software is possible
- the interface is nice and intuitive
- we, the founders, are already invested in this idea

That last item is particularly important, I believe, because it shows the investor that you're in the same boat with them. If you're asking for money before you've done anything else, you're basically saying that you have an idea and you want the investor to bear all the risk. Does that show that you really believe in your idea? I don't think so. But if you have a working piece of software that you can show off as a prototype, you're basically saying "I am confident enough in this idea that I've already invested time and money into it, and I am sharing any risk that you take by providing me with more resources to put into it". That sort of impression is much more likely to elicit a positive response.

Demonstrate Differentiation

Your idea is probably not original. I don't mean that in a bad way, I just mean that you probably have at least SOME competition, even if it's indirect. An investor doesn't just need to know that your solution is good, they need to know why it's better than the others. If I were building a search engine (I'm not) I would have to show more than that I could just return relevant results. That wouldn't be enough by a long shot; I would have to show that I had a feature of my application that made me Different from other search engines in a way that would make people abandon other products in favor of mine (maybe mine credits your paypal account with a percentage of the revenue I make through advertising, or maybe it pulls results that are relevant to you and your social network, etc). The bigger a barrier that differentiation is to your competitors the better.

Ask for the Money

Probably the simplest piece of advice, but also the one that would be hardest for me to do. I watched as my father finished our demo and then immediately turned to the investor and said "What do you think? Is this something you'd like to participate in?", and I internally cringed realizing how tough it would be for me to throw something as personal as a monetary transaction out on the table like that: I would feel like I was SELLING them something. Of course, that's exactly what you're doing, and as unpleasant as it might be you just have to ask for the "sale" or they have no reason to give it to you. With my instinctual indirect approach, I probably would have done the demo, asked if they liked it (which probably would have brought a "yes"), and then thanked them for their time and left. A week later I would have been nothing but a memory to them. Asking somebody if they "like" your idea is not the same as asking if they want to invest in it, because the latter is a call to action: if they say yes it's a committal to spend money and if they say no they'll have to give you a reason why. They could lie about "Liking" your idea and never have to do anything further about it. If you want, you must ask.

So what do you think, is it a perfect formula for success in money-raising? Of course not, how could there ever even be such a thing? But it worked for us once, and I would imagine that NOT incorporating a few of the above components could be a near-perfect formula for failure.