It is one of the most critical moments for any entrepreneur—standing before a group of investors, armed with an idea and a PowerPoint, taking a deep breath before launching into the reasons why your big idea should be their next big investment.
It is also where many business ideas meet their untimely demise.
So how do you make sure your start-up doesn’t die right there on the pitch floor?
During an entrepreneurship and investment conference last week in Washington, some experienced early-stage investors shared some of the secret ingredients they look for in a successful pitch, as well as some of the common mistakes that make them tune out before the presentation even gets going.
Here’s a rundown of some the best advice.
Mark Cuban, Shark Tank investor and owner of the Dallas Mavericks
“I’m going to say upfront that I’m a jerk,” Cuban started. “But the longer the backstory, the worse the investment, and the less chance you have of raising money.”
So, what does he mean by backstory? Cuban said he receives a large number of e-mails with pitches that open with details about an entrepreneur’s ethnic background, personal history or unique problems — and he immediately hits the delete key.
“When it comes to business, there is a simple scorecard,” he said. “Are you making money or are you not making money? Are you succeeding or are you not? So when you go to raise money, always, always catch yourself and eliminate the backstory.”
Paul Judge, founder and chief technology officer at Purewire Inc.
Often, entrepreneurs skip the most vital step before approaching investors, Judge said.
“It’s become so sexy to pitch to investors nowadays that people forget to first go talk to customers,” he said. “I have people pitch me, and when I ask what customers think about this, they tell me they don’t know. So why are you talking to investors right now?”
Instead, he says entrepreneurs have to determine whether the product or service addresses what he calls a “valuable problem” — one that consumers will pay to have solved.
Gary Spirer, investment banker and chief executive of Questionmine
Spirer says he uses “three magical p’s” to evaluate deals: people, product and potential.
“I always look first at the people, and that covers from the customers to the entrepreneur to the team,” he said. “Second is the product, because when you start a business, it’s a hunch, it’s a guess, and you have to go out and find out if people really want it or are you just a solution in search of a problem.”
On the last point, he looks for firms that have the potential to scale quickly.
In addition, Spirer says he rarely invests in entrepreneurs who don’t have some skin in the game in the form of their own bootstrapped capital.
“I want someone who is willing to roll up his sleeves,” he said. “I don’t like managers, I want everybody on the front line, talking to customers and building a solid business.
Ayman El Tarabishy, professor of management, entrepreneurship and innovation at George Washington University’s School of Business
Don’t make the mistake of thinking many years in business looks promising to investors.
“If you ever hear from a start-up that is 10 years old, then you have very serious concerns,” Tarabishy said. “Usually, that means two years of work and eight years of not knowing what the heck they’re doing.”
Tarabishy said he also gets squeamish when entrepreneurs have shown a tendency to repeatedly fire important members of their team at the first signs of trouble.
“Don’t fire people, they know what has gone wrong in the past and can help you pivot your company more quickly,” he said.
David Lilenfeld, founder of crowdfunding platform SterlingFunder
If you are what investors remember after the pitch, you may be in trouble, Lilenfeld said.
“I’ll say this about first impressions,” he said. “It shouldn’t be the entrepreneur, it should be about the product and what you are offering, because that’s really what matters.”
“I have seen all different kinds of people, in terms of the way they dress, and the way they talk,” he added. “But none of that is as critical as the actual product or the service. It ultimately has no impact on the success of their business.”
Alon Goren, president of crowdfunding platform Invested.in
Goren’s top advice for other serious entrepreneurs: Quit your day job.
“My biggest problem was that I still had my full-time job, so I hadn’t actually jumped in and started working on my business full-time,” said Goren, who previously held positions at Amazon and Myspace. “My plan was to raise money, then quit my day job.”
It turns out, investors aren’t keen on that progression.
“Every investor got to the point where they asked if I used to be at Myspace,” he said of his early pitch attempts. “As soon as I said I was still working there, that killed the conversation right on the spot.”
Judy Robinett, angel investor and board member for several venture capital firms
“There are only two reasons that a company fails, and number one is a lack of customer,” Robinett said. “I look to see how viable is this business opportunity.”
In addition, she says she tried to assess the character of the entrepreneurs.
“I look closely at the management team, because there are going to be bad days and bad things are going to happen, and I want to know how are they going to handle that,” she said.