Asking for Money

Last week I presented my first investor pitch to a university affiliated venture capital fund ($4 million) run by a select group of MBA students, Angel investors, professors and venture capitalists.  Not only was I the youngest guy in the room, but I was also the least experienced.  It was helpful for me to receive feedback not only from the students and professors, but also from the seasoned start-up founders who have founded successful businesses, exited more successful businesses, and pitched to intimidating conference rooms of investors many times before.

Although my pitch was successful overall, my biggest mistake was regarding cash consumption.  With a small slice of time to present, and even less time to impress, I learned that it’s important to avoid being too “salesy.”

It’s important to keep the attention in the room, but it’s even more important to be concise.  I’ve studied what investors are looking for in a management team, but it’s important to get to the point and limit the ramble time.  Attention span statistically dies after about 15 minutes.

When it came down to financials, I was not clear in answering the following questions:

1.  How much money did I want?

2.  What would I use it for?

3.  What ownership stake would the venture fund receive?

Obviously, these questions are extremely difficult to answer, mostly because the idea I’m working with is still conceptual.  Also, because I’m not seasoned enough to really understand the roots behind venture financing.  I’m working on it, but I’m not there yet.

The thing is, I was expecting these questions.  I knew they would come up in the presentation, even if I did not explicitly mention them in my pitch.  I answered the questions by being purposely ambiguous, relying on my inexperience as a crutch.  This showed weakness, but I felt like I had no other choice.

“Yes, I’d like $200,000 for start-up costs (that may) include a lawyer, (probably an) accountant and (some sort of) listing fees.  In return, you (might) receive a 5% equity position.”

Whether this was accurate or not (it probably isn’t), my plan was not actionable.  If I’m asking for money, the investor wants to know how they are going to make MORE money back.  Investors don’t give money out of sympathy or state of emotion–they give money to make money.  The foundation of investing, which I was ignorant to.

The lesson here is that you need to be actionable when speaking with investors.  Explaining how I’m going to get my venture regulated may be a necessary step, but I don’t think it’s the best game plan when asking for big figures.  It’s important to have a processed and stable game plan, but it’s even more important to have plans for revenue generation, a key aspect of the pitch that I mentioned, but did not emphasize.

A good way to think about it is that even though you are asking for money, the investor is asking for more money.  When you flip it around, it helps put the reasoning behind the pitch into true perspective.

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