Q:I am not having luck raising money to start my photonics company. Any tips on pitching to investors? I also wonder what the funding environment is like; it seems to me only companies in the web and mobile spaces are getting funded.
A: Actually, raising money to start hardware companies has been difficult for some time; recently the buzz has been in social media, games, and mobile everything. Guess what? Many angel investors (aka small investors) who jumped on that bandwagon in the last several years have seen all that come to a screeching halt after the Facebook IPO glitch. Now many of these companies are at the end of their rope, unable to raise additional capital. They are being shut down or are being sold for short money. One company I know has recently bought a web-based consumer service startup with valuable IP for a song because they ran out of options. That is the venture capital environment we are in. That, again and again, goes back to what I have emphasized in my book: One should stick to one’s area of expertise instead of going for trendy opportunities.
You must satisfy two conditions in order to raise money. 1) Substance: You must have a business proposition that offers investors the potential for a very attractive return. 2) Be able to articulate the value proposition and communicate effectively to create a bright vision of the future to excite investors. Investors tend to be busy people and won’t stop long enough to listen to nuances when all they want is to quickly compare alternative investments and move on. This is where most technical people fail because we are trained to make presentations to a different audience.
Technical people are accustomed to sitting through long presentations with lots of details. In fact, they expect the presentation to be thorough in order to learn something and use the details to extrapolate toward their endeavors. Investors, on the other hand, want to decide whether the investment opportunity fits into their scheme of things and move forward as quickly as possible. They actually want a great deal of detail after they have decided that they are interested, not before.
Whether your presentation is for a technical audience or for investors, always follow the adage, “tell them what you are going to tell them; tell them; tell them what you have told them.” Keep it short, especially for investors. They have short attention spans. Your presentation must be brief, but present a complete story addressing all their concerns. How big is the market potential, how can you succeed, and why could the deal yield a high return for investors? Skip details; realistically you can only get them interested enough to ask for more information. Focus on the salient features and provide sufficient substantiating facts to gain credibility. Then move quickly to a conclusion and leave time for a relaxed Q&A discussion. Doing so also creates a positive impression that you are cool (not overly anxious), and you have the gumption to take a leadership position. Investors extrapolate that to mean you are not desperate, and you are likely to be a strong leader because you are able to hone in on the real issues. A long presentation is an indication that you can’t focus, which is a fatal flaw for entrepreneurs.
When developing your pitch, I advise against using your technical PowerPoint presentation as a starting point. What you have in front of you is likely to keep you there. Instead, start with a few—say, five—bullet points, develop a storyline, generate a few slides to tell the story, and state the conclusions. Continue to shorten the presentation. And budget 90% of your time to preparing backup material to carry on a meaningful and informative conversation.
