Angel investors and venture capitalists have specific expectations surrounding "the pitch," that charged moment when you try to sell an investor on you and your company. If you're heading into this culture for the first time, you'll need to do more to prepare than just catch a few episodes of "Shark Tank."
As part of women's entrepreneurial network Ladies Who Launch, business owners learned "Investor Math 101" at law firm Chadbourne & Parke in New York on Thursday. The presentation focused on the essentials of pitching investors, including these three tips for startups to consider before making their case.
1. Don't offer too much equity, too soon. Beware of parting with more than one third of your company in the first funding round (called Series A), warns Lori Hoberman, the head of Chadbourne & Parke's emerging companies and venture-capital practice. While you may be tempted to give investors a higher percentage of your company in exchange for more cash, she says don't do it. As your company grows, you may need to raise additional rounds and give away more of your company down the road, so remember to think ahead.
2. Know your numbers. You are going to have to impress the investors with your backwards-and-forwards knowledge of your financial projections. If you are intimidated by the math, bring an expert in to help you prepare. But when it's time to present to investors, you -- the entrepreneur -- are going to have to talk with confidence about how your company is going to make money, when you will break even, and what your market looks like.
Determining exactly what your company is worth and what your revenues will be in coming years is as imprecise a science as throwing darts, says Hoberman. "All it has to do is pass the straight-face test," she says, referring to the need for thought-out projections, well-cited research, and reasonable expectations. And at that point, it's about making the sale: "You've got to own those numbers," she says.
3. Pay yourself. When you are calculating expenses, be sure to include a salary for yourself, says Hoberman.
