Here at British Design Fund, we see a lot of start-ups, who come through the door to present their latest product innovation in the hope of securing funding.
The majority of them, for one reason or another, are not successful. For many, this is because the product has not been well executed, or the problem that is being solved is not – upon closer inspection – one that really needs to be solved. (For more of an insight into what we’re looking for, see: ‘Do you have an investable idea?‘)
However, there are also a number of start-ups who are unsuccessful because of their pitch. The team presenting fails to pass the scrutiny of British Design Fund’s Investment Committee.
So, what are the most common problems we see when a team with a great product still fails to impress in a pitch?
Here’s our guide to the top 3 mistakes to avoid when pitching:
1 – Poor Chemistry
It’s important that the founders complement each others’ skillsets and have clearly defined roles, which should be agreed ahead of the pitch.
Even though the reality for many start-ups is that everyone will muck in to get through those early stages and launch the product on time, in a pitch, a clear split of responsibilities gives comfort to investors that they know who owns which performance metrics in the business.
Chemistry is also about the way the investors and the start-up team interact. The team at British Design Fund spends a lot of time mentoring and supporting the businesses after an investment is made, and if there is not a strong rapport, or we get a sense that personalities may clash and advice may not be taken on board, then this can also kill off an otherwise strong pitch.
2 – Lack of Integrity
Something that is guaranteed to turn off investors is a sense that the start-up is not being entirely honest, or is being evasive when questioned on certain aspects of their business plan.
A sensible way to prepare for any awkward questions that will inevitably come up, is to list out the 10 questions you will find hardest to answer. Then draft honest responses.
Investors accept that there is risk in each start-up’s business, and also that there will be many hurdles in the journey that need to be overcome. Some may already have been encountered, and some will create challenges later on.
An upfront and honest discussion around any early challenges and failures experienced, will do much to show an investor that you are willing to learn from mistakes and, more importantly, that you are willing to shed light on these mistakes and hopefully avoid them being made again.
3 – Not Knowing the Numbers
There really is no excuse for not knowing your numbers when pitching for investment. You don’t have to memorise these numbers but having a profit and loss (P&L), or cashflow to hand to help when questions arise around numbers, is good practice.
Not being able to explain your numbers and the assumptions behind them really is a serious pitch day faux-pas. For any product start-up, gross margin is king – as of course is cash – but get your margin numbers wrong in front of an investor and it is very unlikely you will see them part with any cash.
Above that gross margin number is another very important line in the P&L – the sales line. Without sales, a high gross margin is of little value.
At the early pre-launch stage of a product, it can be tempting to just plug the sales numbers to make the rest of the P&L, and cash flow, look healthy. However, no investor will be satisfied with just a sales line in a P&L. They need to see the assumptions behind these numbers, which channels will be sold through in year one, what is the product mix, what discounts will each channel expect etc… And no matter how tempting it may be, do not simply use a percentage formula to grow your year-on-year sales. Always base the growth on a feasible sales plan, with customers and various channels listed out in as much detail as is possible at this early stage.
Got an interesting product?
If you have a well-designed product, that fulfils a distinct need or solves an important problem, then get in touch. Applications for the next British Design Fund are now open, and can be submitted here, or by emailing us firstname.lastname@example.org.