The first 30 seconds is critical when pitching a startup idea to investors. No pressure.
Joe Kiely, a pitch analyst at startup incubator BlueChilli, and Trevor Folsom, startup founder and early stage private investment fund manager at Elevation Capital, agree if you can’t confidently communicate your startup in under a minute you’re already losing.
Business Insider spoke to Folsom and Kiely to discover what VCs and startup investors are looking for when sitting in on pitches.
BlueChilli estimates it has heard upwards of 5000 ideas in two years, so it knows what to listen out for. While Folsom has been on both sides of the equation, previously starting up his own businesses, nowadays he looks for others to invest in and he said the quality of pitching in Australia is heating up.
Here’s what they listen out for:
Can the idea be clearly communicated in under a minute?
Imagine you have one minute in an elevator with one of your biggest potential clients – can you sell your idea in that time? If not, you better figure out how you can.
“It’s that first 30 seconds that counts,” Folsom said. “You’ve got to be able to sell it in 30 seconds.”
Kiely agreed a founder’s ability to communicate can set a startup apart from the get-go and that’s what he’s looking for in the first 60 seconds. His biggest tip: Never use the words if, or maybe because “it means that you’re non-committed, you haven’t decided you haven’t sold it to yourself”.
“If a founder believes, you know as soon as they open their mouth whether they believe in what they’re doing. If they can communicate that then that’s a good start.”
The most important things he’s looking for are: “That they know the market, that they understand that there’s a problem, that they can communicate why that problem is there and what they can actually do to fix that problem.”
“I know probably within a minute whether they’ve got it or not.”
Folsom said being able to pitch your startup idea, business plan and strategies in five minutes “should be so easy, you’ve got more than enough time in five minutes”.
But there’s a few points you need to touch on.
Does the idea solve a real problem?
The concept has to solve a genuine business problem.
“What’s the pain that you’ve identified?,” Folsom said. The second one big question is how are you solving the issue? What’s your idea?
Has the idea got market fit? Has it been validated by customers?
The third question that needs to be answered in the stack is who are your customers and how are they going to access your product?
If you don’t have customers you don’t have a business, Kiely said. You have a hobby.
Founders need to check and understand if customers will pay for their solution.
Kiely said if an idea has been thoroughly vetted it will show in the first minute of a presentation because the founder will have deep market insights, will understand the problem and will know what the customer wants and needs.
He said the process of customer validation isn’t as daunting as it sounds and Australia is a strong market in which to validate an idea.
“You’ve got an English speaking market, you’ve got 20 million people here, if you’ve got a reasonably good product or service you can prove it here in Australia,” he said, pointing to both BigCommerce and Atlassian as examples of companies that proved their concepts Down Under before launching globally.
“If you want to get up to the really huge markets you are going to have to get up and go overseas because you’re limited by the fact that there’s 20 million people,” he said. “But if you’ve got a good business going in Australia you can make good money here.”
The beauty of customer validation is if founders can communicate it with ease they’ll improve their chances of hooking an investor.
“American VCs are coming to Australia because they’re looking for validated options, they’re looking for validated businesses,” Kiely said, adding BlueChilli’s validation model is also customer potential.
Kiely said, in his opinion, international venture capitalists are seeing value in Australian startups as well.
“If you were trying to pick up a startup in Silicon Valley you’d pay a multiple of three or four times what you’d pay for a similar business here in Australia.”
When startups say they’re having trouble accessing funding, Kiely said it’s usually an indicator that “they’re not asking the right people the right questions” and they need to start looking at every conversation as a sales pitch.
For startups, everything is a sales pitch, whether you’re fighting for talent, capital, customers or any other resource.
“You can pitch any time; they should be pitching all the time really,” Kiely said, adding startups are “either pitching to customers, they’re pitching to us or they’re pitching to other investors”.
Sales talent can be one of the most important skills for a startup in the early days and practice really does makes perfect.
“They’re different pitches but they’re constantly selling. They’ve got to be able to sell a product or a service,” he said.
Present an exit strategy.
Folsom said avoiding this concept in a pitch can be the difference between securing buy in or not.
“If you are going to take on capital from other people, you’ve got to understand they’re going to want a return. A lot of these tech startups you won’t get a return in dividends in the life of an investors’ involvement so they want to know that there is a pathway,” he said.
“I’ve learnt that the hard way.
“When I was pitching, probably I didn’t understand that. I wanted investors to come along for the long run and we were going to own this and it’s a hard ask to do that.
“There’s a typical question that you need to ask – if you are going to raise money from other people do you know that they want to see that money back … in some time frame and you need to address it.”
Exit strategies can be anything from a total buy-out, to taking on extra capital allowing early investors or a founder to exit without impacting the business.
“It doesn’t get solved in a pitch, [but] you’ve got to touch on it,” Folsom said.
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