HOW TO EFFECTIVELY PITCH A BUSINESS IDEA

You’ve identified an underserved need and validated your startup idea. Now, it’s time to talk about your business to potential investors. Yet, how do you effectively communicate your idea’s promise and possible impact on the market?

Pitching a business idea is one of the most nerve-wracking parts of any entrepreneur’s journey. It’s what stands between your vision and the financing needed to turn it into a reality. Although daunting, there are steps you can take to ensure a greater chance of success.

WHAT MAKES A GREAT PITCH?

To make a successful pitch, entrepreneurs must exhibit several characteristics to convince investors to fund their innovative ideas.

Entrepreneurs need an intricate understanding of their idea, target market, growth strategy, product-market fit, and overall business model. This differentiates your business concept and solidifies the steps needed to make it a reality. The perfect pitch shows investors your proof of concept and instills confidence that they can expect a return on investment.

Another crucial component of a successful pitch is understanding the venture capital (VC) ecosystem.

Harvard Business School Senior Lecturer Jeffrey Bussgang in the online course Launching Tech Ventures. Says:

“Entrepreneurs must understand the background and motivations of venture capitalists so when entrepreneurs seek them out to help fund their venture, they know what to prioritize in a firm and how to build a strong, trusting relationship.”

To secure funding and support, I have the steps to make sure your pitch is compelling.

HOW TO PITCH A BUSINESS IDEA

1. Know Who You’re Pitching

Some entrepreneurs try to get in front of every investor despite their industry expertise or firm’s investment stage. Accepting an investment is about more than money; you enter a partnership. It would be best to do your due diligence and research potential investors before pitching.

When researching, ask yourself:

#What industries do they invest in?

A VC firm’s industry focus depends on the partners’ niche and passions. Some firms specialize in a particular sector, such as financial technology (fintech) or education technology (edtech).

For example, Rethink Education is a venture capital fund that invests in early- and growth-stage ed-tech startups. At the same time, Blockchain Capital is dedicated to financing companies that are innovating in the crypto market. Others are generalists and span several industries.

Knowing the types of companies the firm invests in can help you tailor your pitch and zero in on their presumed priorities.

#What stage do they invest in?

Suppose you’re in the earliest stages of business development. In that case, you won’t receive growth equity reserved for mature companies that need capital to expand operations, enter a new market, or acquire another business. Before making your pitch, estimate the money and resources you need to launch, and then align yourself with investors who can help at that stage.

#What’s the investor’s track record?

Dig deeper into the investor’s experience and investment history to determine the types of companies they typically finance, the background knowledge they might already have, and whether your personalities will mesh. This information will enable you to modify your pitch and determine if this is the right person or fund to partner with.

“The best venture capitalists become trusted partners and advisors to the founders and team,”

Says HBS Professor William Sahlman in the online course Entrepreneurship Essentials.

“They help recruit key employees. They introduce the company to potential customers. They help raise subsequent rounds of capital. Sometimes, they signal that the firm they've backed is a winner, which helps make that assertion true.”

Given the benefits and high stakes, the more you know going into a pitch, the better.

2. Consider How You Present Yourself, Not Simply Your Idea

Although your ideas and skills matter, your personality is equally as important. According to research published in the Harvard Business Review, venture capitalists’ interest in a startup

“was driven less by judgments that the founder was competent than by perceptions about character and trustworthiness.”

Investors also want to know they’re entering a partnership with the right people. Jennifer Fonstad, co-founder of Aspect Ventures, acknowledges in Entrepreneurship Essentials that her investment firm “thinks about team and team dynamics as being very critical.”

Investors want to know whether the founders have worked together before if your startup’s early hires have complementary skill sets, and whether you’ll be flexible, open-minded, and willing to embrace different perspectives.

Think about this as you prepare your pitch. If investors poke holes in your idea, will you get defensive? When they ask for financial projections, will you exaggerate the numbers?

Hopefully, your answer is “no”—firms want to partner with founders they can trust who are open to guidance and mentorship—but if you’re second-guessing your reactions, consider what you might be asked and practice your responses.

As Sahlman reinforces in Entrepreneurship Essentials:

“Most experienced investors look at the people first and the opportunity second. Even when a team is young and inexperienced, investors depend on them to make the right decisions.”

3. Tell a Story

When you describe your business idea, you can zero in on the problem you address for your target audience and how you solve it better than the competition.

You could do this by presenting a real-life scenario in which you describe the pain point a current or prospective customer faced and how your product or service fixed the issue. This can help engage investors personally and inspire them to see your idea’s potential.

Complementing your spreadsheets and charts with a compelling story can paint a fuller picture of your startup’s future and more effectively highlight its business opportunities.

4. Cover the Details

While setting the stage is essential, you must also cover the specifics. In your pitch deck, please define your value proposition and share a memorable tagline for investors to leave the meeting with.

According to Bussgang in Launching Tech Ventures, every pitch to an investor should contain the following:

1. Intro: Focus on answering essential questions like who you are, why you’re asking for funding, and your founder-market fit.
2. Problem: Talk about your ideal customer’s pain point and how you plan to solve it.
3. Solution: Explain why your idea is compelling and better than existing solutions.
4. Opportunity and Market Size: Provide your total addressable market (TAM), serviceable addressable market (SAM), and serviceable obtainable market (SOM) through research.
5. Competitive Analysis: Understand your unique differences in the market that can help you sustain a competitive advantage.
6. Go-to-Market Plan: Clarify how you’re going to reach your customers.
7. Business Model: Describe how you’re going to make money.
8. Financials: Define what your financial projections are and how you’re going to provide returns for investors.
9. The Ask: Detail how much funding you need, how long it will last, and what milestones you hope to achieve.

“VCs will expect entrepreneurs to clearly define the milestones they need to achieve with each round of funding,” Bussgang continues. “Entrepreneurs should know what experiments they will run to reach these milestones and what they expect the results will be.”

5. Show the Roadmap

Although your business is in its early stages, investors want to know how they’ll ultimately cash out.

“To truly understand the motivations behind VC firms, remember that they are professional investors,” Bussgang explains in Launching Tech Ventures. “Their objective is to generate the maximum return for their limited partners with a dual fiduciary duty to their investors and the company.”

To clinch your pitch, highlight your exit strategy and available options.

• Acquisition: When one company buys most or all of another company’s shares to gain control of it
• Merger: When two existing companies unite into one new company
• Initial Public Offering (IPO): When a private company issues its first sale of stocks to the public and can start raising capital from public investors

Related: What Are Mergers & Acquisitions? 4 Key Risks

3 KINDS OF PITCHES FOR ENTREPRENEURS:

While all compelling pitches share foundational elements, you should use different types depending on the scenario. To increase your chances of success, tailor your pitch to your audience and the available time frame.

1. The Elevator Pitch

This is one of the most popular pitches. Use this when you need to communicate their startup’s value in >

60 seconds or less.

An effective elevator pitch should be concise and convincing and convey your startup’s value proposition and differentiators. For tech business ideas, mention the innovative technology that separates your concept. At the end, include a call to action, such as the amount of capital required to launch.

2. The Short-Form Pitch

It would be best to portray your business idea’s value to prospective clients and investors as efficiently as possible. This means summarizing the most essential elements of your idea in a way that makes them want to hear more. Highlight the market size, how you’ll create barriers to competition, your plan to monetize the business, and how much financing you need.

Short-form pitches can run from three to 10 minutes;

if you’re pitching in a competitive setting, note any length requirements. These shorter pitches can pique investors’ interest and allow you to present a long-form pitch.

3. The Long-Form Pitch

Sometimes, you’re fortunate enough to have more than a few minutes to pitch your idea. If this opportunity presents itself, it’s crucial to make the most of your time and address every aspect of your business plan.

Bussgang says in Launching Tech Ventures.

“You’re not just trying to start any business, and You’re trying to create a profitable, sustainable, and valuable business.

You can zero in on your story and share a real-life scenario. Detail the market size to illustrate demand and clear examples of attracting and retaining customers, particularly in light of competitors.

This will show you’re planning for—and ahead of—future challenges.

It would be best to have a blueprint for testing product-market fit, early results, and a detailed monetization plan. Lastly, could you share your exit strategy and the capital needed to achieve it one day? Your long-form pitch should communicate your business concept clearly and concisely, open the possibility for follow-up questions, and capture the investors’ interest.

Please prepare all three pitch lengths for any opportunity.

Staying agile allows you to modify your pitch to fit specific length requirements.

LANDING THE PITCH

Every investor prioritizes different data and information. Yet, you can land the pitch if you start by choosing the right investor and then align their needs with your proposed market opportunity, value proposition, and exit strategy.

Bussgang explains in Launching Tech Ventures.

“In some ways, startup success depends just as much on whether your hypothesis about the future is right as on whether your idea is good.” Consequently, it’s essential to do your due diligence before pitching your business idea to investors.

This post's reference before my modification and visuals was updated on July 28, 2023, by Lauren Landry, the director of marketing and communications for Harvard Business School Online.