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Beyond product: How technical founders can make a business case to investors


By Jesse Schwartz
Published: August 1st, 2018

In his recent blog post, start-up investor and mentor Martin Zwilling explains why companies must do more than pitch their products in order to win over investors. “I’m still amazed at how many technical entrepreneurs don’t have a business pitch,” Zwilling writes. “I always love to learn about the product, but every investor needs to make sure you have a business, as well as a product.” Here are eight aspects of a business that Zwilling thinks every founder should be able to pitch to investors:

  1. Target market size and growth projections. Investors want to see a billion dollar market opportunity with a double-digit growth rate. “This implies high odds of a scalable business, simply needing an investment to lead to success,” says Zwilling.
  2. Business model showing costs, pricing and margins. Gross margins should be in the 50% range or greater, with recurring revenue coming from subscriptions, services or follow-on sales. Online and e-commerce companies are ideal because they are instantly worldwide and not staff-intensive.
  3. Team skills depth, domain experience and track record. “In my experience, the team’s credentials are more important to the business than product features,” writes Zwilling, “Customers look harder at the team (bet on the jockey, rather than the horse).” For this reason, solo entrepreneurs will have a harder time finding an investor.
  4. Intellectual property and sustainable competitive advantage. Start-ups with patents, trade secrets and trademarks are less susceptible to competitors, and therefore more attractive to investors. As Zwilling says, “your solution may include leading technology, but if it’s available to competitors, the lead won’t last.”
  5. Customized marketing strategy and realistic sales plans. Companies can’t rely on word of mouth anymore. They need to show that they have specific plans for distribution, partnerships, sales channels, social media skills, and traditional marketing strategies.
  6. Five-year financial projections of revenue and expenses. Investors obviously want to see a positive return on their investment, with timeframes and growth expectations. “These are not meant to be an accuracy test, but a check on your commitment level, understanding of business norms and an assessment of company valuation over time.”
  7. Specific investment size request, and equity offered. Start-ups must provide potential investors with the size of the desired investment and the percentage of equity offered, thus supporting a realistic valuation. It is just as important to provide a projected use of the funds in scaling the business, including time frames for future investment requirements.
  8. Discussion of likely liquidity events and exit strategy. Investors want to know you have a strategy for getting them a return on their investment, since start-up stock has little market value for the first several years until a company goes public or is acquired. It helps to give examples of similar companies that found success.

“Just as a great business can’t exist without a product, a great product won’t survive without a business to sell it,” writes Zwilling. “It’s up to you as an entrepreneur to create both, with the ability to pitch either one, to the right people.”

Source: Startup Professionals Musings

Posted under: Tech Transfer e-News

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