Pitching 201: Understanding investor-speak, validating your idea
By Lum Ka Kay February 12, 2016
- You need to understand what investors need to know
- Market validation, market validation, market validation
ONE problem that often crops during a startup pitch is when entrepreneurs do not have a handle on ‘investor-speak,’ according to Proficeo Consultants Sdn Bhd chief executive officer Renuka Sena (pic above).
“Investors usually want to know things like traction, metrics to measure customer acquisition, revenue, margins, and other data. But most entrepreneurs are not financially savvy and don’t track metrics,” she tells Digital News Asia (DNA) via email.
“Similarly, they don’t understand how to develop practical sales or revenue projections, nor can they give enough details on the breakdown of how the money being invested will be spent.
“They also do not have a clear understanding of a ‘valuation’ and how to provide explanations on what equity they are willing to offer in return for the investment,” she adds.
Proficeo runs the Coach and Grow Programme (CGP) for Cradle Fund Sdn Bhd, an early-stage grant provider under Malaysia’s Ministry of Finance.
There isn’t an exact template for startups to follow when it comes to pitching, but there are few basics that should be included: The problem statement, the solution being offered, the value proposition, and market validation.
“Value proposition is about how your solution provides value, whether in terms of cost- or time-savings, while market validation is simple: Whether there are customers who are willing to buy your product or solution,” says Renuka.
The pitch should also include an idea of the potential market size – and whether it is regional – as well as the revenue model.
The pitch should include details on the amount of funding you would need, and how that investment will be used.
“The funds utilisation should generally be geared towards human resources and marketing, or market expansion and product enhancement,” says Renuka.
In today’s environment, the startup’s profitability may not be an immediate consideration, but the entrepreneur should be prepared to talk about that too.
There are always exceptions to the basics above.
“Facebook, for instance, did not offer a ‘solution’ as such, and under such circumstances, it is important to show traction in the product, say a growing and active user base,” says Renuka.
“As long as these basics are covered, the pitch can be customised depending on what the startup has achieved and what the ‘big picture’ of its business is,” she adds.
Many startups do not really know what their unique selling propositions (USPs) are, and Renuka says this problem can be addressed with market validation, although she also cautions that a USP is not the be-all and end-all.
“If they have conducted proper validation with customers, they will understand their USP better, but this isn’t really the key thing to focus on.
“Scalability and market size are more important to investors than a mere USP, which is more important in terms of sales and customer presentations,” she argues.
According to Renuka, most startups have the tendency to attempt to build the perfect product first, rather than build a basic one with important features and get market validation quickly, then improve the product from the feedback garnered.
“Those that do this [market validation] well, will find that customer needs will differ, hence talking to customers and doing surveys prior to launch can be crucial.
“The key here is to get customers first, and then upsell once they are using your product, because then you can get a better understanding of the market needs,” she says.
Ultimately, having a great idea just isn’t enough. You can have a great idea, get a team and spend loads of money to develop a product, yet in the end, nobody wants to buy it. Then you bemoan the fact that people cannot see the ‘greatness’ of your product.
The truth is, what you think the market wants isn’t necessarily what the market needs. So get out there and validate your idea.
And, hint: Getting media coverage and press write-ups is not market validation.
Previous Instalment: Important to differentiate yourself
Don’t be too much in love with your idea
Entrepreneur coaching not just for young startups: Proficeo
Market validation: Forget friends and family!
Early market validation is a must for startups
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