Businesses that are typically of interest to risk capital investors must have the potential for fast, significant growth in order to drive the kind of 3 to 5 year returns that investors want to earn to compensate for their risk.
For this reason, risk investors are looking for some very specific information in the investment pitches they see, and they want to receive this information quickly and clearly.
Set out below are a number of questions that will need to be addressed in order to attract the interest of risk capital investors.
Of course, many different types of businesses and business models can be successful, even though they may not all meet the profile of a high growth potential business suitable for risk capital investment. As well, not all risk capital investors invest solely for the purpose of earning risk adjusted returns; they may have other investment motivations and you can try to pull at their heartstrings.
The answers to the questions set out below will be of interest to, and should be addressed for the benefit of, any potential investor or business partner. The answers will assist you, and others, in understanding the true nature and extent of your business opportunity, and will assist you in assessing whether your business opportunity is worth the effort.
10 Questions to address when preparing your pitch
1. Who are you and what is your business?
Introduce yourself and your concept. Be brief: give just enough information to provide a frame of reference, as you will need more time to cover subsequent material.
2. What is the market opportunity?
Another way of saying this is: What is the market pain? Or is there a market pull? What problem are you solving and who you are you solving it for? Do customers want your offering, or do they need it?
3. What is the size of the market opportunity?
Are you solving a problem for hundreds, thousands, or millions of potential customers?
4. What is your solution?
Go into a little more detail about how your solution will solve the market pain. What is the advantage of your solution? What validation do you have that the market will accept it? Do you have any intellectual property or patents?
5. Who are your competitors?
There are always competitors, and demonstrating that another business has been successful helps to validate your product. But, why is your solution different and better?
6. What is your specific target market, and how are you going to access it?
Distribution, or market access is typically one of the biggest challenges facing startups. What is your plan for overcoming this challenge?
7. What is your business model?
How are you going to make money and how much are you going to make? What is your profit margin? Is your business model scalable – that is, do the marginal costs shrink as volumes increase?
8. What are the capital requirements to take you through the commercialization pathway?
What are the timelines and capital requirements to get to revenue, to positive cash flow, and to profitability
9. Who is the management team?
Why are they fit for managing your business? What do they bring to the team? Are there gaps in the team? Are you trying to fill them? Is the founder the key shareholder? Are you coachable?
10. Is there a potential exit opportunity?
What would your exit look like? Would your business be of interest to larger players in your space? Is so, what are those players looking for and how can your business satisfy them?
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