Pitching for investment is one of the most important tasks you'll ever face in creating a successful, and well capitalized business. While you may feel ready to field any question investors throw at you, you should carefully think through and practice your responses. "More often than not, it's the obvious questions people fall down on because they haven’t effectively thought through all the issues," says Marcus Tarrant, Managing Director, Business Planning HQ.

 1. What do your customers need and what is the specific customer problem that you are addressing?

It isn't enough to tell investors there's a need for your product; you require hard facts and real-world examples of how your product or technology interfaces with the customer problem.  Customer problem discovery is one of the most critical activities that an early stage business needs to undertake.  Investors like to see validation of the customer problem, with an indication of the cost of customer acquisition.  If you have a clearly identified customer acquisition plan oriented around an identified customer problem, with evidence of the cost of customer acquisition and an early indication of customer lifetime value then, you will be able to build a compelling investment proposition.

 2. What have you already accomplished as a business?

Your existing accomplishments create business credibility.  If you haven’t already accomplished anything, why would an investor be interested in investing in your business? Be sure to focus on your accomplishments so far, such as clients you’ve secured, distributors you’ve reached out to, new hires you are bringing on board. Small-business owners often spend too much time talking about the story behind their product and the difficulties they went through developing their business rather than homing in on their milestones and achievements. In early stage businesses, your focus is most likely to have been on technical development or solving a technical problem.  Highlight achievements in solving this technical issue in the context of how others have gone about solving a similar issue.

 3. What's your competitive advantage in the context of the market in which you will be operating?

Ideally you will be able to provide some evidence of your competitive advantage, and how this advantage translates into goal based outcomes for your business.  Competitive advantage is a market based concept and should be considered in relation to other players in the marketplace.  If, for example, your competitive advantage is that you are more nimble than your larger and more bureaucratic competitors, provide a specific example of how this has helped you win and retain new customers.  Sometime a map of competitive advantages and relative strengths can assist in clarifying your competitive advantage in the minds of your potential investors.

 4. How do you define your market Niche?

Let’s assume for a minute that you are doing something innovative.  Ideally your innovation will create or expand a new niche.  The way you define your niche and the associated rationale for its growth (relative to the market) is critical for business success.  Your definition of the niche can be used to communicate to the investor exactly how you see the business to be positioned, and more importantly to identify the key factors that will drive the wave of growth in the business. 

 Focusing on a broad based market entry strategy is considered by many early stage investors to be suicide.  Ensure that you identify your niche and explain how you will become the dominant play in that niche.  Research by the Harvard business review indicates that dominant players in a niche have a higher likelihood of success and significantly higher margins.  The so called “Star” companies are what many investors have on their hidden evaluation forms!

 5. What are the key drivers and sensitivity points of your business?

To show investors you really understand your company, point out potential vulnerabilities and how they might affect you. To address key sensitivities, we even take the typical SWOT model to the Next level (SWOTM), Marcus Tarrant, Founder of Business Planning HQ says.  A SWOTM ensures that the mitigating activities for the threats are well considered and outlined.  In addition to just considering these, they ideally should be modeled into the financials.  A driver based financial model can be one of the best ways of letting an investor “Step inside” your business and give it a test run.  Some businesses are highly vulnerable to referral rates (Web 2.0 companies) others are vulnerable to fixed and variable costs.

 6. What are you going to use the money for?

If an investor is putting money into your business, he doesn’t want it going towards a new Porche for the founders!  To avoid trouble down the track with your investors, a clearly laid out investment profile is required.  This ensures that everyone is clear on what the funds will be used for and how the success fo the expenditure will be measured.

 

Investors like to know their money will be used to build products, hire employees or add to the business in some other tangible way. Entrepreneurs often make the mistake of talking about more general plans for the funding, such as marketing, distribution or product development.  You need to clearly define and budget for each required activity on the business development path, and have a clear mechanism for managing this expenditure.