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To all Entrepreneurs raising angel investment – how to pitch clever!

By Nick Lyth

If you are about to, or are in the process of, pitching to angel investors in order to fill an investment round, what follows is for you. If you are an angel investor yourself, you might be interested. Otherwise, this will be a little light relief, or just something else to ignore.

You have all read the reams of online advice provided by Google, you have studied “How to write a selling Business Plan”, you might even have been to Business School, or done a Business Studies course. You are prepared, ready, planned and sure that the angel investment pitches you will make are going to be successful.

Well done! You certainly have cleared the first hurdle, which is confidence. Angels don’t back hesitant entrepreneurs. If you’re not sure about what you are doing, you can expect them to be even less certain.

What follows is a set of guidelines which will help you. However, you may have to rewrite some of the pitch deck you have prepared. It will directly contradict some of the accepted wisdom in the world of start-up pitching.

1. Under no circumstances suggest you are solving a problem. Instead, tell your potential investors that you are improving on existing competitive product performance.

This is one of the most common pieces of advice I give, as it is one of the most common mistakes entrepreneurs make with regard to product innovations and inventions. It is hard to believe how fanciful this sounds. You, a start-up entrepreneur, with – let’s say – a product innovation in the automotive sector, maybe even in the EV sector, expect me to believe that your product solves a problem for the sector.

Really? If it is a real problem for the sector, what have the enormous and hugely resourced automotive companies, which have been operating for most of the last century, been doing about it? If you then tell me, nothing, you are telling me that it is not an important problem. Your invention has no value if the big boys don’t care about it. But if they do care about it, they will have either solved the problem themselves or be in the process of solving it.

It is not credible that a small start-up company with no resources, track record or corporate experience in any sector at all, will beat the major companies to the punch in that sector, with all their vested interests and invested resources, in solving any problem of real significance.

But it is credible that a small start-up company will develop an innovation or invention that improves the performance of existing products in the sector. Improvement is a benefit to all those big companies in the sector; problem-solving is not. In any sector you can think of, the market is functioning now, as you read this. If you say you can help it function better, you are doing something useful and clever. If you say you can change it and make it different, you sound like you are dreaming.

Remember the key thought: improving what currently exists.

(As a footnote to this guidance, it is interesting to ask, why does so much of the guidance to start-up entrepreneurs tell them to start by defining the problem they are solving? There is a simple solution. In the world of science, academic or non-academic, the scientific method of invention starts with problem definition. The scientific (and mathematical) method of progress is driven by the concept of problems requiring a solution. Hence the protocols for introducing an invention are driven by exposing a problem at the beginning of the process. While this works very well for the academic study and presentation of scientific inventions and discoveries, when these transition into commercial exploitation, commercial rules take over. These are dominated by competition, by transaction models, by profit requirements and cash flow, by – above all – markets. Scientific methodology, required to develop the discovery in the first place, loses all relevance in the commercial context.)

2. Don’t claim to be starting a new market or product sector, always, always, always define an established market place for your product or service.

Once again, this is pure common sense. Indeed, it relates to the last point. The world is made up of people in their professional and private lives with a limited amount of money to spend on a limited amount of purchases, relating to a limited amount of needs and requirements. Among these people can be found your potential customers, whatever you are hoping to sell. You will be selling to human beings with wallets and budgets containing the money they have available to spend.

It is easiest to grasp this point in the business world, where companies often have procurement managers. Procurement Managers have a Job Spec, with Objectives, and a budget with which to deliver the Objectives. They also have a boss who will judge whether they are doing it properly. If you are introducing a product which you wish to sell into businesses in any given sector, these will be the people whose custom you seek.

Will any Procurement Manager listen to you if you tell him or her that your product will do something different to every other product he or she is buying? Where would you expect the money to be found for purchasing your product, if it does not in any way match the tasks or performance of the products already being procured? The Procurement Manager will have to forego one or more of his or her purchases in order to afford to buy yours. What will the boss say when those products are no longer doing what they were doing in previous years?

It is even more obvious what potential investors might say. You claim to be introducing a product that will break new ground and create a new market. Markets are like rivers. A big established market is like a large flow of money all travelling in the same direction within the same boundaries. If you immerse yourself in one of these markets, you stand a chance of soaking up some of the money yourself. But if you say you are creating a new market, you are dropping your company onto a dried up river bed where currently there is no water flowing at all. You will not only struggle to soak up some money for yourself, you will soon be completely parched and dying of thirst.

This relates back to the previous point. If you tell me you are solving an unsolved problem, I will wonder why no-one has bothered to solve it before now, and will think there is no market for solutions to this particular problem. If you tell me you are improving products in an established market, I will think “Good, this company knows where it stands the best chance of survival.”

Never say your product will disrupt the market, say instead that it will develop the market

You can see that this too ties in with the previous points, but it makes an important separate point. A lot of nonsense is talked about disruption, as if it is a good and exciting thing. What seems to have escaped attention is the commonplace of all market and social research: human beings are change averse.

Disruption is not a good thing. It is a bad thing. None of us welcomes being disrupted.

Another fallacy we live with, in a spirit of some complacency, is that our era is the most transformative, the most technologically revolutionary, and indeed the most disruptive in human history. Much is made of the powers of computing and the introduction of the Internet in justifying this assertion.

But these developments have done little to transform human life, when compared with the changes in technology in the first half of the twentieth century. Cars, radio, television, planes, penicillin, incendiary devices, the atom bomb, the machine gun – the list runs on and on. Life in 1950 was utterly unlike life in 1900. The entire economic equation, based on the price of labour and the cost of production as a result of the capabilities of new technologies, had been turned on its head. These were the final years of the Industrial Revolution, of course, and the clue is in the name – Revolution.

Human beings are change averse, but those that survived this battle-scarred era continued to live their lives. How?

Let me set you a little test. Ask yourself what markets you can think of which have seemed in your lifetime to be transformative, or new, and then ask yourself what we did before about the services they supply? You will come up with some interesting answers, but then look at how those products and services were sold. Nearly always, the marketing of the products you can think of will stress the continuity, not the change. Mobile phones were built on the principle of developing telephones, familiar for decades previously. Computers were built on the principle of developing desktop capabilities, which were a standard requirement of office life. The Internet was built on the principle of developing information access and sharing, always an essential staple of social, economic and political life. All the concepts were explained as if they existed previously, not as if they were new. We have to go on doing the things we need to do, or want to do. The products we choose are products that help us do that.

Why do you imagine that cars are called “cars”? They are one of the biggest single disruptions to human life in history. But “car” is short for “carriage” and was described as, and understood to be, a replacement for the carriage. A horseless carriage. In other words, its early inventors promised to do what carriages did, but to develop their capability, efficiency, economy, and so on. By talking about development rather than disruption, you maximise the comfort your potential customers will feel with your product.

4. Now go back to your pitch deck and see how it fits these precepts

After all the above, you must convince yourself, your potential customers, your potential investors, that you are ready for the competitive commercial world. You will only do that if you can show that you understand it, and understand how it works.

Good luck!

Photo by RODNAE Productions: https://www.pexels.com/photo/white-printer-paper-on-yellow-table-7414305/

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