Michael S. and Mary Sue Shannon Clinical Endowed Professor; Clinical Professor of Strategy
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As a venture capitalist and professor of entrepreneurship, Carter Cast hears a lot of pitches.
Cast, an operating partner of the Pritzker Group Venture Capital team and clinical professor of entrepreneurship at Kellogg, sits through more than a hundred young firms’ spiels a year. Some of these come from seasoned entrepreneurs; others from neophytes fresh out of school and looking to go to market for the first time. Regardless of source, successful pitches usually galvanize investors—they either move toward a startup or away from it.
So how can entrepreneurs make the most out of this opportunity and land the capital they need to build out a new business? Cast offers five tips.
Cast can often determine in short order whether he want to go deeper with a startup or pull back, whether he’s going to hold ’em or fold ’em.
“As an entrepreneur pitching funders, you’re very often categorized in one form or another in 30 seconds,” Cast says, “so you have to make your first 30 seconds count. Investors will pigeonhole you so they don’t have cognitive dissonance as they listen to you. They want congruency.”
This means it pays to come out strong and cut to the chase. Cast recommends entrepreneurs open with a 30-second “elevator pitch” on their value proposition. In that time, investors should learn your target market, that market’s need, and your solution.
“Don’t do a slow reveal. Don’t make me figure out what business you’re in over time,” Cast says. “If you can articulate your value proposition early in the presentation, I’m going to be able to relax and listen to you.”
Cast honed his approach while launching Blue Nile, an eCommerce business that sells diamond engagement rings and other fine jewelry. As the company’s founding chief marketing officer, Cast would pitch investors by telling them within 30 seconds that Blue Nile’s target market was men looking to propose but having little knowledge of rings and jewelry.
“I would say, ‘Blue Nile is a better way for men to find the perfect diamond engagement ring. They can shop for an engagement ring on our website in their underwear while SportsCenter’s on in the background. We’re not going to corner them and try to force them to buy. No intimidating diamond-speak hard sell from us,’” Cast says.
That quick pitch can be followed by either a quick compelling story or a statistic to pique a potential investor’s interest. With Blue Nile, Cast would mention that even though the marketing has traditionally targeted women, 92 percent of engagement rings are bought by men.
“It has to be something that gets investors to lean in right away, wanting to hear more,” Cast says. “Don’t wander into the pitch and take forever to get to the point.”
This advice sounds straightforward enough, but one of the most common mistakes entrepreneurs make when pitching is beginning by setting the scene for their pitch, rather than diving into the story itself.
Providing some context is fine, but, somewhat ironically, actually beginning your pitch with this information means funders don’t have the context to make sense of what they are being told. All that great research you have gathered about marketplace size and dynamics? Save it for once you have told the funders your big idea.
When pitching investors, many entrepreneurs focus on the vast size of the potential market for their product (the TAM, or total addressable market) and how much of it they are confident they can eventually capture. That may seem sensible, but for Cast, targeting the TAM is invariably too broad to be useful for young companies.
“Nearly every market is a chum of red ocean, but you’re going to show that there’s this blue ocean, with a little bay where the dolphins are swimming and the seals are playing,” Cast says, “It’s not just about communicating the size of the market and the players. You have to show investors where the blue ocean is amidst a sea of red, that you have found an entry point that others haven’t discovered.”
“Don’t do a slow reveal. Don’t make me figure out what business you’re in over time. If you can articulate your value proposition early in the presentation, I’m going to be able to relax and listen to you.”
— Carter Cast
Which means you have to tailor your pitch specifically to the segment of the market where your business can most immediately find a toehold, get some traction, and start thriving. “Where’s the tip of the spear?” Cast says.
For example, when Upserve, a company that makes point-of-sale software for restaurants, was identifying its market, the entire restaurant industry was ostensibly in play. But Upserve saw an entry point with small restaurateurs who needed analytics software to garner insights and stay competitive but did not have the resources to buy Oracle Micros, the industry-leading platform.
“Many small restaurateurs are terrified of a solution like Oracle Micros because it’s a heavy lift, and they don’t have the IT staff to implement and maintain it,” Cast says. “When Upserve was founded, the founder saw an entry point with small restaurateurs who are not tech-savvy and who needed a light-touch solution that offers customer insights.” It offered a turnkey, easy-to-use product with a short learning curve and 24-7 tech support.
Entrepreneurs often pitch with a few of their key people present and available to provide additional information on key aspects of the business. But while many entrepreneurs briefly introduce their team, Cast recommends going a step further and offering a quick, impressive insight into just what each member offers the business.
“I learned by watching another professor, Craig Wortmann,” Cast says. “Brag about what is impressive about your team, because nobody else is going to if you don’t,” Cast says. “Don’t say, ‘Brian runs our database marketing effort’; say, ‘Brian has this amazing ability to tease actionable insights out of data. Just last week, he found a causal relationship that allowed us to increase our gross margins by a full percentage point with no impact on sales rate.’”
These endorsements endear those team members to the people receiving your pitch, giving them credibility before they have even spoken in the meeting. It also provides investors with specific, timely information about what roles these individuals play and which of them can be counted on to do heavy lifting. Finally, it shows you as a leader capable of leading the company and bringing a healthy return to investors.
“When endorsing a coworker, there’s a ‘raised eye brow’ look that investors will give to your team member, perhaps a little head nod that shows you’ve done your job correctly,” Cast says.
Pitch meetings are great chances to impress. But they can also leave you open to epic technology failures that can instill doubt in the minds of funders. Cast’s advice for entrepreneurs hoping to wow everyone in the room with their new technology is to automate the demo.
“You wouldn’t believe how many times people try to show us something web-based and there is latency on the site, or they have a technology glitch, or the site freezes,” Cast says.
Cast learned this lesson the hard way when he tried to do an impromptu live demo during one of his own pitches, on the heels of an investor question. “I went into our beta site and it was awful. It was so buggy. One of the funders literally said, ‘This isn’t very impressive.’ I was mortified.”
Rather than trying to navigate an unproven product in an uncertain environment, Cast recommends one of three ways to disaster-proof your demo: make a product video with a voice-over, show wireframes of the new concept, or develop a series of screenshots of it. Any of these will showcase the customer’s experience with the business while minimizing the risk of the technology failing.
Automating the demo also prevents you from wandering off-script to show bells and whistles that may not be mission critical to many customers.
“Prepare a usage scenario in advance so you know exactly what you want to show them,” Cast says. “One scenario that involves a target customer should be enough to properly preview the model, so choose the most relevant and effective one.”
Pitches, ultimately, are about securing funding. Success means having a funder decide to invest in exchange for equity in the company. This is not the time to be bashful or overly frugal.
“When you ask for money, ask for two times what you need,” Cast says. “You’ll need buffer. Not everything you do is going to run smoothly and unforeseen costs happen all the time. If you think you need $500,000, ask for a million.”
By doubling your ask, you can cover unforeseen issues without worrying about having to come back to investors to ask for additional funding, which almost invariably ends with entrepreneurs giving up more of the company in order to launch their business.
“When you’re coming back for an additional small round of funding, investors have you over a barrel, and they know it, and it can be ugly,” Cast says. “You end up doing a bridge round of financing and no one’s happy. Not even the investors. They don’t like chipping in a bit more when you’ve goofed. So, ask for more than you need upfront.”
When you are communicating your financial needs, Cast recommends breaking the total ask into four buckets: People, product refinements and improvements, infrastructure, and sales and marketing. Allocating rough amounts in these buckets will help funders understand why you need what you need.
Providing this level of detail also shows funders that you understand what it will take to bring the business to market, including how you intend to build your minimal viable product, what your marketing and selling team will look like, and how you will set up your infrastructure.
“As investors, we’re a lot more confident when someone lays out both how they intend to use the capital and what their success metrics are along the way. We are comforted by a founder’s ability to articulate the progress they’re aiming to make in those different areas.”