With the global venture dollar volume growing at 62.5% year on year, and the funding totals expecting to reach $212 billion by the end of the year, according to Crunchbase, isn’t it a perfect time to join the race?
Sadly, only few startups will get a chance to bite off a piece of this cake.
When chasing after investments, timing is everything. Remember, it’s the early bird that gets the worm. The problem is, it might take months only to build an app MVP, let alone the full-featured software.
Do you actually need an MVP to raise funds? You will be surprised to find out that, in fact, an MVP isn’t just unnecessary, it can also be hindersome when pitching investors.
First off, let’s see what the core difference is between pitching with an MVP, and without it, in terms of the expectations it sets for investors, and what it means for you.
When approaching investors, you should be aware that there are several risks they consider:
- Team risk: Is your team competent enough to build and run the business?
- Market risk: Is the market large enough or growing fast enough to be considered promising?
- Timing risk: Is it the right time to enter the market?
But there’s an even more important issue – product risk: Can you convert your business idea into a product vision? This includes the product’s ability to generate revenue, to resonate with a certain audience, and its usability and value.
For you, there are two ways to eliminate product risk:
- Sell the business idea and product vision – demonstrate that you know exactly what you need, how to build it and how it is going to generate revenue.
- Sell the results – demonstrate that your product works and is able to generate revenue.
If you have decided to build an MVP it means that you chose to take the second path. So what could possibly go wrong?
While it seems easier to sell the results, having a functional MVP sets certain expectations. It’s no longer about you, or your team, or your market. It’s about the results, the proof that your product is worth the money. And, what if your MVP doesn’t deliver the results your investors expected?
Moreover, it takes time and significant budget investments to see any results. Only very few products became popular overnight.
Just think about it. It takes on average 3 months to build an MVP for a technology startup. Add 6 more months to market, test it out, collect and make sense of the data. Remember that during all this time you will be investing not only into development but also into marketing (Ouch!).
And even if eventually it is able to generate strong results that you can demonstrate to investors, by the time your perfect startup pitch is ready, someone else might take advantage of your market opportunity.
That is why spending your time and resources on an MVP before you secure investments is counterproductive for so many startups.
But let’s see what other, more efficient, options you have and how they can improve your chances for success in a much greater extent than an MVP.
When you don’t have an MVP, your investors will not expect to see any results from you. Instead, they will be expecting that you know exactly what it is you are going to build, can demonstrate how it will generate money and are sure when you will be able to do it.
And the best way for you to demonstrate your product vision is to create a visual prototype, a leaner and more efficient way to demonstrate your idea to potential investors.
What is a visual prototype?
An app prototype is a visual demo of your future product. It features the app’s UI/UX design, user flow and navigation, screen transitions and microinteractions. Thus, you can navigate through the app as if you were actually using it.
Using a clickable, interactive prototype, you can show your product to potential investors, partners, your family or friends, and source feedback before you start actually building it.
If a picture is worth a thousand words, a visual prototype is worth a million. It is a powerful addition to your startup pitch: it helps you show investors how your app will look and feel, while also offering the opportunity to test it out personally.
What’s more, not requiring a single line of code, mobile app prototyping is much faster and cheaper than building an MVP for a technology startup.
So, now that we know how to eliminate the product risk, what about the other three?
Your startup presentation is another important element of an investor pitch. It is a great way to demonstrate your professionalism and commitment, but also to address the first three risks.
A startup presentation aims to demonstrate that there is a demand and market for your product. Thus, your investors’ presentation addresses the market and timing risks investors are considering when funding your startup.
What do investors want to see in a presentation?
Creating a presentation for investors is a complex and labor-intensive task. The key is to back every statement with relevant (and reliable) data.
There are 8 key points you should address in your presentation to convince the investors.
- Company overview and general concept: key facts about your startup, your objectives and the concept behind your business.
- The existing problem and how your product can solve it.
- Brief product overview: key features, the description of how it works, the target audience.
- Competition and market analysis: an overview of your key competitors, how your product will differentiate itself on the market, and the market potential.
- Market penetration strategy: your key marketing channels, potential strategic partnerships, and available resources.
- Your team: their relevant experience and expertise in the field.
- The objective of the pitch: the required investment, the expected outcomes of the funding round.
- Financial projections: the current financial situation and burn rate, the forecast of the expenses and projected ROI.
Using these materials when pitching to angel investors, you show that you take your business seriously and are determined to make it work. This can be a powerful competitive benefit over other startups.
Before you start pitching your startup to investors, there are certain preparations you should make.
- Get to know your investors
To start with, research the people you will be presenting to. Look for any available information about your potential investors. You can also reach out to the startups they previously funded and ask for their advice.
Knowing what other projects your investor invested in can also help. Some investors choose the startups for their portfolio based on specific criteria. Try to understand what they are looking for and prove that you can offer it.
- Put together a stellar presentation kit
In addition to your presentation and app prototype, there are some additional materials needed when pitching to angel investors. For example:
- a business plan
- marketing handout materials
- available financial documents (current and future revenue expectations, burn rate, capital structure, company valuation, etc.)
- Do your homework
There are certain questions most investors will ask you. For example, you should prepare to talk in-depth about your PR/marketing strategy, the market you are targeting, the competition, the financials, as well as some more personal things, including your motivation and qualifications.
If you know what questions to expect from the investors, you can prepare the right answers in advance.
- Prepare for an elevator pitch
Having a long and detailed presentation for investors is great: you can talk at length of your product and its numerous benefits. The problem is, you might not have enough time to present it. That’s why it’s better to have a short elevator pitch which you can cover in up to 90 seconds, just in case.
Make your startup pitch concise and to the point. Once the investors take the bait, they will ask for you to tell more about it. If you fail to grab their interest in the first minute, the chances are you won’t be able to do it at all.
There are much more details you need to consider: from the way you present your pitch to your body language. The secret to a great startup pitch lies in your own confidence and belief in your product.
As Tony Hsieh, CEO at Zappos put it, “Chase the vision, not the money; the money will end up following you.”
A professional-looking presentation can be of great help when pitching investors, not to mention a good product demonstration. That is why having a professional team who can help you get ready for your investor pitch can be crucial for its success.
Our team at Eastern Peak provides professional guidance and support to early-stage startups looking to raise funds. From the concept definition and market research, to UI/UX design and prototyping, we can help you create a winning startup pitch and eventually build a full-fledged software product.
To schedule a personal consultation with our senior project manager and get professional advice on how to get started with your fundraising, contact us now.