A beginner’s guide to building your start-up pitch

Seeking financing for the first time can be an exciting and overwhelming experience for early-stage entrepreneurs. While you may feel ready to take your business to the next level, you’ll still have to convince investors that you really are.

There are countless variables that impact whether your start-up will receive financing, but preparation can ensure that you’re in the best possible position to succeed. We’ve rounded up key milestones of the financing process, and how to set yourself up for success.

The phases of a financing plan

While timelines may vary, it takes on average between three and six months to close a financing. Below is a general guide on the phases of building an investment pitch from start to finish, and the materials you should have prepared.

Phase one

Complete due diligence on your company, prepare your financial projections and key marketing documents, and establish a list and profile of preferred investors. Expect investee due diligence to take two to three weeks. Preparing an investor list and a marketing approach can take up to four weeks and five weeks respectively.

Phase two

You’re ready to approach investors. You’ll be doing a lot of work presenting financing proposals, identifying keen investors and facilitating the investor due diligence process. Expect to spend three to six weeks to secure your initial offers and a lot of time on investor due diligence. The latter will take between six to eight weeks.

Phase three

You’ll take about six to eight weeks to select final offers; another six to eight weeks to negotiate and close the capital raising transaction. During this time, you’ll be determining whether the price, form and financing structure are right for you. Develop a negotiating strategy that leans in your favour as you close on business terms and review legal documents.

What investors are looking for

You can’t read investors’ minds, but there are common threads most will be thinking about as they evaluate your pitch. Here are the top 10 considerations, along with related items that would fall into each bucket.

1. Proprietary product or service: Patents; expertise; barrier to entry; strategic partnerships; licenses; and presence of recurring revenue.
   
   
2. Sustainability: Does the product improve people’s lives? Does it solve a problem? Or, is it a fad?
   
   
3. Proof of concept: Prototypes; demos; customer pilots / testimonials / pre-orders; a go-to market strategy.
   
   
4. Attractiveness of industry: Competition among investors to enter hot markets can drive up valuations and make it easier to find investors. High-growth sectors (between 10 to 30 percent per year) are the most attractive.
   
   
5. Global annual revenues of the sector: Anything over $1 billion indicates strong demand, room for other players and a likelihood the investor can see an exit.
   
   
6. Competition: Investors see risk in mature markets with well-established competitors, and therefore favour new or existing markets which are poorly served by the status quo. Demonstrate a sustainable competitive advantage.
   
   
7. Five-year revenues: Early stage investors will seek liquidity events about three to five years after investing.
   
   
8. Scalability: Demonstrate your ability to increase revenues with relatively little increase to your fixed costs, or additional capital investment.
   
   
9. Strength of management team: Demonstrate management’s ability to execute on the business and address vacancies — and show off your advisory board.
   
   
10. Skin in the game: Include founders’ time and capital spent on this venture.

Approaching U.S. investors

U.S. investors usually prefer their own market due to their familiarity and larger opportunity. However, recent Canadian success stories with U.S. investors have shown this doesn’t make your pitch impossible.

In your approach, ensure you immediately capture their attention with a captivating message. Highlight the international opportunity and show you’re well-positioned to expand outside of Canada. Be prepared to answer any questions so you can keep momentum for the pitch.

Dan Porter is Managing Director of MNP’s Corporate Finance team in Toronto. Dan has more than 35 years of experience assisting public and private companies across a wide spectrum of industries develop, implement and achieve innovative financing strategies that help them reach their business and capital financing goals. To learn more, contact him at 416.515.3877 or [email protected].