Lately I’ve been coaching some entrepreneurs as they prepare their investor pitch to prospective angel investors. One of the recurring challenges with their draft pitch is a lack of clarity on:
- who needs the product (and why)
- who can pay for it — who has the budget and/or the authority to pay for it
- what customer segments do they plan to target, and how might this evolve over time
- the paths the company plans to go to market: how will they sell and support the product, direct via their own employees or indirect through some distribution or partnership model (including online models)
- how money flows through this market ecosystem, if that’s not already abundantly clear
Because entrepreneurs are fueled by passion for their product, that’s where they focus their attention during the pitch. Lavishing us with all the details about why the product is so cool, and why the competition won’t have a chance… But investors want to understand how and why there’s money to be made if they invest in this emerging company.
And that means we need to understand the market dynamics: who the customers are, what’s their compelling reason to buy, and where the money comes from.
Particularly in complex markets (like life sciences or healthcare) it’s incumbent upon the entrepreneur to insure the investors understand these issues. Follow the money.
Without a vibrant market of paying customers and efficient routes to market, investors will never get their money back. And until they believe there’s a solid market opportunity, most investors will shy away from funding the entrepreneur’s venture — no matter how unique or sexy the product.
Revised on June 4, 2010
