Here’s The Ultimate Guide to Creating a Pitch Deck For The Top 10 Questions Every Investor Will Ask You:
When creating a pitch deck these are the key questions you must answer:
What are your sales? How are they trending?
Who is your primary customer?
How unique is your product or service?
How do you distribute the product?
How much are you charging?
How much does it cost you to deliver it?
How much money have you invested in the business?
How many investors do you have in the business?
How will you use investor money?
Why are you uniquely qualified to run this business?
Introduction: What’s the difference between a shark and any other fish in the sea?
Ever think about that? Sharks come in all sizes and shapes with over 450 different species on the earth. The smallest is 8”. The longest 60 feet long. Sharks can only swim forward, sharks keep the ecosystem healthy since they eat diseased fish, and they must always be moving to breathe or they die.
No matter how big they are, they all share the same hearing and smell acuity. A shark can hear its prey from over 700 feet away. Even crazier, is a shark can identify and track prey through its keen sense of smell from up to 1 mile away.
Sharks can detect tiny amounts of blood in the water too, which the movie “JAWS” etched in our brains. One happy adviser on the Sea World website said “don’t go swimming if you’re bleeding anywhere”. Thanks for the reminder, buddy.
Just like sharks, if your company is bleeding cash, these shark investors will smell it a mile away too. Isn’t it curious how sharks and investors have so much in common.
Want to catch a shark?
So, do you want to catch a shark investor or become shark bait? It’s your choice. If you prepare for an interview with shark investors, you’ll win. Know the answers to the following ten questions and you’ll be way ahead of all the other fish in the sea. The key is to know your numbers cold, that is, the key indicators of business success cold.
1 – What are your sales? How are they trending?
Sharks want proof that you’re not the only one who thinks what you’re selling is cool. Total revenues and revenue growth are two key indicators the marketplace cares about what you’re selling.
How quickly your revenues are growing is also a measure of the hustle you have behind the business. Sharks like hustle. If you’ve got it, flaunt it. Then prove it with the numbers.
Next they want to know something about your customers. What motivates them to buy? How loyal are they? How price sensitive are they? If customers are price sensitive, they’ll jump at the first chance to buy a cheaper version from a competitor of yours.
Customers don’t care about the price, that’s bodes well for your business. If you know what percentage of your customers are repeat purchasers and it’s a big number, that’s a huge deal.
This is a measure of engagement and loyalty, but also, a way of determining if the customers are getting the value you’re touting. If you’re not doubling sales every year, it will be hard to get the investors excited.
Shark investors want to see strong revenue numbers and high growth. Your Net Income Statement will reveal what your revenues are and how they’ve trended over time. Revenues are your top line.
Know your numbers
Know your numbers in your sleep. Ask your bookkeeper or accountant to pull that report for you, then look at it. If you don’t know how, read Accounting for the Numberphobic; A Survival Guide for Small Business Owners.
2 – Who is your primary customer?
This answers the question how well you know who is buying from you and who has the potential to buy from you.
Do you know how frequently they’ve bought?
Do they have a reason for repeat purchase?
What evidence can you bring to the investor discussion to prove customer satisfaction?
Testimonials, especially video testimonials are very powerful. Size your market.
One colleague of mine has a company called Nested Bean. She has developed a weighted Zen Swaddle that helps newborns sleep through the night. She has saved more marriages and sanity than all the psychoanalysts on planet earth.
Everyone who has been able to get a good night’s rest after using her products can’t wait to tell the world how it has changed their lives for the better. How many people need the benefits you’re offering? Do they have discretionary income? Make sure you have that research down. Any decent investor will ask.
3 – How unique is your product?
If you pass the revenue and growth test, then the sharks want to know if it is easy or difficult for a competitor to copy you and eat you for lunch. If it’s easy for someone to copy your product, no investor will invest. If it’s difficult, you’ve got a shot to get to the next stage.
The more unique your product, the greater the benefits your product offers over the competition, the more positively pre-disposed a shark will be to learn more. You need to answer the question on every investor’s mind; “Why will customers buy from you instead of the competition?”
Do you have patents or trademarks
If you have patents or trademarks on your product, that creates a hurdle or barrier to a competitor stealing your idea. It’s never water tight, but it buys an investor time to get his return on investment.
If a super successful company like Dell Computer has to think about these things, so do you. And remember, different doesn’t mean better; it could mean just weird or odd. There have been a few of those on every national TV show highlighting new business ideas.
Your product’s unique characteristics have to be something your customer cares about so much they’re willing to pay money to gain access to it. Be sure you can identify your top three competitors cold and why the world needs your company even though the others exist.
Where is their Achilles heel? If you’re not sure, become a customer of your competitors. Remember, it’s not what you do but what you deliver that builds customer loyalty.
Pay attention to whether competition treats you just as well after the sale as they do before the sale. If they’re treating you poorly, they’re treating their customers like that too.
If they treat you like yesterday’s breakfast after the sale, there’s an opportunity for your company to build loyalty easily and fast.
4 – How much does your product sell for?
Your price has to be consistent with your uniqueness, how strong demand is for your product and how strong (or weak) the threat is that the competition will try to steal customers away from you.
If there are a lot of strong competitors looking to sell competing products, that’s a problem. If you’re alone in a market niche where there’s strong demand (and you can prove it) with weak competition, that’s the Holy Grail. This is called pricing power.
If someone wants what you’ve got, they gotta buy it from you. You never want to compete on price unless you’re Walmart and no small business owner has that kind of scale. Don’t delude yourself. Compete on value, never price.
Be prepared in this part of the interview to talk about what competition is charging for what they’re offering.
Remember, there are always two parts to the equation. What you’re offering and what you’re charging for it. If the competition’s product performs poorly, doesn’t have your features, and they charge less, it doesn’t mean you should lower your price.
It means you understand value. Guess what, shark investors do too. You won’t get the deal if you’re the cheapest. You’ll get the deal if you can prove you’ve got a much better mousetrap than anyone else out there and your customers are willing to pay real money to get it.
5 – What does it cost to make?
OK sports fans, you don’t run your company on revenues, you run it on gross margin. Your direct costs are your cost of goods; that is, what it costs you to make one unit of product.
Sometimes you get price breaks if you place a larger order with the manufacturer. That’s called economies of scale. Your economics professor talked about this while you were sleeping through your 8 AM class.
You need to know how your cost structure changes with volume. As costs go down that either means you can become more price competitive or you can make more gross margin on every sale. Either way it’s a win.
But you only want to buy in large quantities if the market demand is strong. Unless your inventory is fine diamonds or classic automobiles, inventory will not improve in value over time.
As for gross margin, here’s how you calculate it. You deduct your price per unit (revenue per unit) from what a unit costs you to make your product (cost of goods sold per unit) and that’s your gross margin (per unit).
Never forget “Gross Margin”
Remember this term “gross margin”. It drives the success or failure of your business. Any shark investor worth his/ her salt will ask about it. Count on it. A shark might call it “margin” “gross margin” or “gross profit”. It all means the same thing.
Know this or you’re really shark bait. A good friend didn’t know these terms all meant the same thing and when she was pitching for $2M in investment, she caved. One word, one chance, it all collapsed. Now you know.
A shark investor will want to know your gross margin two ways; on a per unit dollar basis and as a percent of revenue basis. If you’re selling a product for $10 and it costs you $4 to make it, your gross margin is $6 per unit or 60% of the price you’re charging.
If you’re selling wholesale, that’s 60% of your wholesale price. If your product is selling at retail, you still have to know what it’s selling for at retail even though you only capture the wholesale gross margin.
If what I said sounds like Swahili to you, read the first three chapters of Accounting for the Numberphobic; A Survival Guide for Small Business Owners, AMACOM Books. It’s like Prego Spaghetti Sauce; it’s all in there and it will change your life.
Percentages and dollars
The reason sharks want to know percentages and not just dollars is because a shark investor has all the connections to drive down direct costs thereby increasing gross margin per unit.
They like this. You (and they) make more money for every unit of product you sell. That’s the game in a nutshell. If you’re gross margin isn’t at least 30% of unit price, don’t even bother pitching investors on TV or otherwise.
They won’t talk to you and neither should any other investor for that matter. You can’t make it up in volume. That’s an accelerated path to bankruptcy.
Key here is a shark investor wants to know if you know what drives a profitable business long term. That my friends is the ability to deliver a fat gross margin and blossoming cash flow, but we’re getting ahead of ourselves.
6 – How do you distribute the product?
This question really gets at your marketing and sales strategy. How do you find your target audience and entice them to try your product? What’s your sales strategy to get conversions, that is, people to buy from you?
What’s the cost of bringing a new customer on board? This is called “cost of acquisition” and you better know how to calculate it and what the cost is for your business. Every business will be different.
If you’ve invested $10,000 in online marketing to gain 1,000 clients, that’s a cost of acquisition of $10 per client. If your cost of acquisition is going down because your marketing is getting better and customers are referring others through viral effects, that’s a beautiful thing.
That’s exactly what a shark will see a mile away. It’s like throwing chum to a large fish; they’ll eat it up.
You need to know how much you’ve spent and how effective your marketing strategy is in capturing new clients. If your process is sound, then all the sharks have to do is invest in that process so you can do more of it.
If you’re still wading in shallow waters, they won’t be interested. Make sure the marketing acquisition engine is working well and you’ve got the numbers to prove it.
7 – How much of your money do you have in the business?
This is also affectionately referred to as “skin in the game”. In other words, how much of your net worth do you have at risk? If the answer is you’re all in and then some, the sharks will pay attention. They know you’re super motivated.
They also know that when someone has burned the boats, just like the big fish, their only option is to go forward. Just ask Mark Cuban who spent his early years couch surfing with friends until he hit pay dirt.
The more you have at risk, the more an investor will believe you’ll make whatever sacrifices you must for your business take off. They’re right.
8 – What other investors do you have?
No investor likes to be the first one to invest in an idea. But the other challenge is, no investor wants to take second or third position in a deal if other investors have already locked up the majority of the spoils.
If you’ve burned through a lot of investor cash and owe a return to a lot of people and you are pitching new investors, this is not a business plan. It is a Ponzi scheme.
Did you get some seed capital to test your idea and prove there’s demand for your product? Great. But make sure you don’t give away more than 30% ownership in your company before creating a pitch deck to present to a new investor.
If you do, they’ll all be “out”. Trust me on this.
9 – How will you use investor money?
It’s amazing to me how few business owners who pitch Shark investors can answer this question without hesitation. That better not be you! What you need to remember is that any investor wants a return for his/ her investment with minimal risk.
They will invest in inventory to fulfill an order you already have (that’s called a collateralized transaction). They will invest in research and development to refine the product.
They will invest in effective marketing programs to expand the product line or reach broader markets. They will invest in tooling or production efficiencies to drive down costs. Why? Because all these investments drive revenues, gross margin, reduce costs and drive up profits or bottom line.
If you want to use investor money to pay yourself a bigger salary, like one guy said, the sharks will eat you alive. If the business is not generating enough free cash flow from operations to give you a raise, every smart investor will tell you, you haven’t earned that raise and they will NOT be funding your lifestyle.
10 – How are you are uniquely qualified to run this business?
Regardless of how great your design is, your credentials are an important indicator if you’re the right person to run this business and to drive profits forward.
Robert Herjavec of the show Shark Tank, says it best, “I’m investing in the person first, not the business”. Do you have a special degree? Have you worked as an insider in the industry for a competitor? Did you go to some high-flying college or graduate school?
There were two guys who were selling a unique eye mask to help sleep. They graduated MIT with their PhDs. And currently, they were working in MIT’s biophysics lab. These guys were truly rocket scientists.
When they told the Sharks their backgrounds, everyone was amazed. Heck, if they can do that, they sure can create an eye mask that plays you music to lull you to sleep. Does the marketplace want those masks? That’s the next step in the analysis. But these guys were clearly overqualified for the job. And they were funny too.
So how should you approach your investors
The best way to approach investors of any kind is to play a great game of offense. Know your numbers inside and out. Know where the risks are and look at them from an investor’s viewpoint, never your own.
Know where the opportunities are in the marketplace. Do you have strategic partners you’ve spoken to but you need that door flung opened wider? That’s what a Shark can do.
Don’t try creating a pitch deck just for the money. Pitch for their expertise, wisdom, and connections. That’s worth gold and it’s worth giving away a percentage of your company to gain access to it.
Drumpants only wanted to do a license deal and missed getting access to Robert Herjavec’s incredible developers. Don’t make the same mistake.
So here’s the good news. King Solomon of Bible fame was right; there’s nothing new under the sun. Every investor cares about the top ten questions you see above. If you have solid answers to them, you’re destined not only to catch a Shark, but to make a huge success of your business.
Here’s to that bright future for you.
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