Preparing for the Pitch
Preparing for the Pitch:
Tips for Mission-Driven Startups Seeking Outside Capital
By Matt Lombardi
Raising capital for a mission-driven venture is exceptionally challenging. One obstacle that social entrepreneurs face is a scarcity of traditional funding sources. Conventional investors tend to avoid double-bottom line companies for fear that such investments would yield lower and slower returns. As traditional investors dominate the venture capital arena, finding investors with two bottom lines is not an easy task.
While there is no single way to attract mission-aligned investors, there are practical guidelines to help social entrepreneurs locate viable backers, understand their needs, and avoid the most common fundraising mistakes.
Where to Find Mission-Aligned Capital
Angel networks, which are groups of individual investors who provide capital to startups, are a viable option for for-profit social ventures. Individual investors tend to consider a broader range of deals than most venture capitalists. An extensive list of angel groups can be found at the Angel Capital Association’s website (http://www.angelcapitalassociation.org). One of the more established groups listed, Investors’ Circle (www.investorscircle.net), is a national network comprised of individual and institutional investors dedicated to backing for-profit social entrepreneurs.
Several double-bottom line institutional lenders and venture funds have sprung up over the last couple decades. A few examples of these institutional investors include RSF Social Finance, Calvert, and SJF Ventures. A comprehensive list of socially responsible funds can be found on Columbia’s Research Initiative on Social Entrepreneurship (RISE) website located at www.riseproject.org
The U.S. Small Business Administration (www.sba.gov) is a helpful resource for ventures seeking loan opportunities.
Mission-driven ventures that take a non-profit form should consider the extensive list of grant resources found on SocialEdge.org, a website dedicated to supporting social entrepreneurship. A more traditional list of funders can be found at Foundation Center Online at www.foundationcenter.org
Matt Lombardi is the Entrepreneur Services Director for Investors’ Circle, a non-profit national network of angel investors, institutional investors and foundation officers who seek to balance financial, social and environmental returns.
What Do Socially Responsible Investors Look For?
The array of investment criteria is overwhelming in breadth, however most double-line investors zero in on a few key factors when it comes to making the right investment decision.
Before shopping your idea to investors outside your immediate circle, you will want to be confident in the following:
1.) Strong and relevant industry experience. Investors are said to invest in entrepreneurs, not ventures. If your team lacks experience in a specific area, be forthcoming about your plans to fill that gap. Developing relationships with reputable advisors will also help build credibility.
2.) Attractive and realistic financial projections. Enough with the hockey stick projections! Being overly optimistic is a sure way to lose credibility. In the same vein, take care not to be too conservative. While being realistic, make the opportunity compelling from an investment standpoint.
3.) Firm understanding of competition. Refrain from minimizing your competition. Acknowledging your competitors demonstrates that you understand the market and are prepared for the challenges that lie ahead.
4.) Traction in the marketplace. Demonstrating that there is a demand for your product or service is key to peaking an investor’s interest. Documenting letters of intent from strategic partners and potential distributors will also strengthen your value proposition.
5.) Built-in values. Socially responsible investors favor ventures whose mission is core to the company’s business model, rather than just an afterthought.
Investor meetings can vary from a cup of coffee to a full-scale pitch before an investor group. Regardless of the level of formality, keep these tips in mind to avoid common fundraising mistakes:
1.) Keep it simple. Avoid getting lost in non-essential details. Start with a concise encapsulation of your business concept to draw in your audience from the start. Then deliberately hit the key areas of interest to investors (i.e. competitive advantage, market size and trends, business model, social or environmental impact, management team, financials, and the potential exit). Practice presenting until your delivery time is consistent and appropriate for the occasion.
2.) Come prepared. When meeting with an investor or group of investors, a concise 5-15 minute PowerPoint presentation is standard. Come prepared with an updated business plan and executive summary. If applicable, bring a prototype or product.
3.) Engage the audience. Avoid text-heavy slides. Presentations should guide viewers through your key points, not serve as your script. If you want the audience to remember verbal points, provide a handout sheet at the end of the meeting.
4.) Attitude Matters. Appearing “too confident” or “egotistical” is a common mistake that entrepreneurs make at investor meetings. While it’s critical to come across as both passionate and competent, an approachable demeanor will help open a dialogue between you and your potential investors. Simple tactics such as smiling and making eye-contact are essential to making a good first impression.
5.) Interview your investors. Due diligence should not be a one-sided process. It’s essential to trust and respect potential investors before signing term sheets. Sharing a common vision of the company’s future (as well as the investors’ exit) will help reduce conflict as the company matures.