I’ve seen more than 200 startup pitches in the last couple of years.
Most pitches do not get funded.
Sometimes people who don’t get funded reach out to me and ask, “Why?”
Here’s an example of why one entrepreneur’s pitch did not find any response from the Angels in the room:
Congratulations on your idea and your startup.
You have identified a pain point in the marketplace.
Also, as you probably discovered, while you’ve discovered a pain point in the market, nobody at the angel investor pitch event was jumping up to invest in your idea.
I think some of the reasons are:
- Business model (service vs. product)
- Scalability (business model and processes)
- Sales model (scalability, efficiency, etc.)
- Team (solo startup, almost always a big red flag)
People generally invest in businesses that they believe demonstrate that the business model is ready for capital injection.
There are two primary points in a business’s lifecycle when capital is injected:
- To enable business model discovery and proof
- To scale the proven business model into the marketplace
See here for more information about when it’s the right time to inject capital into a business model to discover or achieve scale: www.IdeaToExit.com
You probably believe, and perhaps rightfully so, that you’ve both discovered and proven your business model. The tepid reaction of the investors on the panel demonstrates that you either a) haven’t done that yet (at least in their eyes) or b) you are not effectively communicating that you have done so.
Investors look for a variety of proof points to see if a startup meets their criteria as “discovered” and “proven.”
In your case, you’ve demonstrated that you can execute this business as a lifestyle, “heartbeat” service business (you make money as long as you are standing there with your heart beating). What you haven’t demonstrated is that any aspect of the business will scale.
Immutable law of the startup universe: Ability to scale deserves investment; lifestyle, heartbeat does not.
Another proof point is team. In your case, it would be a great proof point if you can convince a person with proven “at scale” market segment experience to join your company as a co-founder (you’ll need to give them equity). That shows potential investors (who may not know anything about franchising) that a franchise expert thinks your idea is ready to rock.
In general, investors hate service businesses. Very, very few investors made their money in a service business, so, consequently, very, very few investors understand a service business model. Investors like product business models because they can scale them mentally or with a simple spreadsheet. Service business models require a lot of humans and processes and moving parts, and humans and processes and moving parts are very difficult to reduce to a cell on a spreadsheet. This will probably be the single biggest hurdle you will need to overcome. If you walked in with a cloud-based, social-networked, gamified, mobile-app-enabled product thingy that did something around whatever, you’d probably get more investor interest than you will around anything service model based. Tough fact of startup life, especially around Austin.
This may have been one of the very first times you’ve pitched your business. Every time you pitch you should learn from that experience and continue to hone your pitch.
For instance, I’ve already seen most of the pitches from the startups yesterday at least once in the last year. Most of them, such as Daily Juice, continue to improve their pitches significantly every time I see them.
The next time you pitch, focus on:
- Market pain / unmet need
- Solution to pain
- Market size and growth rates (see the ARTS market sizing at www.IdeaToExit.com – focus on the Target and Serviceable market sizes and growth rates)
- Proof points (financial, customers, endorsements, social, team, etc.)
For investors, it’s all about finding a deal with unlimited upside and zero risk. The closer you can position your startup to that idealized goal, the more attractive you will be to investors.