The 10 minutes or so an entrepreneur has to sell an idea to an investor can often make or break the future of the start-up

For many entrepreneurs it’s all in the pitch. The reality is that most of the bright sparks with big dreams usually don’t have the money to realise their aspirations. Enter then angel investors and private equity firms. However, investment and funding comes with a price, and accessing it is often a much harder and lengthier process than entrepreneurs envisage.

The 10 minutes or so an entrepreneur has to pitch to an investor can often make or break the future of the start-up, according to Frank Walsh, a partner with venture capital firm Enterprise Equity.

He says a person’s capability and ability to sell their passion is often as important as the idea/product itself, and they need to do this well at the first pitch.

“We are in the seed game and we look at the people when we’re investing. We look for extraordinary people with a credible business plan.”

He says aspiring entrepreneurs should recognise that the route to funding is often a difficult and lengthy process.

“Investors don’t bring their cheque book to the first meeting. Entrepreneurs and start-ups need to understand there’s a courtship process.”

The human side of a pitch meeting can be as important as the idea and the supporting data, according to investor Bill Liao.

The venture partner with SOSventures says it’s about creating a personal connection with the investor.

To me, ideas are worthless. It’s all about the execution. Lone heroes with good ideas only succeed in the movies. You need a talented and diverse team.”

Someone who has been through the pitching process is Cleverbug chief executive officer Kealan Lennon.

Lennon raised $2.5 million to fund the development of the Cleverbug birthday card app, with $1.8 million coming from the Irish venture capitalists Delta Partners.

“You need to grab an investor’s attention within the first 10-15 seconds of a pitch. The first slide I showed in my pitch for funding for Cleverbug said: ‘It’s a $27 billion market’. If anyone was falling asleep that certainly woke them up.”

Lennon says the biggest mistake an aspiring entrepreneur can make is not listening to and acting upon feedback.

“I have mentored companies doing fundraising. I told them they weren’t ready to pitch – they hadn’t done their research properly. They didn’t listen and went ahead with meetings. The investors told them exactly what I had.”

He says a good track record with previous businesses helped him gain investment for Cleverbug. Lennon led a management buy-out of a business that designed leaflets and cartons for the pharmaceutical industry at the age of 25. Five years later he sold it to a US packaging company for $20 million.

“A big track record made it easier for me to open doors. Leaving that aside, making a cold approach in investors should be frowned upon. It’s not the way to do it.

“At the end of the day, investors are backing the person. Thus, they want to see someone with hunger and passion. Early stage investors also like to get recommendations from other people regarding a start-up.”

He believes keeping investors on board is as important as getting them in the first place. “Don’t hide anything from them – you might need more money off them at a later stage.”

However, with fundraising for start-ups being a slow and painful process, it is best to know your investors before you seek funding from them, or at least know they will bring more than just money to the table.

Often entrepreneurs are so eager to find an investor, they may tempted to take money from anyone willing to write a cheque.

Seed funding

“Often the best thing to do is to bring in clever money rather than just money. You need people on your board who know their stuff and who are experienced in an area that will be beneficial you your business,” Fantom chief executive Paul Healy says.

The company received €490,000 seed funding in 2011 in a funding round backed by AIB Seed Capital Fund and Enterprise Ireland. The Dublin-based digital stickerbook company participated in the DCU Ryan Academy Propeller Venture Accelerator, which led it to receiving funding of €30,000 and ultimately €490,000 in seed funding, according to Healy.

“We built upon the fact that DCU had put their faith in us to get investment from GameStop founder Kevin Neary. Kevin is very well respected in the games market so investment from him led us to the AIB Seed Fund.”

With many entrepreneurs having no formal sales experience, pitching can be challenging, according to Kernel Capital partner Orla Rimmington. “Some entrepreneurs lack the ability to clearly articulate their business and key benefits to customers which does not create a good first impression.

“It’s important for entrepreneurs to know their business plan inside out and to be clear on how much funding they require to get them to the next stage of value creating milestones.”

She advises entrepreneurs to target investors with a good track record and ensure that the start-ups funding needs are in line with the investment firm’s respective strategies.

Another mistake entrepreneurs make is not knowing the key financial drivers of their business, according to Grant Thornton partner Patrick Burke.

“A lot of times they put all their energy into having nice offices, nice business cards, business plans that are bound well.

“They should be concentrating on the points in the business plan though, especially the figures. It’s not good enough to have an excellent idea – you need to know how to commercialise it.

Stepping stone

Burke says start-ups need to be realistic about getting funding from VCs and realise they are not charitable associations but finance firms that want a return on their investment.

“We work really hard to keep start-ups away from financiers for as long as possible. The greater the valuation of a company, the less equity they will have to give up ultimately.

“Often times funding becomes the end objective rather than a stepping stone along the way. It’s expensive as you are giving up control and a percentage of the company.”

He believes entrepreneurs should also bear in mind the long-road to funding.

“Fundraising can take up to six months, and in a business a lot can happen in that time.”