Capital pitches that succeed

Nation's Business, May, 1997 by David R. Evanson

Your presentation to investors can go down in flames unless you tailor your text and keep it well-paced.

When the future of your company depends on an infusion of capital from private investors, it pays to make a good impression.

"Many companies fail to raise money not because they aren't viable, but because they cannot present themselves in a compelling manner," says Ric Klass, managing director of corporate finance for M.S. Farrell & Co., a New York City brokerage and investment-banking firm specializing in emerging companies.

Consider the following studies in contrast:

The founder of a hot new Internet company had a roomful of investment bankers attending a conference and looking his company over with an eye toward backing an initial public offering. To show the financiers just how leading-edge the company's technology was, he opted for a live demonstration directly from his laptop and projected onto a large screen near the speaker's podium.

The presentation started to unravel when the company owner's laptop computer could not connect to the Internet. When the demonstration program then froze, he had to switch off and restart his laptop computer. The whole affair went into free fail as the entrepreneur waited to try the demo again while maintaining a dialogue with the audience.

Suddenly, his leading edge software looked like bleeding-edge software, and the initial public offering expired on the spot.

By contrast, entrepreneur Neil Swartz, founder and CEO of Microleague Multimedia of Newark, Del., met investors with a videotaped demonstration of his company's hot new Sports Illustrated Presents sports simulations. Swartz's presentation went off without a hitch.

So did Swartz's initial public offering. He got the capital he needed for expansion, and Microleague now trades on the Nasdaq stock exchange.

Putting together a winning presentation isn't as easy as it might seem. In fact, companies have difficulty in almost every venue where they meet investors, says Klass. Whatever the forum--a formal dog-and-pony show before a roomful of institutional investors, a clubby luncheon with 10 to 15 wealthy individuals, or a one-on-one meeting with a venture capitalist--founders and senior managers have often shown they can shoot themselves in the foot with deadly accuracy.

It's not the absence of Shakespearean delivery that causes companies to stumble before potential investors, says Bob Shuey, an investment banker with National Securities Corp. in Dallas. "It's a lack of appreciation for the basics of communications."

Following are tips to help entrepreneurs avoid assorted pitfalls when making presentations for investment capital:

Send The Right Message

Many times, says Shuey, a chief executive's pitch to potential investors is no different from his or her pitch to potential customers. This is a formula for disaster, he says, because it says management doesn't know what is important to outside investors.

Topics such as product features, new technology, and customer service--the things that matter to customers--are of interest to investors only as part of an overall menu of competitive advantages that will help drive sales.

"Investors look at the big picture," says Shuey. "They are interested in profitability, market size, competitive climate, marketing operations, new product development, key personnel, and profit margins." Pitching investors the same way you would pitch prospective customers is ultimately unproductive.

Consider Audio-Visual Aids

Only the most magnetic, experienced public speakers can carry an investor presentation without any visual support, says Klass. If that's not you, then slides or overheads are crucial.

"A company would have to offer the potential of Microsoft to keep investors in rapt attention as the principals droned on for 30 minutes" without visual aids, he adds.

"Keep in mind, however, that slides and overheads should not attempt to convey the story," says Klass. Instead, they should punctuate the speaker's remarks and give the listener a constant source of context for what is being said.

"Where most companies go wrong with visual aids," says Shuey, "is that they try to pack too much information, such as an entire income statement or founder's resume, onto a single slide."

The net result is that between listening to the speaker and trying to decipher what's on a slide, the investor becomes distracted and does not absorb what's being said.

"Think in terms of television credits," suggests Shuey, "with no more than five bullet points per slide."

In addition, consider using one of the popular presentation-graphics computer programs rather than 35 mm slides. Production is fast and the content can be altered easily with a computer-graphics program, so changes can be made right up to the time you begin making your pitch. By contrast, it can take 24 hours to make or change a 35 mm slide.

Avoid Live Demos

The story of the Internet company's founder at the beginning of this article illustrates the perils of live demonstrations. As people with sales experience will tell you, the customer has a picture in mind of what the product is and what it's supposed to do. Any uncontrolled situation that distorts that image is ultimately counterproductive to closing the sale.