Launch Tennessee periodically publishes essays written by entrepreneurs, investors, and supporters of the startup ecosystem here in Tennessee and across the southeast region, sharing thoughtful and unique observations and perspectives on the business landscape and the challenges they’re encountering. Today on the blog, we are joined by Launch Tennessee’s very own Capital Formation Manager.
Post By: Khrys Hatch, Capital Formation Manager at Launch Tennessee
One of the most important things to understand when pitching investors is that every investor and team is different. It’s just as important for the founders to learn about the investors they are pitching, especially their investment preferences and process. For example, you don’t want to pitch your snack company to an investor that only invests in fintech. They may really like your snacks but likely won’t be able to invest because of their firm’s predetermined criteria.
Most important for your company in the long-term, founders should evaluate if the person they are pitching to can offer strategic value beyond just making the investment. This is very helpful to understand if you have many interested investors and you need to decide who to take with you on the journey. Seek at least a few investors who can contribute things to the business like strategy or connections to customers. That said, we all tend to look for certain “startup fundamentals” particularly when evaluating potential investments. Here are just a few things most investors will want to see in your pitch.
1. The founding team has strong qualities: Whether the person you’re pitching is an angel investor, venture capitalist, or a strategic investor, the overwhelming majority of investors are interested in supporting dynamic, dedicated, and well-rounded teams. Teams should be able to point to collective and individual qualities that may increase the likelihood of success: prior experience, technical skills, launching other successful startups or initiatives, et cetera. We are also looking for teams who are as innovative and strategic about sales and customer experience as they are about product design or operations. CEOs should demonstrate a strong ability to lead teams and set organizational priorities.
2. There is an urgent, critical, or costly problem: Everyday, we talk to founders who have built incredibly well designed technology, products, or services. Sometimes we get excited about a founding team or a pitch, and then realize that they are working to solve an issue that is not actually a priority for their target customer. In any case, the founders should be able to demonstrate that the market is willing to pay for a solution on a large scale in terms of price or volume.
3. The market size is huge: This really is a follow-up to the previous point, but it is such an important consideration when thinking about whether or not an idea or company is venture backable. Most Venture Capitalists and Angels are looking to invest in companies tackling an addressable market of at least $100 million. To determine your market size, we recommend using a bottom up approach, such as the process discussed here on inc.com. This method tends to be more accurate as it accounts for addressable sales and not just a targeted percentage of the market.
Raising capital can be tough. Tennessee’s Network Partners around the state are here to support early stage startups as they work through the many facets of growing a company, including capital. These entrepreneur support centers are available statewide. Find yours here.
Khrys Hatch is a Nashville native and Summa Cum Laude graduate of Fisk University. He currently serves as Launch Tennessee’s Capital Formation Manager, where he works to expand and expedite the availability of capital to Tennessee startups so that they can grow, be sustainable, create jobs, and build accessible economic prosperity. As part of those efforts, he manages LaunchTN’s investment fund, investor relations efforts, and several other capital-focused initiatives. Outside of LaunchTN, Khrys is an active musician. He is also an HBCUvc Fellow and a class of ’74 graduate of Young Leaders Council.
LaunchTN would also like to thank Alana Mann of Cultivation Capital for providing additional thoughts and perspective for this post.
