Hello John, how ya doing today?
You mailed my company a postcard a few weeks back requesting information on penny stocks that had huge upside potential with very little downside. Does that ring a bell?
Okay, great. The reason for the call today, John, is, something just came across my desk, John. It is perhaps the best thing I’ve seen in the last six months. If you have 60 seconds, I’d like to share the idea with you. You got a minute?
The name of the company, Aerotyne International. It is a cutting-edge high-tech firm out of the Midwest awaiting imminent patent approval on the next generation of radar detectors that have both huge military and civilian applications.
Right now, John, the stock trades over-the-counter at 10 cents a share. And by the way, John, our analysts indicate it could go a heck of a lot higher than that. Your profit on a mere $6,000 investment would be upwards of $60,000!
Investor: Jesus! That’s my mortgage, man.
Exactly. You could pay off your mortgage.
Investor: This stock will pay off my house?
John, one thing I can promise you, even in this market, is that I never ask my clients to judge me on my winners. I ask them to judge me on my losers because I have so few. And in the case of Aerotyne, based on every technical factor out there, John, we are looking at a grand slam home run.
That’s how the wolf himself, the infamous Jordan Belfort, sold 40,000 shares of a company the investor had never heard of — in just under two minutes.
Do you become a Wolf of Wall Street when selling your app idea to potential investors?
Probably not, and the good thing is: you really don’t have to!
While Belfort’s exceptional sales skills brought him a lot of success — and got him into a lot of trouble — selling an app idea to experienced investors requires a completely different skillset.
Many excellent ideas never get investment.
Because you never sell the idea, you always sell the execution.
When it comes to pitching, preparation is the key. We’ll show you how to sell the execution and get investors to compete with each other to invest in your app. After reading this guide, you’ll have all the necessary skills to dominate your pitch and enter the exciting world of startups.
Before You Even Consider Contacting Investors
The first thing you should do, before you even start to think about presenting your app idea, is to make sure that the idea is worth pitching.
When we come up with a fascinating idea, many of us start to dwell on how amazing the idea is without really taking an objective look at it. We also forget that for every good idea, there are literally hundreds of other ideas floating around that are interesting, exciting, and clever.
These ideas might attract momentary attention, but you should aim for good ideas.
A good idea is creative and can realistically make a considerable improvement on the way things are done. Basically, a vital component of a good idea is execution. Always keep in mind that many interesting ideas fall apart when people start thinking about execution.
To determine whether your idea is pitch-worthy, ask yourself the questions you think a person listening to your pitch might raise.
- Does your idea offer a new, creative solution to an existing problem?
- Or is it an upgrade on an existing solution?
- Is the problem it’s solving so pressing that the solution will be profitable?
Be prepared to explain why you are the right person to oversee the development and implementation of this idea.
Your Idea’s Scope
You have to consider the scope of the idea when crafting your pitch.
If your idea is complex and revolutionary, or if a large sum of money will be needed to implement it, then your pitch must be comprehensive and detailed. Ideas have different levels of complexity to be considered.
Scott Berkun provides a rough outline of the scale of project scope:
- A small adjustment to an existing feature
- An improvement to an existing product or service
- A huge new aspect of an existing product or service
- A completely new but small project
- A completely new but complex project
- A philosophical or directional change to an organization
- A new organization
- A new planet or galaxy (colonizing Mars anyone?)
Once you’ve pinpointed where your idea’s scope falls on this scale, take a look at how other people have pitched their ideas of comparable scope. Learn from their experiences!
How successful were they? What sorts of challenges and objections did their pitches face? How did they overcome them?
Do some research on industry standards for the type of pitch you’ll be doing. Talk to people who have already pitched in your niche and ask them for insights and advice.
Different Versions of Your Pitch
You should rehearse three versions of your pitch:
- The 5-second version
- The 30-second version
- The 5-minute version
The shortest version of your pitch is commonly referred to as the elevator pitch. Essentially, your elevator pitch should contain a single distilled definition of your idea. Keep working on your idea until you can express it in one concise sentence.
In the other two versions, you are simply elaborating on the elevator pitch. The 30-second version should either explain your execution plan or elaborate on a couple of crucial features of your idea.
Remember, the idea is for your listener to have a better understanding of your idea and proposal.
The 5-minute pitch flows organically from the 30-second version, which in turn flows from the elevator pitch. The 5-minute pitch should cover all of your bases. However, if you’re not able to inspire interest with the first two versions, chances are that no one will listen to your longest pitch.
The Pitch Deck — and Why You Need It
Most people use a pitch deck when presenting to potential investors or partners. A pitch deck is a brief presentation of a business plan made to be more absorbable to potential investors and it is usually presented in PowerPoint. Your pitch deck should include the following:
- Introduction: Who are you and what are you offering?
- Team: Introduce people involved with the idea and their job titles.
- Problem: This is the problem your idea is going to solve.
- Advantages: What makes your idea so special?
- Solution: Describe how you’re going to solve the problem.
- Product: Show an example of how your idea functions.
- Traction: How much success have you had so far?
- Market: Size of the market.
- Competition: Who are you in competition with?
- Business Model: How is your idea going to generate profit?
- Investing: How much money do you need to get the idea off the ground?
- Contact: Share your contact details.
Take a look at Airbnb’s amazing pitch deck for inspiration!
Don’t Go Without a Prototype
A picture is worth a thousand words. Which is why you should try to have a prototype ready.
A prototype shows that you’re committed to your idea. It also helps people understand how the app looks and works.
Don’t worry if you have no experience with building prototypes. TMS provides amazing App Development Services.
Know Your Market Size
Potential investors want to be sure that the market is large and/or expanding and is in need of the solution your app offers. In your pitch, present accurate data from reliable sources on the following aspects of your target market:
- The size of the entire market. Total Available Market (TAM) refers to the entire market demand for a product or service. Be reasonable with your TAM numbers because no one will believe you if you start talking about hundreds of millions — even if it’s a killer idea.
- The growth of TAM over the past several years.
- The number of prospects or potential customers you can reach with your marketing campaigns. Another name for this is Serviceable Available Market (SAM).
- The projected revenue per customer. How much will your customers pay in the beginning? Make sure you talk about package pricing.
- Expected cost per acquisition: the total cost to acquire a customer.
- The number of potential customers, also known as Serviceable Obtainable Market (SOM).
- The point here is to prove to the investor that your assumptions are reasonable, that you have put a lot of thought into your idea, and that there is a way that the investor can make a profit.
Be conservative in your market analysis; don’t go after an extremely large market. Keep in mind that Uber started out operating in only a few states before growing exponentially.
Study the Competition
You have to convince your listeners of your app’s competitive advantage. How does your app stack up against the competition?
Ask yourself, “Why would someone want to download this app?” Convince your listeners that this app will be the best in its niche.
Are there any drawbacks to your app? If so, how do you plan on overcoming them?
It’s very likely there are other applications that provide similar solutions to what you’re proposing. Therefore, research your competition and find out how similar ideas are panning out in the app market.
This means that you need to conduct a sweeping search of similar apps. Go through all categories related to your own idea and pay close attention to the apps with a large number of downloads. Look at their ratings and user reviews; gauge their popularity with users.
If your idea is more of an upgrade on an existing solution rather than an entirely novel idea, then look at release dates of the latest version updates. This is important because when they become out of date, then your idea can offer an enhancement that complements existing trends.
By doing homework on your competition, you’ll be able to make a reliable prediction on your expenses and the number of potential users. Have those numbers memorized because no investor will even entertain your idea if you can’t produce them.
The people you’re pitching to want to know what kind of pricing model you will adopt. After all, they are listening to your pitch because they want to make money. There are four main options for making money on apps:
- Direct Monetization: the user pays to download the app.
- Freemium Model: the user downloads and uses the app for free. They have access to basic functionality of the app but they have to pay for upgrades.
- Advertising: the app makes a profit from ads it displays.
- Indirect Monetization: the app doesn’t directly make profit, but it generates revenue for companies indirectly by attracting traffic to websites and by increasing sales or brand awareness.
Tips from Startup Investors
Listen to startup investors and take down their insider tips.
- Be specific. Avoid using word salads; nobody wants to listen to unnecessary jargon and cliches. Present your angle and state clearly how your idea is different from the rest. If you are vague, the investor might think that’s because there is nothing there to be specific about.
- Pitch the deal, not the business. Try to put yourself in the shoes of the investor. Give some thought to how investors will get their money back and under what terms. Are you going to exit? Will you start paying dividends down the line? Investors won’t feel comfortable if you don’t take their perspective into account.
- Be authentic. Avoid making grandiose claims, like asserting that you have no competition and that your idea is flawless. We all have gaps and make mistakes. For example, an investor might point out that your team needs a strong technical employee. You should acknowledge this fact and outline the steps you’re taking to make that happen. Investors will love this, because so many people never own their mistakes and needs.
Alicia Syrett is the Founder and CEO of Pantegrion Capital LLC, an angel investment organization focusing on seed and early-stage investments. It has invested in Nomad, MightyWell, and Enerknol, among other successful ventures.
Syrett says that in order to make a successful pitch, you need to:
- Avoid being too salesy. Don’t try to apply pressure on your investors by saying they only have this one chance to invest in this one amazing idea. It’s gimmicky, and it won’t go over well. Just be authentic and credible.
- Don’t say there’s no competition. Talk about your competition, be honest, and outline your idea’s competitive advantages.
- Give them an investment pitch, not a product pitch. Very often people will talk about the features of a product as if they are trying to sell it to investors. The investor wants to understand the idea holistically, due diligence is the time to talk about features. During the pitch, talk about the market size, your marketing plan, your team, and the investment opportunity you’re offering to your listeners.
These tips will certainly improve the quality of your pitch and you’ll come off as an investable entrepreneur.
Ways to Find Investors
If this is the first time you’re pitching an idea, you should look for ways to expand your network. Perhaps you went to business school and had a well-connected professor. Or maybe some of your former classmates have started successful businesses related to your idea? Go and pitch your idea to them.
When looking for investors, you can use websites like meetup.com to find events that host investors looking for business opportunities.
You can also search for a local angel investor if you live in a big city. Chances are there is an angel investor association in your area or country.
Also, log on to Angel List, where Angel investors look for opportunities online. This website gives you a rundown of each investor’s average deal size, past investments, and areas of interest.
It also allows you to find investors based on various search criteria such as location, markets, and even the university they attended. Be sure to use this great resource to find information about your investors.
Or you could simply cold-email potential investors you think might want to listen to your pitch. Many articles, blogs, and market reports include the names of investors.
Once you’ve identified some potential listeners, send them an email. You’d be surprised how effective cold emails can be in attracting angel investment. Investors as well known as Mark Cuban, for example, have been known to make investments based on cold emails.
Also, once you start meeting other investors, ask them for referrals even if they don’t end up investing in your idea. Investors will often want to help, and maybe they know someone who’d be interested in investing.
Who You are Pitching to- Research Your Investors
You should tailor your pitch to each investor, emphasizing on certain aspects of your pitch depending on their interests. Take into account their previous investments and the size of their investments. Essentially, you are not only selling your idea, but yourself to the investor. Try to create a rapport with them.
For example, let’s say you have an idea for a fitness app, and you know that your investor has already invested in a similar app that failed.
Use this knowledge to discuss how your idea will overcome the factors that caused the previous app to fail. Talk about the new, unique features that will make your idea a success where the other app was not.
The point here is to make sure you do your homework on potential investors before you pitch your idea to them. Think about the following four questions when selecting people to whom you’re going to pitch:
- How active are they with their portfolio companies?
- In what kind of industries do they typically invest?
- Do they only invest in certain geographic areas?
- What is the average size of their investment?
Thinking about these questions will make your pitch more effective and your experience much more rewarding!
Test Your Pitch
Practice makes perfect. Find smart people and practice your pitch on them. Use their feedback to improve your pitch and sharpen your presentation skills.
Also, by practicing your pitch before the actual presentation, you’ll have a better understanding of the kind of questions you can expect potential investors to ask.
If you’re well prepared, you have a good idea in which you truly believe, and you present it in a calm and confident manner, then you’ve done the hardest part. If your listeners think that your idea is worth an investment, then you should know what the next step is. Have a response ready if they ask you, “How should we move forward?”
If your pitch fails to convince investors, on the other hand, then make sure that you understand why. Use failure as a learning opportunity to help you improve your pitching skills.
Investors often don’t actually invest in ideas, but in people. Investors want to see hunger in your eyes — the kind of hunger that shows you are prepared to do what it takes to turn your idea into a business that will be worth millions of dollars.
You’ll significantly increase your odds with potential investors if you have mastered your numbers and display passion and commitment in your pitch.
If you need any help covering the technical or business aspects of your app idea let’s have a no-strings-attached conversation.
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