From the Lionesses of Africa Operations Dept
Our Head of Finance (HoF) was in an excited mood and called us in to watch an interview from Stanford University with Marc Andreessen (founding partner of the massive and highly successful USA VC firm A16Z). One hour later and shocked, we began to realize why this was so important. A16Z look at 3,000 of the 4,000 startups in the USA searching for VC funding each year in A16Z’s sectors. Of those they only look at 200 in depth and of those they only invest in about 20 a year.
That is 0.7% of the original 3,000!
Waving a brand new Pitch Book that had landed on our desks the previous day, our HoF started pacing up and down.
“Hope is a four letter word! Please avoid at all costs in relation to business these words, ‘Hope’, ‘Luck’, ‘Pray’, ‘Like’, ‘Need’, ‘Nice’ (there was a noticeable shudder at that last word - clearly painful to even mention!), these are all ‘Weak’.”
We wondered to ourselves if ‘Love’ was acceptable, but this was clearly not the time to ask as the HoF was in full flow…
“This Pitch Book is sadly full of Hope and little else…”
“With the numbers being mentioned by A16Z, Pitch Books have to be taken very seriously. Pitch Books have to be professional, not full of waffle and must give the potential investor what he wants, clear concise information and a reason why when they get to your ‘Ask’, they are ready to look for their cheque book.”
So, having got the hint - this week, let’s look at Pitch Books!
Please don’t just think of Pitch Books as something to be prepared and sent out just to attract Capital. In fact they are excellent for fine tuning your own thoughts and ideas for your business, not least because in splitting your business in clear Pitch Book areas with titles, you will recognize what it is you are doing and why. Where you need more detail in your thought, where you are coming unstuck, and where you need to focus. It may even show you where your business will fail or where you yourself have simply not thought the pros and cons through well enough.
A Pitch Book and also a Business Plan is a daunting prospect at the best of times, so let’s break it down into bite-sized chunks starting with the most important first…
A typical Pitch Book will contain the following, and usually in this order:
Company Overview
Mission/Vision of the Company
The Team
The Problem
The Solution
The Market Opportunity
The Product
The Customers
The Technology
The Competition
Traction
Business Model
The Marketing Plan
Financials
The Ask
Because it is usually in this order, don’t try and do something smart, stick to the plan. It has 15 headings, so you have to be clear, succinct and economical with the story flowing in your head, and because it has 15 headings, stick to 15 pages. Anything longer will bore, and if our HoF is anything to go by, investors bore fast.
Just to give you an idea…..AirBNB’s was 12 pages long, here!
So let’s start at the beginning to build the ‘Why’ the investor should take you seriously.
The Problem
Your Solution
The Competition
These core three issues are absolutely essential to the start and success (or failure) of any business. This is what excites an Investor.
Is it a huge problem such as expensive hotels and empty second homes or spare rooms - AirBNB; or high Taxi prices and large numbers of people able to drive part-time in all of the major cities around the globe - Über…?
Is your solution simple and easy to implement (certainly AirBNB and Über had simple solutions)?
And what is your competition, is it large and unwieldy, can a young nimble challenger disrupt the old industry? Hotels and old Taxi companies certainly had a shock when they work up one morning to find AirBNB and Über on their doorstep.
Competition.
We pressed the HoF on this:
“If you come to me and say that there is no competition, then I as a VC or PE or Angel Investor will simply close your PitchBook and pick up the next in my pile of 300 delivered that day. Likewise if you tell yourself this at idea stage that you have no competition, then you are not looking hard enough. Look for products or services that can be swiftly adapted; products that can be imported (and certainly there are no national boundaries for services these days); or products that can be 3-D manufactured in your country by a large ‘western’ companies; all of these ‘out of the box’ places, even products that can be counterfeited!
In SaaS, look for competitors very close to what you are offering. It might not be absolutely perfect or have all the bells and whistles that yours does. But for many businesses they will not waste time and money searching for your product if one from a household name does roughly the same, especially if this household name has the structure behind it that will support when there is a problem. There is nothing worse than buying from a one woman (or man) band that might tomorrow be knocked down by the proverbial No.32 Bus (i.e. a problem that is totally unexpected) and service dries up…
Look very hard indeed, this is one of the main turn-offs for VC and PE firms and in your PitchBook or Business Plan it must be addressed.”
The Problem
This must be clear. Why is it important to solve this?
Your Solution
Why is your solution better, more efficient, more economical, easier to use, groundbreaking?
The Competition
Never ignore, never pretend they are smaller than they are, never belittle.
So what had this to do with the photo that our HoF stuck at the top of our blog?
‘Buchette del vino’ was a small window cut into walls of wine sellers in Florence, Italy in the 1630’s when the plague was rushing through Europe.
Problem: People still needed their wine (water during that time was never to be trusted carrying terrible diseases), shopkeepers were worried about catching The Plague, and customers did not want to be in a confined space (heard that all before?!).
Solution: Cut a small lockable window into your shop wall so that customers could still buy their wine with no worries (not quite sure how the shopkeeper would handle the dirty and possibly pox infested money at that time, perhaps wine was only for those with decent credit…).
Competition: Other wine sellers were all dying out fast and were trusted less and less each day. A vaccine was unlikely in those days so herd immunity was the only option. Others could follow your brilliant idea (and as we see in Florence, many did), but by then you had taken a large share of the market and had shown that you were innovative and had the health of your customers at the heart of your mission.
Next week, we move on into the engine room, the beef of the Pitch Deck.
Stay safe!