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We get many requests for equity funding especially for early stage technologies. That's why we have created this video series, to introduce you to the major elements of creating a pitch. Now, you might be able to create a pitch after watching these videos, but it will get you thinking about it. Missouri, and central Missouri have many different types of programs to help these technology entrepreneurs at various stages of readiness. In this video series, we have assembled experts from various programs, businesses and organizations to discuss the high level points of creating a pitch for investors. We must understand what businesses are most appropriate for equity investments. New technologies are not what we call "bankable" meaning there is insufficient collateral for the bank to use as protection for their investment. There is a sizable potential of return, meaning for every $1 invested the investors can gain as much as $20 in returns. This means in practice the market is very large! There must be something for the investors to buy with their money. This is generally some sort of patent or other intellectual property. Equity investments are not generally sought for main street businesses, which will qualify for bank financing, depending on the borrower and their business. The pitch is the way a person demonstrates to investors the opportunity. It must be clear, concise, and most importantly tell the story to compel the investors to reach into their wallets and invest in YOU. There is no wrong door for you to explore the commercialization of technology in Central Missouri. We hope this information is useful, and please go to one of the organizations listed for more information. When you're talking to investors about your startup company, value proposition is one of the key items you can cover. Most startup companies don't have revenue, they don't have a lot of assets, they might not even have finished their product yet. So your value proposition is a way you're going to explain what you're about to do and convince your investor that it's a good idea for them to invest in. So your value proposition includes who's going to use your product, why do they need it or what is the problem you're solving, and then what is your solution and how does that provide value to the consumer? You really want to focus on your customer. This is not the time to talk about your product and how it works. In fact, the number one cause of many startup failures is the company builds a product and then they don't have a market for it. So you don't want to skip this step. You want to be really clear on what your value proposition is. Often, the value proposition is expressed as a problem and a solution. So you want to define the magnitude of the problem, how severe it is. You want to describe how adequate your solution is. It needs to be really good, complete cure for cancer, let's say, or a whole new function that the market doesn't have today. The other thing you want to do is make sure customers know they need a solution and they're looking for a solution. Otherwise, you're trying to sell something your customer doesn't know they need. You also need to know who is your target customer. This is confusing in some markets like healthcare, where is your customer the patient, the doctor, the hospital or the insurance provider? So you have to be really clear to focus on who makes the decisions and who's paying for it. The other complication is sometimes there's more than one customer. In a two-sided market like eBay, for example, you need to have sellers who are selling a product and needed to have buyers who are buying the product, and unless you have both markets, customers on both sides, you don't have a really valuable product. And you need to figure out which subset of your customers are the most likely to buy at the beginning. They're called early adopters. And you want to focus especially on them in your early stage. Your investor is going to want to see that you know who your customer is really well, that you can define how you're going to find them and engage them, and that you know why they're buying your product. Some product might have more than one benefit like safety or cost savings, and you need to know which of those is the most important. So that's how your sales can go with your customer. Your investor is going to want to know how you validated your idea. It's just not a hunch that it's going to get an investor to invest in you. So you need to have a market expert or industry expert who can talk about your product, although that's low in terms of priority for an investor. An investor really wants to know that you've gone out and talked to your target customers and conducted interviews. That's important information. And if you can, it's nice to have actually made some money and had some initial sales with your customers somehow, maybe with a prototype of your product. So my advice is two things. First of all, don't assume you know how your customer is going to react to your product. Make sure you've gone out and talked to customers. Many experts say you should talk to 100 customers before you start building your product. And you need to do the research yourself so that you'll understand all the insights and tidbits that your customers are going to tell you. The second thing is not obvious. Sometimes a smaller focus market is better than a big unfocused market. A lot of entrepreneurs think they want to have the biggest market possible. But really what you need is the biggest addressable market where you can easily identify who your customers are and you have a simpler product design that meets just their needs. That's often the best place to start, and you can always grow from there into a larger market over time. So these are the things you need to do to establish that value proposition in your investor's mind. If you need help developing these ideas, you can come talk to us at the Missouri Innovation Center, where we focus on technology companies that typically need equity investment. A first step in new product development or commercialization is to select a process. You'll find many processes and systems, including a business plan and other tools. We chose to use the Business Model Canvas. You'll find excellent curriculum and resources built around the Business Model Canvas at Strategyzer.com and at Udacity.com, under "How to build a Startup." Udacity.com provides a complete curriculum. The Business Model Canvas is built around a nine-step system. Arguably, the first two are the most important: Value Propositions & Customer Segments In the vast majority of pitches, entrepreneurs tend to "target the world." Investors really don't want to hear who can buy your product or service, but who will buy your product or service. This is a Key Point! In your pitch, it's important that you define the benefits not the features to the most efficient segments. Example: You're probably familiar with Square (Credit card reader) Their website value propositions include: Square works for every business. Accept Credit Cards Anywhere! These are excellent features, but Who Cares? , What are the benefits (Pain relievers or gains)? What value is this to an investor? If Square is pitching to an investor, In the short term, Will the big box or grocery stores use Square? Probably not. Remember, they can! But will they? Consider the benefits? You can generate cash anywhere! Eliminates the cost and burden of a POS or inventory management system. Segments? Startup retailers in urban or suburban areas? Flea Market or Swap Meet vendors, Mobile Food Trucks, and Uber and Lyft drivers, just to name a few. When the value propositions and customer segments are determined, you actually go talk to the segments to test your assumptions. This is called Customer Discovery. The goal is Product / Market Fit. Your customer segments validate or invalidate your assumptions around the value propositions and during the process the entrepreneur adjusts or pivots to find that Product/Market fit. The other seven steps include Channels, Customer Relationships, Revenue Streams, Key Activities, Key Resources, Key Partners, and Cost Structure. As you can see, the Business Model Canvas is a great foundation for a business plan, if a plan is necessary. Many entrepreneurs begin with a business plan. Business plans are great and often necessary, however, a business plan has never survived the first contact with a customer! It's key to learn about your customer first! Remember to include in your pitch; Who will buy your product or service? Not Who can! I hope you found this helpful, thank you. >> Entering the market is simply how your products get into the customer's hands. At a high level, this is very simple. Or is it? Steve Blank, a consulting professor at Stanford University, ties the following three concepts together. His first point is a historical perspective. We need to understand how products and market channels have evolved over time. The first industrial revolution, we had physical products and physical sales processes. You bought a car from Ford, for example. In the mid-20th century, the concept of virtual products, meaning they are not tangible, came into being. These were things like insurance products or bonds. But they still had a physical sales process. In the mid-90s, a new market channel evolved. Virtual sales and marketing, but physical products. So Zappos, jet.com, Amazon are all examples of this new sales channel. More recently, we have virtually products with a virtual sales and marketing arm. These are products like Google, Twitter, Maz [phonetic], et cetera. Blank's second point relates to the product. Is your product a physical or virtual product? Most of you I think can probably answer that question right now. But also, how do you anticipate selling your product? If you're going to sell direct, your company owns the sales process and the customer relationship, but it is expensive and must be part of your financial projections. If indirect, your company relies on partners, and you don't own the customer relationship. It's a little bit like dating by proxy. You always have to ask your proxy how your date is going. Blank's last major point is the complexity of the technology. Less complex solutions offer some options that would not work in a highly technical segment. Imagine trying to dry a drug treatment regimen for a rare disease. More than likely, that treatment is part of the healthcare system, not just a drug. You can see the more complicated the technology, the more complicated is the sales and marketing. The market channel is critical to understand and to clearly and concisely articulate in your pitch to investors. Our local are sources have methods to help you dig into the market channels. This is the critical piece of the pitch. But more importantly, it is how your business will make money. The point of financial projections is to tell a story with numbers, a story about opportunity, resource requirements, market forces, growth, milestones, and profits. What are the general economics in market opportunities, profits, and competitive advantage? It is very important to provide confidence that you know the market and the business has strong return. Your job is to create a numerical framework that complements and reinforces the vision you've painted for future your business. Investors need to understand your projections for market adoption, timing and product pricing. They also need to understand your financing requirements and if and when you will need follow-on financing. This is the time to speak the common language of business, that of returns and profitability. Remember,this is an investor pitch. How do you achieve this, I recommend to first take a step back and envision what your target is for the financial model in terms of purpose, target audience and objective. For the first part, the use of funds, it is important to have a very detailed plan, and try to forecast salaries, major contractor expenses, equipment and major expenses. Try to put this in front of someone you know has more experience, describe what you want to do and explain your estimates. As much as possible secure quotes to supplement your estimates. This is going to be the most scrutinized part of your financials, and is actually what defines the size of your round. For the second part, try to have well founded estimates for the key drivers. For the projections of how you will generate millions in revenue it is not appropriate to try to estimate every single detail. I believe trying to get into an argument with potential investors about details is a losing battle. Instead focus on the high level metrics. I will explain how to do this in a little bit. Overall, it is good to have a robust in financial projections. But is it the best allocation of time for early stage companies? I would argue no. There needs to be a balance. First of all, evaluate your audience and make a determination of how good your projections can be at this stage. Define stages at which you will redefine or calibrate your projections, identify what information you need to get in the future in order to get a robust model. This way you have a vision of what your future will look like. Here is the key takeaways and components on how to build a model, and how to pitch it front of investors. First, what are the general economics and what is the market opportunity? Try to talk about profits and competitive advantage. At a high-level, you should be able to explain the economics of your target market. It is very important to provide confidence that you know the market and the business has a strong return. I cannot emphasize that enough. The most important part of this stage is to really capture, what is the size of that market? And also try to explain what is the expected growth rate? You need to rely on competitor's information, surveys and industry reports to be able to do that. Second, explain what type of market share you can capture and what is the rationale to the growth in your projections for the first one to three years. The million-dollar question is not how much of the market can your innovation take with your innovation and how fast you can take it. The million dollar question is how do you justify it? During a pitch all you can do is mention the premise you have chosen to really say this is your market share target. And try to explain the target number of units, but there's no time to go into details. Try to find some model or rational for the numbers you project, and for example, use analogue products and their historical values. Or surveys to try to capture purchasing intent of your intended audience. Or given a certain very targeted demographics or geography, how many units can you sell. The third element of a financial presentation is to justify your estimates for profitability. So, profitability is in general, determined by how much you have to spend in making the product and how much you have to spend in marketing and sales, and the rest is profit. You should benchmark your projections against industry leaders to get a sense for the profitability of the market. When preparing pitches every section should have a key message. In terms of financial projections, the key message is to give investors assurance that there is a clear financial opportunity and that you understand the market well-enough to be able to execute. Investors invest in the possibility of healthy returns, so show the economics that can answer this question, "How am I going to make money?" Have the rationale to back it up and support your assumptions, but do not jump into details during a pitch. Save all of that for due diligence and follow-up questions. And then you will make yourself proud. How does all this information condense into a succinct message? One of the best slides that I like is shown here. It captures, milestones that are needed to be achieved, to achieve sales, the amount of funds you need to get the milestones, and the projected revenue. But in general, this is your story, so you can adapt it. Think about the message you want to convey and create your version of the financial part of the pitch. Good luck and happy pitching. Many people think of business assets as cash or buildings or inventory. But often the most valuable assets are what we call the INTELLECTUAL PROPERTY or "IP" of a business. As the name implies, intellectual property includes really brainy types of assets. They are not physical objects. They are rights that are born from your creativity and innovation. They are rights that are protected in specific ways depending on the type of IP. There are 4 general types of intellectual property: Patents, Trademarks, Copyright, and Trade Secrets. There are three types of patents: Utility Patent, which is the most common type of patent. Utility patents protect you if you invent a new and useful machine or process or article of manufacture. They last for 20 years from date of filing. Design Patents are defined as new, original and ornamental design for an article of manufacture. The focus of a design patent is on the appearance of the object involved. Design patents last for 15 years from date of filing. The rarest type of patent is a Plant Patent, which protects reproducing plant varieties that are not grown from seeds. These last for 20 years from date of filing. You have 2 options for filing patents: either a provisional or a non-provisional patent application. Provisional applications merely disclose the invention and stake claim to priority for the invention. This is important because, as a general rule, whoever is first to file has priority. And, remember, you must file the full non-provisional application within 1 year of the provisional's filing. Only a non-provisional application is reviewed by the examiner and can result in a patent being issued. Another type of intellectual property is a Trademark. You want to seek trademark protection to prevent others from using your business name, logos, slogans, and other such brand identities. You may also hear the term Service Mark. Trademarks relate to businesses that predominantly sell goods, such as Walmart. Whereas, service marks relate to service businesses such as EdwardJones. When you get a federal trademark approved by the USPTO, you get to use the R with the circle around it. You can also have inherent or common law rights to your mark by simply using it in commerce. This type of protection tends to be limited in geographical scope and by the particular use of the mark. Any valid mark not federally registered can be denoted with the appropriate TM or SM symbols. Trademarks are important to protect the brand identify of your company and your goods or services. Some helpful trademark tips include: Avoid infringement claims by using an experienced trademark lawyer. Remember that you have to police the mark to protect its ongoing use. And you need to periodically file renewal applications to keep the registered mark alive. Another form of IP is the COPYRIGHT. Copyrights protect your original works of authorship, such as music, literary works, videos, photos even software code, and many other forms. The key is that they are ORIGINAL and not copied or open source. The other major form of intellectual property is the Trade Secret. As the name implies, these are confidential non-public proprietary assets of the business that are only protected by being kept absolutely secret. So, again, why should you care about protecting your business's intellectual property? These are assets of your business. They can add to the market valuation of your business.They are important to investors. Finally, by securing patents and other IP protections, you can actually gain a competitive advantage in the marketplace we sometimes call it a "legal monopoly." Remember: good legal advice upfront will pay dividends in the end. Thanks for watching. >> The one constant in any business that will require equity financing is growth. Growth in revenue, growth in people, and most importantly, growth in profits. Early on in a business startup, it can be pretty lonely. Fortunately for you, as previously noted, change will come. You will no doubt have skills gaps to fill in, even at the earliest stages of commercialization. The concept of an advisor board is to find people to help you take that next step. Advisory boards are not employees, nor do they generally have any equity in the business. So why would people do this? They could have an interest in you personally. They may have an interest in the technology or the problem that you're solving. They may be retired and need something to do. They may be students looking for experience. The point is, they are out there. And to find them, you must network. The important concept of advisors is to augment your knowledge, skills and abilities. Now, when we get into management teams, there's really two forms that we've got to think about. The concept of employees is very straightforward. They work for pay. Equity employees, now we have some considerations. When do they earn equity? Do they get some right away? Do they earn it over time or some blend? How much do they get? How much do you need to reserve for follow-on investors? What happens if they don't perform? What clawback provisions are available? The picture that I'm painting for you is that in equity-backed businesses, there are many more considerations than just getting ownership. My last point, it is all negotiated. The real experts of management team structure are at the Missouri Innovation Center. They, along with your legal representative, can help you align this part of your pitch. To be clear, management is most certainly one of the key areas that investors look into. Your pitch must demonstrate that you have thought through the growth and reward systems for managers. Don't underestimate this portion of your pitch. It's another critical element of your success. >> Hi. I'm going to talk about funding opportunities. The trick to funding opportunities is to find the perfect match, the match between the place you and your company are in your life cycle, as well as where funding sources are with their objectives and goals. When you're funding your company, oftentimes the very first place you look for money is yourself. You're going to invest and then you're going to go to family and friends, people that are going to invest maybe not because it's the best financial opportunity, but they believe in you and they want to see you move forward. The second place, the next place you're often going to go for financing is to banks. You're going to be looking for debt financing. You're going to go to the bank and try to get a loan. The advantages of that is it's inexpensive, it's fairly easy. The downside is you tend to often have to have some kind of collateral. You have to have history. You have to have a lot of things that startup companies don't have. Another source of funding that's non-equity is grant funding. Those are oftentimes SBRI, STTR grants. The State of Missouri, through the Missouri Technology Corporation, also has matching funds and grant programs. And then finally, if you're working with the university, they have a number of grant programs as well. More recently, sometimes companies are funding through crowd sourcing. And that's where you take advantage of large numbers of customers that are interested in your business to try to help you get it launched. The step, if you're trying to grow a high-growth venture, and things like loans and debt don't work, is equity funding. Equity funding is not debt. People aren't trying to loan you money. They're buying part of your company. They're sharing in the risk. They're patiently waiting for you to succeed. And when your company wins, they win. Equity funding is not a loan. It's also not your money. It's not easy either. There are a lot of government regulations. You answer to investors. And more importantly, the cost of the money is substantially higher. Investors actually prefer something like a 20 times return on their investment, which is certainly a lot more than what you'd pay for a loan. The reason folks need equity funding is because oftentimes these startup businesses cannot obtain loans, or they're going to be growing so fast that borrowing just doesn't keep up. Also, you've leveraged your grants, and you're out of room, there's no more money with the SBIR and STTR program. One of the ideal sources for funding like this is angel networks. These are groups of high net worth individuals with a substantial amount of money, able to take risks in these startup businesses. On the plus side, you get smart money. You get folks that are willing to invest and help in your business. But again, it's expensive. Another source after that is venture capital. Venture capital is professionally managed money. These folks invest 8, 10 million dollars. But unfortunately, it's in later stage deals, and hopefully might be a goal of your venture later. I know a little bit later, folks are going to talk about how to deal investors. And I hope you'll take an opportunity to touch base with some of the professionals in this video for assistance in any of these areas. Thank you. >> The last step of getting an equity investment usually consists of a pitch presentation to the investors. This often produces a lot of anxiety, but if you're well prepared and have all the facts in there, you should do great. Your investor presentation needs to say pretty much everything about your company the investor wants to hear. You need to talk about a strong value proposition. You need to show you've got a significant market opportunity, a unique product offering. You need to talk about how great your team is and what a great plan you have to be successful. This is an opportunity to tell your story, and I suggest you tell it as a story that goes from beginning to middle to end. People remember stories way better than they remember just a bunch of facts. But first, think about who your audience is. Your audience is ultimately concerned about making an investment and making money. They need to know a little bit about your technology, but they don't need to know how to build it. That's your job. So focus on the money. Don't use terminology that your investor isn't going to understand. Be prepared to be asked a lot of questions. Investors are really good at asking questions. And as long as you have good definitive answers and you can back up all of your assumptions, that's going to give the investor a lot of confidence. Don't exaggerate. Don't show numbers that you can't back up. And don't be too salesy in your presentation, because that really turns investors off. Every good story starts out with a context. So the first thing you want to do is a one-sentence preview of what the whole story is going to be to set the frame for the investor so they even know what you're talking about and can anticipate how the story is going to go. Then you start beginning the story like where did the idea come from. Did it come from you, from a customer, where did it come from? You talk about what's new that creates the context for this being the right time for this product. Then you go through your value proposition and the market opportunity. Then you go into what your solution is, how you're going to solve the market need. You talk about your product or service in quite a bit of detail, enough so the investor can see in their mind how this is going to work, how the customer would use it. They're going to want to know what's your competition like. Don't ever say, I don't have any competition. But talk about your direct competitors that have somewhat similar products or indirect competitors. Or if there are none of those, your competition is your customer doing nothing. They'll just keep doing what they've been doing. You want to describe your business model in detail. And this is where you start getting some numbers in there. You talk about your pricing, your costs and how you're going to sell the product. Now the investor wants to learn more about your execution plan. What's the future look like for you? What's going to happen in product development for the next few years? And what are your financial projections? Your projections need to go far enough out in time that you can show the opportunity where the investment is going to be worth a lot so the investor can see how long it takes to get there and how huge an opportunity it is when you do get there. And either now or at the beginning, you need to talk about your team and how you're the right team to execute this plan and be successful. You need to show a lot of confidence on your team. Then you get into the final phase of the story, which is where you're asking the investor to invest. But before you do that, you have to describe what's called the exit strategy, or how you're going to get--or the investor is going to get their money out of the investment at the end. You need to describe when that will be and how the investor can value that. Typically, if you have a comparable of another company in your industry that's been merged into another company or done an IPO, use that as an example. And that increases a lot of confidence in your investor that what you're showing is attainable. Then you ask the investor, or you explain to the investor what you need. You talk about what you're going to achieve with the investment, so what's the time frame and milestone for that? You talk about what money you need for that and how you're going to spend the money. And in general, the terms you're going to give the investor. So you make a bargain there, that if you'll give you the money, you'll achieve a milestone in a certain amount of time that will dramatically increase the value of the company and get you further out on your plan. At this point, you're kind of done. You can ask for questions. And then your investor is not going to get out a checkbook and write a check at the end. So what you want to do on your way out is figure out your next steps. Make sure you know how to contact the investor, they can contact you, and set up a time frame to get back together to go over any more details that they're going to want to see and ultimately get to that investment. So if you do really well with your story, your investor is going to follow you each step along the way. They're going to get more and more excited as you go. And your odds of getting the investment are much higher. [ Music ] The series of videos you have just seen is designed to help you the technology entrepreneur become aware of the basic elements of the equity investment pitch. The lessons should leave you with several take aways. First, pitches need to be planned. Second, know you are not alone there is help. Finally and most importantly, you just need to ask. Visit us online and give us a call we're here to help.