Startup financing

These are fascinating times in the tech world. Mergers and acquisitions are accelerating at increasing speeds fostered by all kinds of startup-based innovations.

The best companies in the world are financed by their customers. While this is the ideal state for any venture, external financing may be necessary along the way. At that moment is when the Pitch Deck becomes your weapon of choice.

These are the key messages to convey to investors and trigger their interest, and their funding, for your project:

• Focus on the need (the problem you are solving). Clearly articulate your solution. Sometimes a crisp and thorough explanation of the problem to be solved is more important than the solution we are trying to sell as it may change or pivot.

• Metrics: How big is this thing? Market size, audiences, where are they? How badly do they need this? If your have no revenue, where is the evidence for this need? have you piloted it? Reference points can be built quickly out of readily available online tools like kickstarter, instant.ly, SurveyMonkeyor Google Trends and Adwords to show proof of market demand. This is also referred to as market validation.

• Demo your solution as much as you possibly can. If an image is worth a thousand words, a real-life demo is worth 10 thousand at least.

• Competition: Who are they? What is it that you have and they don’t? What is the plan to outsmart them? Typically, for new tech products or services, it is very much about adoption speed, critical mass, user engagement versus distribution, as opposed to focus on branding or financial muscle on a bigger scale. But you may have a new a fresh approach. Just make it clear and sound.

By the way, there is not such a thing as 'no competition', even if no other company in the world is offering what you have most likely customers are already solving their needs with some legacy solution even if very rudimentary, and that's your competition.

Example: your startup sells flying cars, there is no company in the world making them so... no competition. This is a wrong statement, the problem being solved here is transportation, your flying cars will compete against electric cars and Uber to start with, this is also referred as lateral competition. (anyone taking a share of wallet from your target customers even if sub-optimally).

• Financials: They are not relevant, really. Conceptually, investors do not consider revenue a responsibility of entrepreneurs; the market decides. Your job is to orchestrate the team and build the product or service for that market so that they (investors) can bet on it. It is very important, however, to clearly state how much funding you are asking for, and what are you going to do with it.

It's also not wise overpromising to investors in the short term, looks opportunistic, careful with that, there is a fine line between ambition and greed.

• The team. Team is crucial in a startup. Venture Capitalists invest in people not so much in projects (ideas are commoditized, you can google them, for investment purposes it's all about everything else). Always secure a capable team with the required experience and competencies.

Remember, investors bet on the jockey not the horse.

• The motivation. Finally, the most important thing of all: put all your passion into it because it will speak to your commitment and will give investors the confidence you will remain there in the tough times, when you run out of money.

Emotions are the engine of everything we do. If you are wholeheartedly committed with your project, investors will notice by the way you show up your emotions.

This gives them confidence you are going to stay through the different stages of the journey, and with you, the learnings & necessary actions to take, even if your venture runs out of resources eventually.

Beyond financials, it's about the business model, and, for winner-takes-all markets (online marketplaces, SaaS businesses and literally any core digital based business) consider not making profits for a while, at least till you reach critical mass and network effects kick in.

Business model needs to be solid and show a plausible path to profitability, your start up company doesn't need to be profitable per se. Once you get funded, you need to use your investor's money wisely to show growth, which equals market traction and the shortest possible route to critical mass. Definitively, there will be revenue projections, based on a framework of scalability which will infer profitability in the future (but, you may even not be in that future, others may be better qualified for that, see 'the founders trap' for more about this).