The Master Funding Equation - Power Recap
You'll recall from high school algebra that solving an equation generally amounts to balancing both sides. The Master Funding Equation (MFE) is similarly an equation that, when balanced, provides the solution of a maximization of your chances for funding.
So, what are we attempting to balance?
Expectations. Yours and your investor's expectations.
Let's look again at the components of the MFE:
- A Viral Vision Statement/Elevator Pitch X
- A Powerful Pitch Method X
- The Correct Pitch Content X
- A Winning Business Strategy X
- A Trustworthy CEO X
- A Balanced Team X
- Understanding the Mind of the Investor
Notice that the first three elements of the MFE relate to communicating your opportunity powerfully, thus maximizing the chances of fulfilling your expectations that the investor will place funds in your company. The last three elements of the MFE relate to whether the investor's expectations -- that you are a trustworthy executive, worthy of the investor's time, resources and reputation -- can be fulfilled. In the middle lies the fourth element -- a winning business strategy, which is partly a matter of whether you truly do have a unique opportunity with a competitive advantage you can maintain, partly a matter of whether the investor believes that you and your team can execute on it.
Your ability to pitch an opportunity effectively fosters trust that you and your team understand what's most important to the investor, what's on his or her mind as you pitch. So, effectively navigating the pitch (elements 1-3 of the MFE) is a key to fostering trust (elements 5-7 of the MFE). In the middle lies the winning business strategy. Whether you can balance the MFE by having and communicating a winning business strategy, depends on whether your communication of that strategy tends to foster trust or fear and distrust. So, the business strategy is the axis upon which the MFE turns, though it's important to understand that you'll never get to the point of an earnest conversation about your business strategy if you fail to develop a viral pitch and deliver it well.
Let me briefly recap the seven components of the MFE, focusing on one or two key points related to each that will help you balance the equation and have the best chance to get a check:
A Viral Vision Statement/Elevator Pitch
When you first meet an investor you have a trust barrier to overcome. The purpose of pitching is to express your vision to the investor in such a way that they get it and trust you to achieve it. That's why early on in our MFE discussion I moved "A Trustworthy CEO" into the first position in the equation. I've moved it back to its original position here in order to balance the "what you do/how you pitch" aspects of the MFE with the "what they hear/what they think" aspects.
The key thing to take away from our material relating to your vision statement (elevator pitch) is that it must be viral. Viral means it can be easily shared because investors like to share their potential deals with their peers and colleagues. A viral pitch can be shared over and over among the investor class, maximizing your chances of having it heard by someone who says "yes!" To be viral, your elevator pitch needs to be 100% remembered by a listener so that it can be reliably repeated, AND it still has to be interesting — worth repeating! I provided you with a formula for creating/delivering that kind of elevator pitch in a previous post.
A Powerful Pitch Method
If your elevator pitch is viral, great -- but you still need to deliver the full pitch powerfully. One key is practice. Deliver both your elevator pitch and your full pitch again and again to trusted colleagues. Test their reaction, particularly how well they can repeat the important components. This is the time to work with experienced mentors to hone your pitch, test it repeatedly, help you deliver it powerfully. As I have mentioned that is a key thing we do at the Entrepreneur'$ Boot Camp.
The Correct Pitch Content
An ideal elevator pitch is three lines, twelve keywords, expressing no more than three important ideas. Sometimes, it is a problem-solution set, with an unexpected twist. Sometimes it is mission, strategy and tactic in form. In either case, it must connect to the listener emotionally. Finally, remember that it needs to be a message the listener can remember and repeat -- a viral pitch. In previous posts, I have provided many examples of such elevator pitches. Also, be sure to review the posts about the pitch contest we held, to review the specific advice we provided for developing and delivering memorable elector pitches.
The rest of the full pitch should be short (no more than 20 minutes and about 15 slides). Specific key contents should be in the slides and no more. The purpose of the pitch is to inspire trust and get a second meeting and no more. Test your full pitch as to whether it delivers the following four elements and no more:
- A prize worth winning
- Your authority
I know this is counter to what most coaches give you about pitching, so stay tuned for more on this.
A Winning Business Strategy
A business strategy is your plan for entering a market (or growing a market position), competing successfully, making money and delivering value to stakeholders. A winning strategy contains a model demonstrating how you make money. In a previous post on this subject, I provided several examples of iconic companies' model as templates for you to use. In that post I laid out the five questions you must be able to answer in your business model, then in later posts, we discussed each.
We concluded the discussion about a winning strategy by addressing the question whether you can (or should) scale and how to communicate this to investors. Recall we mentioned that not every business can or should scale up to a massive company. In fact, most should not, because it is a very difficult process. Also, investors know this. They will not respond well to your visions of scaling up if they do not think you or your team can achieve it, or think your business is not the type to attempt it.
A Trustworthy CEO
We have covered the issues related to trust again and again in this blog. It is tantamount to your success to understand how important trust is in the context of funding your company from private investors. Without establishing trust, nothing you say will be heard. Without deepening trust, you'll struggle mightily going from investor interest to investor commitment. Recall that the essence of trust in this context is relationship-building. Commit yourself to the goal of relationship-building in all you do with investors. Review the many posts in this blog about trust to learn everything we know (and have seen work) when it comes to being the CEO they trust.
A Balanced Team
One of the first major themes of this blog was the winning combination that can be created when a visionary founder finds the right person to help manage the business day-to-day. I wrote extensively on this pairing between Vision Masters and Execution Masters in my book "Born to Star" as well. I cannot overemphasize how important it is to share power with a trusted Execution Master to achieve optimal success. I know at times it can be very difficult to find the right person, then to really hand over some power to him or her. But it works. Again and again. If you have not read this material, please do. Investors want to see that you have this kind of dynamic duo. They know that no one person can do it all. The recent troubles of Elon Musk at Tesla, documented in this blog, compared to his success at SpaceX, make the case for what I am saying here.
Understanding the Mind of the Investor
Finally, we presented the notion that you must seek to understand the mind of your investor if you want to find the clearest path to their commitment of funds.
- Your product, market, and timing are NOT under your control
- Focus on what IS under your control
- A viral elevator pitch IS under your control
- The right pitch method and content ARE under your control
- The right business strategy IS under your control
- Being trusted IS under your control
- A balanced team IS under your control
- Understanding the mind of an investor IS under your control
Here are all the blogs in this series. Which ones are the most relevant for you?