Entrepreneurs looking for funding would be wise to understand the investor mindset, according to former venture capitalist Steven Royster of Alcatel-Lucent Ventures (Murray Hill), now a banker with Capital Lending Corp. Royster was recently the featured speaker at the third BrickCity Tech Meetup on the NJIT Newark campus. With an MBA from Rutgers, Royster has also worked at the former MCI WorldCom and the New Jersey Economic Development Authority. He spoke at the meetup from the investor’s perspective, explaining what he looks for in a pitch.
Using a concise executive summary as an example, Royster listed key pieces of information entrepreneurs should present to an investor during a pitch. He said the first part of the pitch should introduce the people involved in the startup. “The team is important,” he noted. “Ideas change, and the process will change, but you want to see people who are passionate involved.” Royster said entrepreneurs who are well prepared to talk to investors show they have “domain expertise” and “totally get their market.”
The next important details to present are the problem an entrepreneur is trying to solve and the product he or she believes will provide the solution.“Whether or not you raise capital depends on [market] opportunity,” Royster said, so entrepreneurs should tell investors about the size of the market involved and how they plan to capture it.
Royster recommends taking a bottom-up market view. He advised against telling investors, in a hypothetical pitch, “There are x number of people who are potential customers, and I think I can eventually get y percent.” Rather, he suggested, make a realistic projection based on the number of customers the team can reach using its current resources.
Royster said he wants to know the startup’s competitive position. “Never say you don’t have competition. No matter what the idea, someone else is getting into that market,” he noted. Based on a realistic market view, Royster said, entrepreneurs then need to present a road map and make financial projections. “Set milestones you think you can achieve,” he advised. “Ask yourself, Can I get to x amount in yamount of time?”
Royster said individual entrepreneurs have to know how much money they need to ask for and how much of their company they’re willing to provide in return. He emphasized using realistic numbers and taking a direct approach. “Figure out what you need and then ask for it,” he suggested.
Finally, Royster noted that although each startup proposal will have its own variables, depending on the idea’s viability and the resources the entrepreneur already has, there are enough options for anyone to get funding. “Build as much of your company as you can, but there is money out there if you need it,” he said.