How to get 65% more funding interest in your startup

As an entrepreneur pitching investors for capital, you have decisions to make about what to include in your presentation. To get potential investors to splash their cash, what features should you focus on? Is it better to explain who else is keen to invest, for example, or talk about how great the product is? It turns out some combinations of features work better than others.

In a randomised field experiment, real investors were pitched a $1 million investment opportunity. Potential investors were delivered the same information using pitches that emphasised slightly different combinations of investment signals. 

Investment signals are what investors look for to determine whether an entrepreneur can deliver on their promise. The aim of the research was to determine whether presenting a particular combination of these signals made the proposal more or less attractive.

In the words of researcher Sofia Bapna, “… it is important for (entrepreneurs) to know which signals are complements. Signals are complements when the effect of the combined signals is greater than the sum of the effects of individual ones.”

The elements of the pitch, or ‘signals’, that they varied included:

• How good the product was: this was a signal to investors that it could do what it was meant to do;
• How customers felt about it: this was a signal of its market viability; and
• How keen other investors were to get on board: this signalled the desirability of the investment.

For example, an investor may have received a market viability message that emphasised high-profile customers that already used this company’s products (“Horizon’s products have been used by high-profile companies including Walt Disney, BBC, Deam Works and others”), plus a social proof message about how other investors were clamouring to get involved (“Over 380 people requested early access to invest in Horizon, and were given access to the offer yesterday”).

It turned out that the combination of product capability (the product does what it says it will) plus market viability (customers like it) was best. Investors who received this pitch were 72% more likely to indicate interest in investing than those who received neither signal.

A combination of product capability plus investment desirability was also powerful, with 65% of investors being more likely to indicate interest. 

But the main takeaway from the research was that proving the product will do what you say it will do is the ticket to the game. Combining this with messages about customer use or investor interest is what will amplify interest.

Help me trust you

What captured my attention about this research was that it is the psychology of a pitch that matters most. Investors are looking for ways to trust you. Yes, the product needs to do what you say, but how can you prove that to me? Can you have a third-party expert testify to its efficacy, for example?

Once you’ve convinced me that the product itself has merit, I’ll trust you more if others have, whether they are customers or other investors. 

That means pitching plans need to incorporate customer credentialing as well as investor urgency.

So, how can you develop those relationships?  Through a combination of quality and quantity:

• Quality: Offer free plans, early access or VIP treatment to marquee customers in return for approval to include their logo in your pitches (and marketing). Spend time developing these personal relationships because these affiliates will be central to your success; and
• Quantity: Create an early-adopter, first-in-the-queue, ‘velvet rope’ insider subscription list for both customers and potential investors that you can then use to communicate how in demand you are. To keep their sense of commitment low, make it as simple as possible to sign up with you (e.g. “Get priority access to product/offer once we launch”) because this is about how many people are interested, not who those people are.