The next few installments of the SME fundraising column will be focused on the business pitch, which is perhaps the most pivotal few minutes in the fundraising process. Nail it — you’ve got great chance of raising capital. Swing and miss — you might need to apply for another credit card.Before diving into the nuts and bolts of the pitch’s format and structure, it is important that we discuss the neuroscience and psychology that underpin how you can convince people that your idea is a great one and worthy of investment. I strongly recommend you read the book Pitch Anything by Oren Klaff, which has influenced a lot of my thinking on the subject matter below.
The Crocodile Brain
How people process and filter information should understood by anyone about to pitch a proposition, concept, business — anything for that matter. To do so requires an understanding of the anatomy and functionality of the brain.
The brain can be divided in three main sections: the hindbrain, also known as the crocodile brain; the midbrain; and the neocortex.
Most crucial to the understanding brain anatomy and its functionality in terms of pitching is knowing that information is first assessed and then filtered by the “crocodile brain”, before, if deemed worthy, does it move to the more advanced, analytical parts of the brain. The crocodile brain thinks linearly, and processes information through a primal survival, fight-or-flight lens: Is this a threat? Is it dangerous? Will it eat me? Can I eat it? Have I seen this before? Can I mate with it? Can I ignore it?
If the pitch doesn’t trigger the correct response, because it is not seen as dangerous, new, or exciting, it will be ignored. It is pitch is done for. If it does trigger one of these responses, then the information is moved up to the neocortex, where the more sophisticated attention and decision making occurs.
If you don’t get to neocortex, you aren’t going to win the pitch. Do not underestimate the power of this. Sounds stupid, huh? Think about real life, how many times have you dismissed an idea, person, conversation within the first 10 seconds? And however much you keep listening, your brain keeps telling you it’s not worth it.
The crocodile brain responds to information that is fast, high contrast, visual, and novel. It also responds well to information packaged as a narrative, rather than compilations of facts and figures, so telling a story is the best way to grab your audience’s attention — and attention yields convincing power.
All of this underscores the importance of having a pitch that is attention-grabbing, intriguing, simple, visual, and explaining something new.
The Psychology of Status
Pitching is like dating. The best looking people don’t always get picked up. The best businesses often don’t get funded, and many bad ones do. Why? Because as Klaff rightly notes, “People want what they can’t have. People chase what moves away from them. People only value what they pay for.”
Before I delve any deeper, it’s important to understand that you have to be able to deliver this with charm and a smile on your face, to counterbalance the arrogance that will pervade this narrative.
People want what they can’t have.
Rather than making money the prize being sought after, as is usually the case when people pitch, make yourself the prize. Understand and project your own self-worth.
You are a great entrepreneur with a great product or service. You do things the right way. You’re going to lead this business to greatness. You are already much of the way there. Investors should be fighting over you, not the other way around.
By making yourself the prize, rather than the money controlled the investors, the power dynamic shifts in your favor and you become seemingly less attainable, which, on a psychological level, makes you more desirable.
You should further exploit this shift in status after you’ve pitched by giving the investors time to tell you about themselves and how they would be a good fit, a worthy partner, for your business. Ask them how many deals they have invested in. Make them explain why you should take their money if offered.
Do this first, before you pitch. This then changes the power dynamic. You are in control.
People chase what moves away from them.
Simply put, when you pitch you need to eradicate the perception of neediness. You would of course like this investor’s money, as long as they are the right fit for your business. This is why you’re pitching to them. However, you don’t want to seem like you need the money and you need to be willing to walk away, plain and simple.
The train is leaving the station, get on or don’t. Maybe there won’t be another chance. Lots of investors are interested and so you they need to make decision soon.
The most surefire way of doing this is to put lots of legwork in developing a funnel of investors so you’ve got options and you’re actually not needy. This is where the importance of your pitch deck, which you will distribute to investors to generate meetings, comes into play. Create an awesome pitch deck to better create a pipeline of investors so you leverage this against investors when you pitch.
People only value what they pay for.
More often than not, investors will try and use the power imbalance that they enjoy to get discounts, reduced valuations, more favorable terms or a seat on the board. But you need to have confidence in your business and its valuation, and you should want to work with investors who are fair and will allow you to remain in charge of your business. Make them pay for what they’re getting and they will value you and your business more for it. If not, walk away.
Lesson Five: Pitching is like dating. The best deals don’t always win the prize. You need to learn how to tell a great story, and inspire and motivate the crocodile brain to give yourself any chance of succeeding. There’s only one alpha in the room. Be it. You are the prize.
Read Part 1 – To raise, or not to raise?
Read Part 2 – Who should you raise from?
Read Part 3 – Debt vs Equity Financing