A June 2016 live-stream by TJ Walker explaining that new U.S. rules (passed spring 2016) expanded who can be solicited for private-company investments — allowing individuals to invest small amounts (up to $2,000) — and describing how this broadens the pool of potential investors. Walker provides practical guidance for entrepreneurs on preparing fundraising pitches: clearly state what the business is, the problem solved, how you make money, and why you care; beware the "curse of knowledge"; practice presentations on video; solicit feedback and reasons investors choose to invest. He warns investors that most startups fail and that likable presenters are not always good business operators.
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Attention entrepreneurs. The universe of potential investors for you has just expanded by a couple of hundred million people.
Speaking the show about effective speaking in public to the media, at work and in life. Speaking with TJ Walker.
So folks, this is big news for a lot of entrepreneurs and investors who are not wealthy individuals. In the spring of 2016, the White House and in Congress passed a law, it was signed into law changing the rules of how an entrepreneur can solicit make fundraising pitches and presentations to investors. For many, many decades, it was simply illegal to give a fundraising pitch for your private company, to sell off a piece of your company as an investment to most people. The theory behind this was that the government needs to protect people from losing their money, losing their life savings, who can ill afford it. So rules were put into place citing that you must be a so called an accredited investor if you're going to invest money in someone who isn't an immediate family member or close friend. So the rule was you had to show that you had an annual income in excess of $200,000 or a net worth of at least a million dollars. Only those accredited investors were allowed to take private equity stakes in companies. Well, the rules have changed now. Now virtually anyone can invest up to $2,000 in a startup company. So why am I talking about this is not an investment show. I'm talking about it because it means if you are an entrepreneur or if you're thinking of becoming an entrepreneur, the universe has now expanded dramatically on the number of people you can give a pitch to a presentation too. It also means if you are somebody who's interested investing, even if you don't have an income of 200,000 or a net worth of $1,000,000, you can now listen to pitches, take pictures, have people come to your home and give you presentations. I want to give some rules of thumb for entrepreneurs who are looking to build a presentation and also frankly to avoid the most common pitfalls that most entrepreneurs make.
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Now, full disclosure, I don't work with a lot of startup entrepreneurs because they typically don't have the money to pay for someone like me. But I have been to numerous, numerous pitch presentation competitions, investor competitions, and have been the judge of many as well and have talked to numerous, numerous investors who have to sit through these things. And I want to share with you what I find to be the most common themes I hear from investors when they're listening to the presentations from Entrepreneurs. The number one problem I hear from investors that the angel investors are in some cases venture capitalists who are prepared to write the check is that the person speaking is going on and on and on, talking about how this was put together or some aspect of technology, and they never really explain, what is this business? How do I make money? And the problem of course, is there is the curse of knowledge. When you work in a particular field all day long for days, weeks, months, sometimes years, as in the case of entrepreneurs, you lose perspective of what people know and what they don't know. You know what your business, stunningly obvious to you what your business is. But an investor who's not in your business, who just heard 10 pitches from people in 10 other industries, has no idea what you're talking about. So the first thing you need to really explain to people is what is your business Now? You can also start by talking about what the problem is that you're solving, what solution you've created, what your business is, and how are you going to make money. You need to really make sure any potential investor who's listened to you, whether it's a three minute pitch competition or a half an hour more leisurely meeting, or even an hour meeting, you need to really make sure that any potential investor truly understands what your business is about. They need to know what your business is, how you make money, why you really care about this. That's the other thing I hear constantly from investors, is that they want to know of all the things in the world you could have picked to work on and devote a good chunk of your life to, maybe even 20 hours a day, seven days a week, why did you pick this subject? Because if it's just three years after Groupon and you want to be the Groupon of some niche because you think it's a hot, easy way to make money. Angel investors get very nervous about that because they think, okay, you're just following a trend. You're just trying to hop on a bandwagon. So the first time, this doesn't seem like a hot trend anymore, you're going to quit. And what happens if the founder quits the company? All the investors lose 100% of their money. Speaking of which, if you are one of these people and you sit back and you watch Shark Tank, which is a great show, an interesting show, if you sit there and think, well, I could do that, I know what's going to work, maybe, but it's kind of like people who watch the NFL on Sunday and think, well, I could coach this and do a lot better than the coach does. It's easier watching it on TV than it is actually doing it. If you are going to invest money in some startup, you do need to realize the vast majority of startups fail. The vast, vast majority of them make no money. Even people who are sophisticated, savvy venture capitalist often have most of their investments lose. They just want one or two out of ten to really be a success and that pays for all the other losses. This show is not an investment show and I'm not here to give you investment advice. But just realize you could hear someone give a great presentation and be compelling and likable, but be a horrible business person and not really have a real business. So as much as I'm a huge believer the importance of communication skills do not invest your life savings. For some people, $2,000 is their life savings. Don't invest your life savings just because someone is a likable presenter or even a compelling presenter. But I do want to look at the other side. There may be cases where someone has a good business idea, may have a good business, but their presentation skills are so weak. You have to ask yourself how is this person ever really going to convey confidence to a larger employee base? How is this person ever really going to get customers in or clients? Being such a poor communicator? Why do I want to invest with this person if this person seems like they have a hard time explaining what it is they do? Now, not every single founding CEO needs to be as good a communicator as Steve Jobs or Warren Buffett or as Bill Gates is now. Bill Gates, for example, used to be a horrible presenter in his early years, even mid career. Not a particularly good speaker. He's now learned to be a great communicator if you've seen him in any of his recent TED Talks or other presentations. So it's not true that you should automatically not invest in a company just because the CEO is a horrible communicator. But it can be a danger sign, it can be a warning sign. And when you see CEOs who have tremendous passion and excitement for what they do, and they can clearly state this is exactly why it's a huge opportunity, here's exactly why we can meet a need that no one else is doing. This is why it's a huge market, here's where our technology is better, here's why we're going to have the status to really jump in here, that often is indicative that they can do that. Not always. I heard one of the first investor pitches from Uber, which was now, I want to say, eight years ago, and all of their top people who were a part of that angel investor presentation to, I believe it was the New York City angel list. They were compelling speakers. They brought their passion to it. Everyone was excited. Everyone wanted to hop on board. I regret now that I didn't. But the passion they brought to the subject in their initial investor pitches carried through into what they actually do. So that's why I think it, it is important. So please realize the laws have changed. You are going in prediction. You are going to see a lot more fundraising pitches from entrepreneurs in the future simply because it's now legal. You don't have to worry about going to jail now. I'm not here as a lawyer, folks. There's still a million other legal things you have to tend to. If you want to go out and start taking money for people as an investment, you definitely need to consult a lawyer. But at least now it is legal to solicit people who are not immediate family and friends and solicit up to $2,000 for equity stakes in your corporation. So refine those presentations. Practice on video. Ask people what they like about it, what they remember about it. More important, ask them what your business is. After you've given a pitch presentation. If they've decided to invest in you, ask them why they decided to invest in you. That's incredibly useful information. Do that and you can refine and hone and improve and improve your presentation skills throughout your career. That's what Steve Jobs did. That's what Warren Buffett did. Warren Buffett was a horrible speaker until he went to dale Carnegie about 60 years ago. These are learned skills, folks. Entrepreneurs have to learn everything else. This is a skill they need to put to the front of the list. I'm TJ Walker. May all of your fundraising presentations and all other presentations in life be a huge success.
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