How investors and start-ups find each other
Financing is still one of the biggest challenges for start-ups. Here's a look at how to make an impressive pitch for investors.
Start-ups have to attract investors in the initial phase, but also when larger investment sums are required later on. This is usually more difficult than expected, as business angel Boris Hardi knows. He founded the Munich-based start-up Capmatcher, which brings start-ups together with investors at various stages of development and helps investors find qualified companies with capital requirements. We spoke with him about how start-ups can develop a feeling for investors’ questions and the importance of an investor’s industry orientation.
DMEXCO: Let’s say you have a start-up with an idea, a prototype and maybe even some business. How do you proceed when you’re looking for investor capital?
Boris Hardi: The traditional way is asking around in one’s immediate surroundings. Friends, family and fools are often the first to invest during the bootstrap phase and usually up to the pre-seed phase, when the aim is to complete the prototype and receive initial customer feedback. Startups often also search the Internet for venture capital companies and spend (too) much time on this. After all, finding the right investors to fit the business model is very difficult for founders who have no experience in the field. You can also turn to your university or go to pitch events. But all of these routes are complex and time-consuming. In addition, you have to prepare a pitch deck yourself in advance, often without knowing what really matters in the beginning.
DMEXCO: How can founders best prepare for an investor pitch? What are investors most interested in when considering a start-up?
Boris Hardi: Founders should be able to present their story credibly and with emotion. Emotions always come into play when they are really passionate about something. Founders whose product is solving a problem they have themselves experienced for years are already much closer to funding than those who just want to fill a gap in the market. By the way, investors keep telling us that the most important thing is the founders’ personalities and then come everything else including the economic data. The make-up of the founding team, passion, willingness to learn and the true desire to be an entrepreneur are some of the things that inspire and impress investors.
DMEXCO: Does the industry, orientation or affinity of an investor also play a role? When watching shows like “Shark Tank”, you get the impression that a company can be great, but still not succeed if it just doesn’t fit the investor?
Boris Hardi: That is the case when you look at verticals. For example, not every investor can invest in medical technology. There are specialized investors for this, most of whom have a background in the sector. This is important because investors often support founders by providing contacts from within their network. An investor cannot do this if they invested in an Asian app yesterday and will invest in a robotics company in the USA tomorrow. This is why the right match is so crucial. Founders and investors need a platform that brings people and interests together that actually match.
DMEXCO: What does Capmatcher offer companies and how does a company go about registering?
Boris Hardi: First of all, young companies go through our journey for start-ups. To do this, they have to enter all the important data in an online form. The onboarding process shows them what matters. The founders already learn a lot in this process and see which key figures are important for their own business from the point of view of potential investors. The database is then checked and validated by one of our experts. As soon as we have all the relevant key figures, we add the start-up to our database. We check every application, provide feedback, indicate reasons for rejections if necessary, offer suggestions for improvement and, if suitable, we provide a high-quality approach to suitable investors.
The start-ups registered with Capmatcher have excellent outreach, as several thousand investors are in constant contact with us. At the same time, the start-up is anonymous so that not everyone knows who needs how much money. Investors can view the Capmatcher exposé and receive a lot of data required for the initial decision. If they want an introduction, they request it via our system and the start-up then decides whether an introduction should take place and whether the data is exchanged or not. Among other things, this protects unpatented early-phase start-ups from people stealing their ideas. At Capmatcher, investors can see everything about the team, age, education, start-up experience, etc., but not gender or skin color.
DMEXCO: Apart from your solution, how is it possible to find the right investors? What is your experience? Is it worth pitching at events?
Boris Hardi: Presenting at events can help you refine your pitch and gain stage experience, as well as a feeling for what issues are important for your own business. Unfortunately, however, events are often expensive, time-consuming and inefficient. A founder who creates a PowerPoint presentation for a pitch for days on end and does not work on their product for one or even two days during this time, only to end up possibly pitching to the “wrong” group of investors, is not making the right choice. Organizers should do a better job of matching in this regard.
DMEXCO: How do you rate the environment for start-ups in Germany? What is good, what is missing, and what can start-ups do to handle the situation well?
Boris Hardi: Germany is in a fantastic economic situation. It has never been so easy and inexpensive to set up your own business! Young people as well as employees are increasingly establishing start-ups. That’s great. There are many initiatives, most of which are local or regional. The INVEST subsidy is available for investors, but it is not really competitive and very limited compared to what is possible in England, for example. The EXIST program pays founders a kind of salary for one year. It’s not easy to get the scholarship, but on average you get around 3,000 euros a month. It is a really good program, but it’s still very bureaucratic.
Germany needs more crowdfunding initiatives to spread risk better in the seed phase and to encourage smaller investors with a few hundred euros of investment capital to invest their equity in start-ups. All other business angels and those who want to become business angels, for example because they want to pass on their knowledge to founders after many years in an industry, can search at Capmatcher for their verticals, industries, etc. and get to know suitable founders cheaply and quickly to check whether an investment could work.
Boris Hardi is a business angel investor and founder of Capmatcher. He has more than 20 years of experience in private equity, real estate, banking and capital markets. Today he advises hedge funds and private equity companies. As a serial founder himself, including a successful IPO, and a former serial angel investor, he understands both sides of the venture capital scene.