LinkedIn is an internet-based business that specializes in connecting professional people to other professionals in a network. LinkedIn is unique from other networks in that one finds the people he/she needs through a network of people that he already trusts. The organization started in 2004 as a new venture and has grown tremendously over the years generating in excess of four hundred million dollars annually in profit. LinkedIn provides a good example of the power that a good business plan has in promoting investor confidence. Furthermore, the organization is of special interest because it started without any funds for start-up capital and still inspired investors to invest in it. One can learn some important lessons while studying LinkedIn’s Series B pitch. The following three lessons are the most important lessons from the business pitch.
First, a pitch should have a clear and concise investment thesis. The thesis presents the statements that investors should believe to convince them to become shareholders of the company. While preparing the investment thesis, one should present the thesis in a list of three to eight statements that are in bullet form. It is important to state clearly these thesis statements so that the investor gets a clear picture of the aims of the organization and can provide feedback. The feedback from the investors can help in refining the statements such that one finally comes up with a list of thesis on which both he and the investors agree.
The most significant role of a pitch is to inspire investors to invest in a startup business. It is therefore very important that one lists the sources of revenue in the investment thesis. However, in a bid to inspire more investors to invest in a business, one can sometimes get tempted to list many sources of revenue. This is folly and should not be the case. The general rule is that one should list just one source as the main source of revenue for the business. However, one can then list other minor sources as contingency measures to minimize risks. If the pitch has more than one source of revenue, investors interpret this in either of two ways. The investors can either decide that the company does not know which model will work best for it. Alternatively, they can decide that the team is not focused and does not understand the essentiality of a single business model to the success of a business. However, there are exceptions to this general rule. For example, in its Pitch A, LinkedIn listed three sources of revenue; listings, Subscriptions, and ads. However, this did not reduce investor confidence in the company as the investors viewed this as an indication that the organization did not know well which of the three sources would generate the most revenue.
Secondly, the pitch should give a good description of the product. The pitch should explain clearly what the product is and why it is new. Also, the pitch should also explain to the investors why and how the product is different from other products already in the market. One should give sketchy details of other products in the market that are similar to the organization’s product. One should also give specifics that will make the product stand out from the others available in the market therefore making the organization among the top three most important companies in that product market. For example, during its startup, LinkedIn faced competition from other companies such as Monster and LexisNexis. However, LinkedIn’s product was different in that it utilized networks to assess professionals while the others looked at individual claims to assess professionals.
It is vital for one to acknowledge risk factors in the pitch. For example, many business proposals assume that there is no competition available in the product’s market in a bid to create more interest in the investors. However, this is folly as it creates a negative impression of the company’s team of the investors. The investors interpret the trend in two ways. One of the ways is that of an indication of dishonesty on the part of the company in that the company knows the risks in the market, but it hides them from the investors. Another interpretation is that of an indication that the product is not good enough to invest in since it is not generating interest in other companies.
Lastly, a good pitch should utilize analogies to illustrate other cases where similar ideas have had a competitive edge over the other products already in the market. In the use of analogies, it is important that one only uses those analogies that are appropriate. It is better not to have any analogies in the pitch than to have analogies that are not appropriate. However, avoid any questions about the analogies since they waste time and it is not necessary that the analogies be completely accurate. A good analogy is likely to boost investor confidence in the new venture. For example, in its pitch, LinkedIn utilized analogies by comparing similar companies that used networks and those that used individual lines or individual claims in their operations. The pitch compared PayPal to Citi Bank et al. and Alta Vista to Google. The pitch then used these analogies to support LinkedIn’s superiority to other brands such as Monster and LexisNexis since LinkedIn also utilized the network as opposed to individual claims utilized by its two competitors.
However, while using analogies, one should consider what type of a pitch one is presenting. The investment thesis could either be data driven or concept driven. Data driven investment thesis utilize data that is collected from the organization’s operations and are important where an organization is already operating. Concept driven investment thesis on the other hand mainly utilize analogies to support their arguments since the organization is a startup and data collected from its operations is not sufficient to support its arguments.
In conclusion, the three properties of a good pitch are paramount especially to a new business venture. This is because the pitch will promote investor confidence in the venture and also convince the investors to become shareholders in the venture. It is important that the pitch be good so that the investors make the decision to invest in the venture of their volition rather than being directed to invest by the presenter.