Innovation is often depicted as a lightning bolt moment, a sudden flash of genius that solves a complex problem. In reality, bringing an innovation to life is a grueling slog up a treacherous mountain, and often, the crux of the climb is not the technical hurdles, but the financial ones. 

Brilliant ideas gather dust without the necessary funding to transition from concept to commercial reality. Even a perfect, technically sound solution must overcome the most critical barrier: convincing others to invest their capital.

Bottom line: you need money. And to get it, you will need to pitch your innovation. With these three tips, plus a bonus shortcut at the end, you can craft a more compelling pitch and get one step closer to the funding you need.

#1: Know Your Audience

First things first, you must understand your audience. There are different types of investors, and they will be interested in different things.

With friends and family, they are going to invest in you—your dreams, your persistence, and your passion. Your loved ones will want to bet on you, but beware: they will remember your past mistakes just as much as your past successes. If you have left a pile of messes in your past, even they may balk, so be prepared to address your history.

Angel investors are interested in both you and your team, and they are usually making bets on the problem and what you propose as a solution. They will want to know more about the technical risk and often will strive to really understand what you are doing. 

VCs care less about the technology and more about your ability to take it to market. So the team becomes the number one factor in their decision. They often bet on those who have already succeeded in building and making a profitable exit. For the most part, their motivation is “How much of a return will I get, and how fast am I going to get it?”  

Whoever you are pitching to, focus on what they are expecting. 

#2: Demonstrate Product-Market Fit

Assuming you’re pitching to someone who is worth their salt, you will need to demonstrate product-market fit, meaning your product satisfies a strong market demand. A.k.a., people need your product and will buy it.  

If you’re seeking funding, we’ll assume that you have identified a problem and come up with a solution to solve it. To establish product-market fit, you need to take things further. You know there’s a problem, but do your target customers know? 

Humans are both highly adaptable and also highly resistant to change. If a problem exists without a solution, they’ve probably come up with compensatory behavior to solve it themselves. They may not be looking for a different solution, and even if your solution is objectively better, it’s difficult to convince people to change what is already working for them, especially if they have to pay for the new solution. So, demonstrating a problem and solving it isn’t enough. You must provide enough value to customers that they are willing to (1) make a change and (2) pay for the solution.

Depending on where you’re at in your product development, there are a lot of different metrics that demonstrate product-market fit: customer satisfaction, retention and churn rates, and user engagement. If you’re not yet making sales, you can demonstrate product-market fit through market research and target customer testimonials. 

#3: Prepare for and Tap into Fear: From FOL to FOMO 

Since the 1960s, risk theory has reigned supreme in investment. Recently, though, The Economist featured research that calls for a change in how we think about investment decisions. 

As the researchers—Rob D. Arnott, founder of the investment management company Research Affiliates, and Edward McQuarrie, of Santa Clara University—point out, “Aversion to risk presumes that investors are averse to both upside and downside risk,” meaning that they are averse to both positive, better-than-expected outcomes as well as negative, worse-than-expected outcomes. Obviously, common sense tells us this isn’t true. Arnott and McQuarrie thus argue fear, not risk, is the real driving market force. 

According to Arnott and McQuarrie, there are two types of fear that influence investors: fear of loss (FOL) and fear of missing out (FOMO). 

FOL is self-explanatory. Your potential investors don’t want to lose their money. That’s why you need a solid techno-financial analysis, a great team, a smart go-to-market strategy, etc., etc. 

Still, there is always risk with innovation, so you can also try to balance the FOL with FOMO. How many people have said, “If only I had bought Apple stock back in 1991 when it first came out"? You need to paint a picture of the potential returns, so that investors understand what they might lose out on.

Bonus Shortcut: Find an Expert

As Socrates said, “The only true wisdom is knowing you know nothing.” Innovation is part technical engineering and part business acumen. Very rarely does a single person hold mastery of both parts. 

If you do not have a strong financial background, the best thing you can do is find somebody who does. Get a mentor, go to an incubator, or bring someone onto your team who has a deep understanding of the business of innovation. Work closely with someone who can help you navigate the financial terrain.

With an expert on your side, an understanding of your audience, a clear product-market fit, and the psychological driver of fear, you can transform your pitch from a mere presentation into a compelling investment opportunity.

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