When you're selling something to anyone, be it a prospective investor or prospective customer, there are two main types of selling techniques to employ: emotional selling and logical selling.
In emotional selling, you appeal to the buyer's emotions. For example, if selling a sports car, emotional selling would have the prospective buyer visualize how they will feel when they press down on the accelerator and surge forward, and how the wind will feel in their hair when they put the sun roof down, etc.
Logical selling would appeal to the buyer's logic. A more logical sales pitch, for example, would include factors such as why this sports car is better than others (perhaps better gas mileage, better warrantee, etc.) and why the prospect should buy from this dealer (perhaps better pricing, better service, etc.).
The most effective form of selling is generally to use both emotional selling and logical selling. This holds true for "selling" to investors, even very sophisticated ones.
For example, even the seasoned venture capitalist has emotions. Painting the picture that your company will be the next Facebook or Google will excite them. Getting them to think about how they will feel (the prestige among friends, colleagues, etc.) from being an early investor in such a huge success can prompt action.
However, while emotional selling is helpful, the primary selling technique to motivate most investors is logical selling. Specifically, you need to prove to them why your venture will succeed and how they will get a solid return on their investment.
To win over such investors, your logical selling argument should be packed with irrefutable market research. When you present investors with third party research (i.e., research published by sources other than yourself), they gain the confidence that your venture is in fact worthy.
So, what market research should you conduct to logically prove your case to investors? Here are the eleven core areas to answer:
1. Industry Sizing
Investors need to understand precisely how big your market is. Because if your market is too small, their opportunity for returns might also be small. So, start by determining your market size.
2. Key Market and Industry Trends
Investors also need to know the key trends in your market. For example, if the market is currently small, but it's growing rapidly, this might excite investors. Or if new government regulations have prompted industry changes that support your success, they need to know.
3. Details on Your Top Competitors
Having competition is generally a good thing; it proves that customers are buying solutions like the ones you offer. Importantly detail the strengths and weaknesses of your competitors so you and your investors know what you're up against.
Importantly, you don't have to be better than your competition in every single area; ideally you're better in the areas customers care about most.
4. Website Performance of Top Competitors
In nearly all industries, the web is a great source of leads. Understanding and detailing your competitors' performance on the web gives great insight into them and online opportunities that exist for you.
5. Link Profiles of Top Competitors
Understanding the other websites that link to your competitors is also helpful. You may want to contact and/or partner with similar companies/websites, or use their link profiles to identify other websites to contact to link to you.
6. Web Traffic to Top Competitors
Among other things, understanding the website traffic of your top competitors will show their traffic trends. For example, is one competitor's traffic rising or decreasing? Do they experience seasonal fluctuations? Etc.
Likewise, understanding which keywords are driving their traffic alerts you to the keywords for which you should focus on ranking.
7. Social Media Profiles of Top Competitors
Social media can tell a lot about a competitor. Do they have a large Facebook following? What about Twitter, or Pinterest, etc.? Understanding their social media profiles alerts you to the types of customers they are serving, and how customers perceive them, among others.
8. Detailed Identification of Key Customer Segments
Customers are the key to any company's success, and investors want to know exactly who your customers are. Importantly, identify the distinct customer segments you are or will target.
9. Demographic Profiles of Customer Segments
Once you detail which customer segment(s) you will target, you must detail their demographic make-up. For example, what gender are they, where do they live, how much money do they make, etc.? If you serve business clients, demographic variables also include the size of their company, what their title is, etc.
10. Ancillary Needs of Key Customer Segments
The final step in assessing your customers is to determine what else they might be buying before, during and/or after purchasing from you. This will help in further understanding their needs, and alert you to potential business partners to contact.
11. Financial Research
Financial Research gives great credibility to your financial model and the potential financial returns to investors. Here you should research and present your industry's average financial metrics, such as average industry costs, profit margins, etc.
In summary, when selling to investors, particularly savvy investors, be sure to appeal to their emotions. But remember that logical selling will generally be more effective. So rigorously conduct your market research so you can present facts and logic that convinces them to invest in your company. Not only will the research prove the viability of your business to investors, but it will give you great market and competitive intelligence that allows you to gain more customers and grow faster.