The Pitch: Risk Identification, Intellectual Property and Finances– July 28, 2020 by Jeff Kovacs

Our blog series shares the key lessons we have learned about developing and presenting effective investor pitches. Whether you’re a company seeking investment, an advisor helping companies create their pitches or investors attempting to find that perfect investment, we hope you find value in “The Pitch.”

Today’s post shares the next steps in the pitch process – identifying what can go wrong, protecting your intellectual property, and flows, burn rate, valuation and funding.


1. Identifying Risk – What Can Go Wrong

Identifying what can go wrong in your business strategy helps an entrepreneur plan and prepare for the many challenges along a company’s growth path. Understanding technology, regulatory, quality, product/market fit, talent, customer acquisition and economic risks, among many others, is the first step to developing strategic approaches to remove or avoid these challenges.

Entrepreneurs, management teams and their investors need to allocate some time to collaborating on a risk identification and mitigation process. It’s very easy to get lost in the daily grind of building the business and not take the time to think prospectively. Insight into these risks and building a process to proactively address them allows a company to grow faster to scale and create value for founders, employees and investors. Investors deeply evaluate an entrepreneur’s knowledge of the specific risks the company may face and mitigation strategies before making a decision to fund a company. The risk identification and mitigation process is not static and evolves over time as the company evolves, and a good investor can bring insight and experience to this process.

2. Protecting Intellectual Property

Evaluating a company’s portfolio of intellectual property (IP) assets such as patents, copyrights, trade secrets, trademarks and domain names is an important element of understanding an organization’s value creation drivers. A critical decision that many companies grapple with is the decision to spend money to attempt to protect this IP. Before committing to an investment, an investor will attempt to assess the value of IP and the necessity of obtaining legal protection.

Engaging IP legal counsel to assist with this process is an essential early step in forming an entity and engaging in the fundraising process. Investors will often engage with counsel to understand the depth and breadth of IP legal protection, upfront and on an ongoing basis as IP is continuously developed and deployed in the organization. We have witnessed many instances where IP cannot be adequately protected and investors decline to provide funding because unprotected IP often impedes a company’s ability to compete effectively. 

3.  Flows, Burn Rate, Valuation and Funding

As an advisor to clients, it’s been fascinating for me to witness how much or how little value is placed on financial information by investors conducting their due diligence. Early stage companies seeking funding rarely have a robust financial history that can provide a basis for modeling the company’s financial future. A universal truth is that investors apply steep discounts to prospective financial information provided during a pitch. Keeping financial information conservative and straightforward is always a best practice for a pitch.

High level revenue forecasts, cash burn rates, key metrics surrounding customer adoption, churn and customer acquisition costs are all vital to an investor assessing if the company’s pre-money valuation is reasonable and worthy of investment. During a pitch, investors will quickly determine if forecasted revenues and cash flows will be sufficient to support the valuation of the company currently and in the future.

An important point that all entrepreneurs need to understand — from the moment the investor decides to fund the company, they are evaluating the ability for the company to create a liquidity event that will provide the required return on investment for the investor, founders and management team years down the road.

Look for the final installment of The Pitch, focusing on pitch dos, don’ts and differentiators.

Please contact a member of your service team, or contact Jeff Kovacs at jkovacs@cohencpa.com for further discussion.


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Cohen & Company is not rendering legal, accounting or other professional advice. Information contained in this post is considered accurate as of the date of publishing. Any action taken based on information in this blog should be taken only after a detailed review of the specific facts, circumstances and current law.