Venture capital investors see thousands of pitches per year, but they only invest in a select few companies. Here's how you can make your pitch count.
Convincing someone to lend you millions of dollars to fund your weeks-old business idea is no easy task. When you take into account the fact that an average venture capital investor will potentially see thousands of pitches in a year, it becomes exponentially harder to prove your business as a worthy investment.
In December 2013 cancer therapy startup raised a $120 million Series A round. While the amount of money Juno raised is uncommon, a solid Series A round can net tens of millions for your company and provide the fuel needed to propel your company to market.
If you have decided you have reached the point where you can no longer bootstrap and you need to raise capital, make sure you do your research. You should understand the implications of taking VC and know who you want to pitch and how to present the value of your company.
"It's easy for entrepreneurs to believe that they need to pitch the billion dollar idea in order to get the interest from investors, and that's not how it works," said Scott Friend, managing director at Bain Capital Ventures.
Pitching a venture capital investor is not an exact science, but here are some ways you can help your pitch stand out.
The biggest turn-off for a VC is an entrepreneur who is trying to be something they're not. Being yourself makes the pitching process easier because you are simply communicating what you believe. It takes the "salesperson" pressure off and helps you to relax. Now, if you don't truly believe in what you're pitching, cut your losses and walk away because this isn't going to end well for anyone involved.
"Be authentic," Friend said.
Friend also noted that when he hears a pitch, he is trying to figure out if this persona is a rockstar. As mentioned in a previous article, the team or people behind the idea are often more important than the idea itself. When Scott Friend evaluates entrepreneurs, he typically asks these two questions:
1. How good of an evangelist is this person going to be for their company?
2. Is this someone I would want to go work for?
According to Joe Medved, a partner at SoftBank Capital, one of the biggest mistakes you can make as an entrepreneur is not introducing yourself and your team before you pitch. Investors want to know who you are and what you've done before you ask for money.
"Especially at the earliest stages, the biggest bet is on the team. Establish credibility in your background to lend more credence to your pitch," Medved said.
Think about it as a dating relationship. If you misrepresent yourself in the beginning, you'll see problems down the road as your relationship deepens. Being persuasive is major part of being an entrepreneur, but you want to be careful to persuade investors to invest in you and your idea. Do not just tell them what you think they want to hear.
"As an entrepreneur, you're essentially creating a future-reality in your head, and then working your ass off to make it come to fruition, all the while convincing everybody around you that your vision is the right one," said Matt Mickiewicz, co-founder CEO of Hired.
See the future and tell your story
No, you don't need a crystal ball, but you do need market projections and an emotional investment in your topic. For a first meeting with a VC partner, it's debatable if you need to bring financial and legal paperwork. What isn't up for debate is the amount of passion you need to bring to prove you (and your startup) are a worthy investment.
"The scarce commodity for investors isn't finding good pitches, it's finding entrepreneurs that have real passion and real knowledge around the topic," Friend said.
Being able to show that you eat, drink, and breathe your topic is essential, but it is only part of the equation. Your personal investment in your business idea can be explained in the here and now, however you also need to show how your passion for this idea will play out in the future. You have to show how, as a result of your involvement, the business will grow and scale in the future.
According to Friend, you should explain your business to partners the same way you would explain it to your mother or your best friend. With that being said, you should never make statements about the future without the data to support it. Also, don't try to extrapolate trends from your data that aren't there. If your point is contrived, a venture capital partner will be the first to call your bluff. The emotional connection you have to your idea will help drive the data points home.
"As a founder, it's important to have a big, bold, and ambitious vision for what the future looks like. Being able to articulate a compelling story will be critical for the future success of the company and its ability to attract media attention, key hires, customers, etc., so investors want to be able to see that you're able to deliver the message," Mickiewicz said.
Knowing you can confidently tell your story needs to be followed by an understanding of how you will do as a business. Passion and data are essential, but they have to work together to prove this will be a successful business.
Target and execute
Typically, I tend to shy away from trying to tell founders exactly what they do or do not need at a certain point in the process. Remember that many entrepreneurs flourish because of their naivety of convention. With that being said, there are a few rules of thumb that you should consider.
Make sure you are pitching the right person. Just as firms specialize in certain verticals, certain partners can specialize in specific sects within those verticals. Mickiewicz, who has raised capital for both 99designs and Hired, said that you should target a partner who can pull the trigger on the deal.
"Watch out for 'fake' partners. Many firms now have partners, who have the title, but no real authority in the firm to sponsor a deal. In the past these used to be called 'associates' but the line has become really blurry recently," Mickiewicz said.
A venture capital partner is probably not going to intentionally lead you on, but you want to make sure you go through the proper channels when communicating with a firm. When pitching, a good place to start is showing where your product physically sits in the spectrum of solutions. Mickiewicz lays out three essential points to make to establish where you're at:
1. Why the time is right for your company to exist and thrive.
2. Why the team is uniquely positioned to take advantage of this opportunity, and why you have an "unfair advantage" vs. other players in the market.
3. Traction (revenue, pricing, average order size, [long term viability], marquee clients, sales pipeline, marketing channels and spend).
When it comes to your presentation, think long and hard about how you want to present yourself. Create a slide deck and send it to partners in advance, so they know what to expect. The number one thing about your PowerPoint is to make sure the quality of your vision is displayed on your slide deck. The design and information should give an idea of what you value as an entrepreneur and what kind of company culture you are trying to build. Remember to not use your PowerPoint as a crutch. No complete sentences. No verbatim quotes or speeches.
Venture capitalists aren't walking piggy banks. They are people you are entering into a relationship with. So, be yourself, be transparent, and always be clear about what you want.