As a business owner, raising capital is an integral part of the growth process, whether you are starting from scratch or looking to scale.
Although there are several funding options available, venture capital (VC) is one of the most popular: a high-risk, high-return form of investment, it offers invaluable collaboration opportunities with industry experts, allowing you to put your company on the best path for growth and success. However, as television shows such as Shark Tank and Dragon's Den have illustrated, putting forward your ideas to venture capitalists is notoriously difficult.
Pitching for Venture Capital
Therefore, in order to successfully secure investment, you will need to brush up on your presenting skills and ensure that you know your figures inside out. To help you get started, here are six essential tips on how to pitch to a VC.
1. Be Well Prepared
Before you even think about stepping foot into a VC office, you need to research the person (or people) that you are going to be pitching to. An excellent place to start is in determining if they have a track record in your sector. If they know your industry inside out, then you are more likely to see eye to eye on critical issues.
Determine where they usually prefer to invest, and look at how you can frame your company in a similar context. Also, try to establish the common denominators in their previous investments, and focus on highlighting those aspects in your business.
Obviously, you need to know your business plan, your accounts and your projections, too. This doesn't just mean memorising balance sheets, though; you need to provide context to what your numbers are saying. For instance, telling somebody that your app has had 2000 downloads isn't enough. For this metric to have any value, you would need to explain in what timeframe these downloads were achieved, what level of marketing went into it, and what platforms you have been operating on. Whatever your metrics – and they will likely differ depending on your industry – they should, according to 500 Startups, generally be related to the following:
B2C Companies: DAU/MAU > Downloads > Partners
B2B Companies: Revenue > Number of Customers > Pipeline leads
Bear in mind, too, that venture capitalists are investors first and foremost; their priority is to achieve returns for their firm or fund. Therefore, they want scalable, cash-flow positive companies with proven and scalable products or services. Focus on developing this aspect of your business plan if you haven't already.
Regardless of your industry, they are also going to be looking for a strong management team, a large potential market, and a unique product or service with a definite competitive advantage. Preparing for these specific expectations will be hugely advantageous when it comes to delivering your pitch.
2. Never Underestimate the First Five Minutes
Just like in a job interview, it's essential to get off to a good start with your potential investors. Grab their attention early on and demonstrate quickly that your start-up is interesting, relevant and significant enough to back.
According to Sequoia, a hugely successful Silicon Valley VC, the first five minutes are critical. Their advice is to put the entire presentation into context straight away, using three simple steps:
- Explain what's changed: Outline the innovation that presents significant opportunities for your company.
- Explain what to do: In one sentence, demonstrate how your company can capitalise on these opportunities.
- Explain the facts: Explain the company's history and financials, using reliable figures. Describe key team members and their abilities and experience, as well as your current stage of development, your market traction, and how much you are seeking to raise.
You need to build rapport quickly and establish credibility and trust in your claims. Sequoia also recommends that you complete your presentation within 20 minutes, leaving plenty of time for discussion afterwards.
3. Be Authentic
When you are pitching to investors, you are not just selling your company – you're selling you, too. No matter how mundane your product or service might be, you need to radiate enthusiasm throughout, making your pitch as exciting and engaging as possible.
Present yourself authentically, showing the intensity and passion you have for your start-up. In the grand scheme of things, the pitch is the easy part, after all; once a deal has been closed, both parties are going to be involved in a long-term partnership that could last potentially decades. If investors cannot relate to you, or find you defensive or aggressive, then they will decide that the relationship is untenable and you won't receive any funding.
4. Dress the Part
Pitching for venture capital isn't only about what you say, but also how you present yourself. While this isn't a job interview, you still need to give the right impression to potential investors.
This might sound like a basic tip, but your appearance can make or break your credibility. It can also relate to your pitch. For instance, if your startup is in jewellery or fashion, it might be wise to wear your own products.
The key is to know your audience. Although a suit may not always be appropriate, wearing shorts or beachwear might be out of the question, too. When you walk out of the room, you want investors to be talking about your product, your technology, your team and your business plan – not what you were wearing.
5. Build Up to a Strong Finish
Just as a quick start is imperative, so too is a strong finish. Summarise what you talked about and why you believe that you are a compelling prospect, and highlight any points you want to emphasise.
Finally, decipher what the next step will be, and ensure you understand exactly what you need to do – and on what timeline – before you leave the room.
6. Pick a Closing Date
Regardless of how many investors you have interested in your product or service, you need to have a specific date for when you're going to close your funding round. This date will guide all other actions, including the amount of time you're going to spend in the fundraising and pre-marketing process. Knowing this deadline also gives you momentum, bringing the people within your company together towards a specific goal.
Remember: venture capitalists seek opportunities in industries that they are familiar with. They typically opt for companies that are deemed to have high growth potential and prefer to own large percentages of their target companies. Therefore, you need to be as willing to work with them as they are with you, as they are going to be very influential in determining the path your company takes.
Building the foundations of a successful start-up takes time, energy and hard work, but ceding full control is often the price you have to pay for such growth. If you're going to make that jump, then you should take the time to craft a venture capital pitch that is meaningful, honest, compelling and organised – not just for your potential new partners, but for you, too.
What other tips would you offer for pitching to venture capitalists? Let us know your thoughts in the comment section below.