Strategies to Help You Get a Meeting with Leading Venture Capitalists
In this article, we explore 1) the reasons for seeking venture capital, 2) approaching venture capital funds, 3) qualities that VC’s love, and 4) conclusion and key insights to success.
REASONS FOR SEEKING VENTURE CAPITAL?
Venture Capitalists (VC’s), and angel investors are an excellent source of alternative funding to traditional bank loans. Additionally, VC’s are often at the cutting edge of vital experience and insight, plus offering a mentorship that can give an edge to any business idea. However, VC’s and angel investors may be difficult to find, and even harder to connect with, let alone getting inside the door to professionally pitch your idea.
As illustrated in, ‘Financing your business through Venture Capital’, they are not automatically the preferable strategy for everyone, given that a VC will own a hefty stake in the business, impose upon the decision making and aim to bias any investment offer entirely in their favour? In return for getting your business up and running, and if such a deal is acceptable– then look no further.
Innovative ideas are more valuable than the cash required to give the idea life. Raising capital starts by building a quality company with a novel product or service. The real challenge lies in making it happen. However exciting an idea may be, one wants to ensure it’s one that can be profitable.
APPROACHING VENTURE CAPITAL FUNDS
1) You must be prepared to make your pitch before you approach a VC
Do not begin fundraising until everything is ready—completely ready. It will waste your effort to pitch investors before an enterprise is ready. It is the same when approaching investors, if one is unprepared it leaves a negative impression with potential investors who might have been interested later on.
As one approaches the fundraising phase, do remember that raising funds in itself is not the purpose – so do not get entangled in the process alone. It is not how much money that you raise which matters, rather it is what the investment enables the firm to accomplish – this determines the future success.
Investors listen to thousands of pitches, most of them are weak. If you want a pitch to be impressive and extract results, then it is vital that one keeps practicing that pitch, and the pitching until one ultimately distills it to the most expeditious message for the enterprise.
2) Preparing the Pitch
Once all the components of your pitch are in place, you’ll need to build momentum before contacting potential investors. Equally, the pitch must be ready and practiced. You don’t want to trip up on a mistake or simply by being unprepared. Preparation is at least half of the game… have you fully completed the following steps 3 to 6?
3) Ground Work
- Researched your market
- Examined your financial needs
- Collated your Facts and Figures
- Evaluated your Team
- Got customer testimonials in place
- Understood your weaknesses and strengths
- Examined the reasons for seeking VC funding
The tenet of the pitch is NOT for investors to give you money.
- It’s to attract enough interest from the relevant investors (and disinterest from unsuitable people) in order that they wish to meet you and discover more.
Having completed your foundation work, you need to examine whether the pitch materials prepared, well-developed, thought through, tested, practiced and honed.
4) Elements of a Pitch Deck
Whoever you are pitching to, or whatever is being pitched, there are specific key points to consider.
- Have I researched who is being pitched to, and customized the pitch to that particular audience?
- Why will they be interested in our start-up or business?
- What is of most importance and added value to them?
If these questions are used as a foundation to build a pitch deck, then you’ll be a step ahead. But, have you covered what the investor needs to know? Whether using printed sheets, PowerPoint or other media:
- Slides should hit high points. Each slide must elicit a response from the investor—no waffle or pointless content. To achieve this, create an inspirational and compelling story which acknowledges and deals with a “so what” question.
- 10 slides should suffice. Less is more. It can be tough to convey everything in one pitch deck of 10 … but having a guideline helps in ruthless editing, to prune away non-essential content.
- Attention spans are short. A pitch is typically only 10-15 minutes in which one must discuss all the points made in the deck. Perhaps if you get to pitch to a VC, you may get an hour in total. A benchmark is to clarify all assumptions and points within the 15 minute window. This leaves time for answering questions, further discussion and also allows one to drill deeper on certain issues, if required.
Remember, the pitch deck is to example highlights and stimulate interest. Leave the audience wanting more and asking their questions out of interest, rather than overload with too much information that is difficult to process.
Make double sure about your pitch content.
5) Key Slides of a Pitch Deck
Dependent upon your product or business, these elements need to be covered in the pitch deck.
(note: not all points will be relevant to all types of enterprise).
One has the greatest attention from investors in that first minute, so how you begin is so crucial. The very first point investors wish to know is: ‘Who are you?’
Moreover, VC investors need to hear a quick appraisal of what your firm does, and why it does it.
Don’t waste everybody’s time recounting an autobiography or a detailed account of how you started the company. In one minute, convey the purpose of what your enterprise is about.
- Grab the audience with the first slide.
- Explain succinctly why the firm is unique and why it is going to win.
Now you’ve introduced the concept and said what you do—its time to move the focus on the “why.”
Be sure to address:
- Your market potential, or the gap your firm can fill?
- Demonstrate customer requirements?
- How you are offering a solution or value proposition?
Market Opportunity: Drill down on the market opportunity, and answer some key questions:
- The main characteristics of your market and industry, and what is its structure?
- What is the size in dollars/units?
- What is the sector’s growth possibility?
- Who will be the customers?
Market Strategy: Dig in to the details of your business model and market strategy. Illustrate how you earn money (or intend to earn) – and address the following questions:
- What are your distribution channels?
- What are your sales channels?
- What is your market penetration potential?
- With whom there will be strategic partnerships, if any?
Competitive Advantages and Risks: Provide a précis of the competitive scenario, without denigrating competitors. Offer up an honest appraisal based upon actual competitive analysis.
- What is your niche market?
- Do you have a unique technology?
- Are there any barriers to entry?
- What are the key risks?
- What are the success factors?
Technology: If yours is a truly state-of-the-art product, then show what you have. Convey – or illustrate – the technology that’s driving the enterprise. Remember the audience may not be as informed, or as excited, regarding the technology as you. Be sure to highlight:
- What is proprietary?
- Is your technology protected (patented)?
- What is state-of-art about your technology?
- What may the future technology developments be?
Manufacturing/Production: This is the practical and least inspirational part of a pitch, but just as crucial. If the business is in production, then demonstrate how you have tackled potential issues of production and manufacturing, like:
- Is manufacturing out-sourced or in-house?
- What are the current and future capital equipment necessities?
- Will you meet regulatory, compliance, or environmental issues?
Management Team: Who you are is equally as important as what you do. If there are gaps in your team, (investors know this is the case in many young enterprises), but if you are honest about the gaps, VC’s will gather that you know your business. Therefore convey:
- Who the key players are.
- What have they accomplished previously?
- If there are gaps in the team?
Financials: Allow the investors to know the assumptions built into any financial forecasts. As well as key metrics, you need to forecast the following:
- What are the revenue projections for the next five years?
- What are the gross margins?
- What will the return be to investors?
- What is the anticipated strategy for exit?
Funding Requirements: The crux of your pitch:
Presumably the investors are now convinced to invest in your enterprise. Address the following:
- How much finance is required?
- Why it is required?
- Your requirement timing?
- If further rounds of financing are anticipated?
6) Now You Are Ready to Approach Investors
Before offering investment, VC’s ask tough questions. You have now prepared for these questions, but who will you approach, and why?
- Research VCs and prepare a list: List VC funds. The resources section of the National Venture Capital Association (NVCA) is a good place to start.
- Edit the list. Short list by selecting the VCs who have invested in a similar market, particular sector and stage, similar business idea, etc. As a general rule, it’s futile to pitch an early life firm to a Californian VC if you are in Maine.
- Identifying partners. Identify specific partners at companies who focus on making investments at your stage of development and your specific sector. Achieve this by visiting the websites at VC firms and reviewing their portfolios and their individual partners. Try to identify the number of boards each of these partners currently sit on; you can usually do this by reading biographies and ascertaining that firm’s companies portfolio. Sort the individuals by fewest board seats first.
- Research those partners. Try to identify when each partner’s VC firm established its last fund. This can usually be seen by reading the press releases of the company. Prioritize the partner list by which partners have the closest sector focus that matches your own, with the lowest number of board seats at the VC Company along with the newest funds – at the top of the list.
Might you know someone who knows or can connect with the short-listed partners, try LinkedIn, perhaps you do know somebody within 1 or 2 degrees that is familiar with the partner. Call in that favor, if so, you are more likely to get a warm intro.
- If contacting VC partners, tailor the message and be ready to respond quickly to all their requests if a VC partner replies to your message.
QUALITIES THAT VC’s LOVE
Strong leadership is a key feature. It is absolutely vital. Start-ups and young firms are often small enterprises, with a short management chain, and thus significant challenges on a daily basis.
Qualities of the team and the founders: Team members bring different personalities to the group, and good founding groups will often counter-balance one other. The overly simple needs to be checked by the realist, and the serious needs to be lightened up by that individual with a sense of humor.
A founding team is proficient at communicating to one other, and engages in this constantly. It’s important to know what the others in the team are up to and how best one can assist each other to bring the collective endeavor full circle. When things are tough and not going to plan, then the communication must be honest and brutal, but within the commitment and context of working through the problematic issues.
It requires more than an unstoppable founding team to make a startup become a meaningful enterprise.
A good team with a good track record: An experienced VC will relate, that at the end of the day, a decision depends upon the strength of the people who will daily be present to execute and manage the company. The VC will prefer a management team that is educated, experienced and dedicated, and, ideally, a team that has experienced some success together prior to this initiative.
Innovation and creativity: The best founders envision the future before others and are able to get people to share in the vision.
Passionate about the business idea: An experienced VC likes to see your passion and a commitment to a firm while adhering to the execution of a business plan. However, investors do not want to be over-persuaded or have to deal with an individual or entrepreneur who is too enamored of their idea or plan and is not able to see its flaws or risks.
Adaptability and flexibility: Not all startups or young firms will face a dramatic challenge, but no doubt each will face challenges, therefore one needs demonstrate that one is able to handle such challenges.
Trustworthy: Seasoned investors can and will tease out any skeletons in the closet during a due diligence process, moreover they will walk away if they find anything that should have been disclosed earlier. A straightforward approach to communication is essential; consider that a previous business failure may actually be regarded as a sign of experience, provided one can illustrate having learnt from the episode and have understood how to avoid future repetition.
Expertise in the line of work: A firm must regularly reconstruct and refresh its individual fields of expertise and assimilate those critical capabilities required to stay in front of the pack.
Being an expert doesn’t imply that one is the best, or that everything is known of what there is to know. But a real expert must distinguish oneself from the competition and others in the similar field. Show VC’s that you intimately know what you are discussing, and can confidently answer questions to dispel any uncertainty for this is the easiest way to become known as an expert in one’s field.
Pitch your value: Communicate directly to the target audience with a robust value proposition and convey exactly why they should invest or purchase your product or service. It’s a clear statement of the results an investor or customer takes away from doing business with your enterprise.
A value proposition should not repeat worn maxims and platitudes, such as ‘your company offers great customer service’, ‘comprehensive financial planning’ or ‘cosmic portfolio performance’. These are not differentiators.
Exit strategies: Starting with the exit in mind, does apply clearly to VC deals. Investors are not desirous of an everlasting marriage. Contrarily, they are also focused on how one intends to repay back their original investment and their return on their capital, within four to six years. The business plan and pitch deck must include your analysis and assessment of three of the most common exit strategies, e.g. an initial public offering (IPO), the sale of the firm; and a redemption of the VC‘s shares directly by the company.
CONCLUSION AND KEY INSIGHTS TO SUCCESS
In any business, the key insights to success cannot be garnered from the Internet or instructional books. There is simply not a substitute to experience and the skills one has inculcated in the area of business one is specializing in. Expertise is a self-anointed title yet if one does have any specific training or experience in a chosen field then one is an expert in comparison to most others. In this context, investors are drawn to thought leaders visible on social media, and those with robust technical credentials.
By definition, entrepreneurs should love the art of the start, and this passion needs to be translated as a component of the first impression you portray to a potential investor. As the product or technology may be in the early developmental stages, then actually the investor is gambling on you, and your prior track record and achievements, as much as they are investing in your startup or young firm.
Above all have your pitch materials, information and presentation prepared and well-practiced. Simultaneously research and begin to network at the earliest with individuals who may offer you a warm introduction to potential investors in order to establish a relationship, prior to VC’s meeting you as an entrepreneur who is asking for money.
Apparently, up to 80 percent of startups and young firms fail. This places great pressure on founders. Not only must they to be optimistic, self-confident, creative, and unafraid to fail — founders also require considerable business acumen to create a business and financial plan to entice investors. But even this is not yet enough. Founders need figure how to fuse these business and technical skills in a style which enables their firm to navigate regular challenges.
It is exciting to work on a project that may become the Next Big Thing — but technical skills and what you think is an innovative idea, is often not enough to win investment or make your firm a success.