Best Ways to Pitch a Venture Capitalist
Far too many entrepreneurs do not understand the role of venture capital. Many myths and misconceptions abound, and, as a result, most entrepreneurs fail to secure capital after approaching a venture capitalist.
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Far too many entrepreneurs do not understand the role of venture capital. Many myths and misconceptions abound, and, as a result, most entrepreneurs fail to secure capital after approaching a venture capitalist. The following list provides some insights into the world of venture capital: what works, what doesn’t, what they are looking for, and what they are not.
- Have a going concern (e.g., a real company)
Venture capitalists do not invest in ideas. Friends, family, and fools invest in ideas. If you want to have a chance with raising venture capital, have a real company, one with a developed product, customers, revenues, and, ideally, profits.
- Know what they invest in
Know if a venture capitalist actually invests in your kind of company. If you have a software company, you are wasting your time if you contact an investor who only invests in medical device and drug discovery deals.
- Have a company with a scalable revenue model
Venture capitalists are especially interested in going concerns that feature highly scalable revenue models. Scale means the average sale price is very large (usually 6 figures or above) and/or sales repeat themselves on a regular basis with little or no added effort by the company. For example, an Internet Service Provider selling monthly subscriptions has a scalable business model.
- Have a defensible position
This means intellectual property or a well-known (and well-liked) brand name.
- Be objective about your company
Stick to the deal facts; be objective. If you decide to take a subjective approach and tout how great your company is, or if you hard-sell, you’ll sound like a snake oil salesman, and you’ll lose the deal. If your company has “warts” (and all companies do), it is better to disclose those issues early in the process instead of burying the problems and hoping the investor doesn’t discover them.
- Give direct answers
You will be asked very direct questions. Learn to provide direct answers.
- Stick to the facts
Omit a recap of business history in your plan and/or presentations. They know these things. Stick to the facts; namely, how much money the company has already earned and how much more you’ll earn once you get an investment.
- Know the specifics
Know how, why, and where the investment will be spent and how, why, and when this will result in revenues and profits.
- Remember this will not be easy
Prepare to sell your soul. Raising venture capital is the most difficult, most costly, and most frustrating experience you’ll ever have.
- Remember who controls the deal
The person with the money. Entrepreneurs need investors more than venture capitalists need entrepreneurs. Most review hundreds, if not thousands, of plans every year. Most invest in a handful of those deals, maybe 5 to 20 per year. While an entrepreneur thinks she has a “great idea,” remember that VCs see hundreds of “great ideas” every month. The competition is intense.
Source: This list was culled from the writings of Bill Snow, including his e-book Venture Capital 101. You can learn more about Bill at his personal website www.billsnow.com. You can contact Bill by email at bill@vcfodder.com.
