Raising money from venture capitalists is a critical hurdle many rapid-growth startups will face at some point in their life.
But the wealthy venture capitalist firms are inundated with thousands of pitches from enthusiastic young tech companies every year.
Entrepreneurs are so desperate to tap into the billions of pounds floating around these establishments that they’ll go to great lengths in order to get their business plan under the nose of a top investor.
This constant bombardment can frustrate investors to the extent that they never want to hear about particular companies again.
Beyond pitches, VCs will also invest in startups off the back of their own thematic research into sectors or industries where they believe disruptive companies can emerge.
They also fund companies that are referred to them through their network of current and former portfolio companies, VC industry colleagues, angel investors and advisors. Basically, who you know can be just as important as what you know. As Ari Newman, partner at Techstars puts it: "Try to find someone in your network who can introduce you to a VC. If you have no one who can introduce you, go back to networking."
To give you the best chance of succeeding in your pitch, Techworld has compiled a list of practical dos and don’ts for pitching a VC, following talks with some of the industry’s leading tech venture capital houses.
Tips from: Ari Newman, partner at Techstars; James Wise, principal at Balderton Capital; Ben Holmes, investor at Index Ventures; and Charlie Graham-Brown, of SeedStars World.
- "Don't tell me when and how much you're going to exit for. If you're asking me for money and all you talk about is getting out immediately, I know you're in the business for the wrong reasons". (Newman)
- Waste your time pitching to the wrong person. (Wise)
- Waste time on animations and powerpoint. Data beats design. The best presentation I’ve ever seen was a screenshot from Google Analytics, links to Github and LinkedIn profiles, and a free account to try the product. (Wise)
- Blindly pitch. Have a conversation. (Newman)
- Bullshit: You’ll just lose face and faith in the long run. (Charlie Graham-Brown)
- Expect elaborate specific reasoning if we don't pursue a particular investment opportunity. (Holmes)
- Underplay the competition: It’s better to know them and learn from them, than be ignorant. (Graham-Brown)
- Be anxious: Your body language will do a lot of the talking for you. (Graham-Brown)
- "Don't bother going in at all if you haven't done your homework. Know who you're talking to, know their portfolio and how they work." (Newman)
Now you know what not to do, here's what you should do.
- Be authentic. Great investors are generally great readers of people and they can tell if you are bullshitting. (Ari Newman)
- Find the right audience. Most investors focus on a sector (consumer software, biotech, retail) and a stage (less than $200,000, up to a $1 million, up to $10 million etc). (James Wise)
- Give VCs data rather than just 'telling them a story'. Get to the point and provide real proof that you have good product/market fit, why you team is amazing, how much progress you have made and how you'll use funding. (Ari Newman)
- Focus on the things you control. Most pitches contain too much information on market size and competition. Good investors will do that research themselves. Instead explain what you’re doing to build the team, product and business, and why you think revenues and profit will follow. (Wise)
- Show your strengths. No early stage company is perfect, but to be successful you need to have an area where you’re exceptional. Whether this is the team, product or early traction, make sure it is the first thing investors understand. (Wise)
- Index almost always prefers to back a founding team rather than a lone founder. Having commercial, operational and technical talent within the founding DNA of a company will give it a better chance of success and we look for teams that bring together all these elements. (Ben Holmes)
- Be well rehearsed. There are many events and forums where you can see other companies present and road test and iterate your own business plan. These are highly worthwhile and we always give credit to entrepreneurs who over time show an ability to iterate and an openness to change and improve an initial idea. (Holmes)
- Be targeted. Think carefully of why your business is likely to be of particular interest to Index Ventures given past and current investments and any comments we have made at events in the press or social media. Think who specifically at the firm is the most relevant person to try to build a relationship with given your sector, stage and geographical focus. (Holmes)
- Convince us that your business can ultimately exit for many hundreds of million or ideally billions of dollars/euros. We are unlikely to pursue investment opportunities where the absolute return for investors is capped by market size constraints, even where relative return on investment may be positive. (Holmes)
- Build a relationship. We are always positively disposed to founders who are able to share with us some information over a period of time about how they are developing their business before we have more explicit dialogue about an investment round. Events and social media as well as email provide a great way to engage with us in a more informal way well in advance of more formal and focused meetings and presentations. (Holmes)
- Keep it simple: Go later into the details in Q&A or you risk losing the investor’s attention. (Graham-Brown)
- Know the person in front of you: Everyone has a different set of priorities and interests. It might be a return on investment but there often other angles open. Find out what it is. (Graham-Brown)
- Get emotional: Tell a story that resonates with the listener. (Graham Brown)