So, how can you make sure you can secure an offer from the best players in the investment industry?
Pitching a VC investor is not an exact science, but here are eight gaffes to avoid when pitching to VCs and how to handle the situations differently:
1. Not knowing who you are talking to ahead of time
Not doing research on the investor and his portfolio is a definite no-no. Fit is king when you’re seeking money from the VC. Showing some awareness of their background will facilitate parts of the conversation, and also shows you have done some advance due diligence for the meeting. Also, it’s important to note that sometimes other partners, junior investment professionals, and EIRs unexpectedly “ambush” a pitch session. So when a meeting is confirmed, it’s best to ask them who will be attending. The situation may change, but the answer will help set expectations.
2. Your Pitch & Deck Don’t Make Sense
A high-stakes pitch to a VC is generally a one-shot chance to sell your business, so you need to have your pitch as polished as it can be the first time around or risk leaving a less than stellar impression on an important contact. If you can deliver your pitch seamlessly when the walls are crumbling around you, you do a great service to your business and are likely to impress your audience. Just in case you’re looking for “Pitching VCs 101,” then look no further than Rose’s 2008 TED University presentation on how to give presentations.
Also, we’ve all seen those terrible presentations with way too many slides and way too much text that is way to small. The slideshow isn’t supposed to do the talking for you, it’s merely a supplement to the wisdom that will come flowing from your voice. Follow the Kawasaki’s rule of 10/20/30 in presentations: a PowerPoint presentation should have ten slides, last no more than twenty minutes, and contain no font smaller than thirty points.
3. Not solving a real problem
Everyone thinks his or her startup solves a consumer pain point. However, ask yourself if you’re addressing a shark bite or a mosquito bite. Big VCs love to invest in businesses that solve shark bite issues. Why? Because when a shark bites you, you will be willing to pay to solve that pain- immediately. Conversely, we rarely go for an anti-itch cream when we are bothered by mosquito bites. It’s far likely the customers will pay for the solution when they experience a problem that keep them awake at night, consume their time, engage them deeply or cause them stress. Businesses that solve minor inconveniences usually hit a brick wall when they try and monetize or scale and don’t usually get funded. If you are going to drag people into your dream, you better have a reason for doing it. That is where your story comes in, convincing people to join you on your journey.
4. Bring the Wrong People to the Table
This is one of VC’s biggest pet peeves. Don’t bring all five people on your team. The VC wants to learn about the marketplace and your company. So, keep it simple and don’t overthink who should be at the meeting. All the VCs want is to talk to “the guy.” Maybe it’s the CEO, who’s the business guy, and the technical founder, who’s the credible source of the unique technology.
For most situations just having the CEO is plenty, but showing “the depth of your bench” can be beneficial too. If you bring the full team make sure that you construct the entire storyline in advance so everybody knows how you plan to have the meeting flow,” writes Suster. Who is going to cover which slides, who is going to field which questions, how are you going to answer difficult questions (which you should write down in advance and practice). Definitely don’t “wing it” – have practice sessions to see how each member performs.
5. No technical talent on board
Why do people think they can create value without technical depth on the founding team? Find ye a technical co-founder! If you want to hit the market with mobile apps, but there is no programmer on the team, better don’t think about the big VCs. If you are thinking of outsourcing your engineering or using technical consultants, you are now out of business. Good luck in getting them to do the work over the weekend, while they are now moved on to some other contracts with its own deadlines.
Investors know that top technical talent is expensive, and that’s why they are willing to have the majority of the company owned by a complete founding team—the founders take a big cash pay cut to salary over several years in exchange for earning their equity stake, which is ascribed a value of millions of dollars over many years. So, do not try and raise money until you can credibly point to the person who is going to make the backend or technical magic happen.
6. Underestimating your competition
Don’t get caught claiming your product is sans pareil and that you don’t have any competition because it gives the impression that you’re not market savvy. A few good Google searches can usually generate a series of competitors, be it a direct or an indirect one. All new market entries – even truly disruptive innovations – have competition, and it’s the way things were being done before they showed up.
Instead, try pointing out established vendors who aren’t doing a good job of solving the problem you’re addressing and the other upstarts who are trying to tackle the issue in their own ways. But if you have chosen to compete with existing tech monsters, you better have a bulletproof story about why your business is different. We recommend going niche, talking about a sub-segment and highlighting the absence of competition there. Be prepared for some serious interrogation from VCs.
7. Big numbers make you sound ridiculous
All too often, VCs are given a top-down baloney that says something like “If we just get just 0.1 percent of the galaxy, we’ll be billionaires.” Yes, there are a billion stars and a billion potential customers, but more than likely, your startup will not be a billion-dollar business this year, next year, or in three years, so pitch conservatively. You have to have a bottom-up analysis that starts with the unit economics of your product and shows how you will get to the first million in sales. That first million will be the hardest revenue you ever get, so if you can convince me that you will beat the odds and get there, it makes it far easier to believe your scaling story.
8. Not enough passion
If you can’t show passion for your business idea, then why would a VC be inspired to invest in you? You have got to have a passion for, and confidence in, your business. Every startup will face “going concern” risk at some point over the first year or two. Sometimes the only thing that keeps you going is passion and confidence. If you can show both of these things, you may well find it is contagious and an investor will be caught up in your own excitement. If you love your product, people will be able to tell and they’ll be more likely to invest in you.
But wait, there’s more. Come learn about the 10 Mistakes Entrepreneurs Make from Guy Kawasaki, chief evangelist at Canva and Executive Fellow at the Haas School of Business, and let us know if you have some to add to the list.
Free Email Updates
Get the latest content first.
Congratulations. Welcome to the family.