Date: Friday , June 01, 2012
Pitching to a venture capitalist (VC) is a key step in the process of raising capital for your startup. If you do Google search for pitching to a VC, you will get thousands of links. Lots of them may be useless, but a number of them can cover tactical steps you need to take. I would encourage you to read a blog by David Cowan of Bessemer Venture Partners, focusing on many topics for entrepreneurs, and an article "A VC's Advice on how to pitch VCs" by Raj Kapoor of Mayfield Fund. They provide tons of useful information on how to prepare for your pitch. All the important information that you will need is there: keeping number of slides to less than 10 or 12, the team's background, product, market opportunity, competitive differentiation, business model, and financial projections. My focus, however, on this article is to provide you a different perspective with my four key takeaways (4KTA) to help you through your funding process. It is based upon a number of important points from my discussion with Armando Pauker, General Partner at Apex Venture Partners, an early stage VC firm focused on high technology investments.
1. Establish Trust, Confidence and Build a Relationship– There is an old saying that in money matters, the first and most important thing is the trust between two parties. In order to establish trust, you need to establish a solid relationship first. How do you establish a relationship with a VC? If you are already one of the sought after startup companies, then VC financing may work rapidly in your favor. However, if your company is still in its infancy, then you will need to go through this process. The process starts with having several meetings with the VC and his team over the course of a few months. First, find someone who knows the VC to introduce you. It will improve your chances of getting a meeting quickly. For your meeting, be prepared. Know your product and numbers very well. For instance, if a VC asks you what your revenue projection is or how much revenue you did last year, you should be able to answer it right away without consulting your CFO or looking at slides or papers. If asked to demo the product, you as CEO should be able to do it without seeking help from your product manager or another team member. The reason is simple. The CEO of a startup is the Chief Sales Officer of the company. He needs to know what he is selling and the revenues for last year, this year and future years. Knowing these by heart and articulating them clearly shows confidence in your abilities.
2. Excellence in Execution – In order to continue to build trust and confidence and hence, your relationship with the VC, you need to show progress on the business or the product development in your subsequent meetings. For example, if you committed to some milestones in your prior meeting, then show that you have accomplished those milestones. If there were changes, then have clear reasons for the changes in terms of what, why and how. What changed in your milestones? Why did it happen? How did you do go about solving issues or finding an alternative strategy? VCs know that plans change and they are looking to see how fast you learn and how you deal with changes.
3. Voice of the Customer – When you are asked by the VC how your product compares to competitors or to other approaches that are solving the similar pain point, you need to be fully prepared to answer this from a customer’s perspective. This is what I call the voice of the customer. Why would a customer buy your product? Why would he put his job at risk by buying from a startup? He would rather stay on the safe side by buying from one of the large vendors or waiting for them to come out with a product even if it is late by a year. Articulate your company's advantages clearly and crisply - whether it is a delightful customer experience that your product provides such as ease to use, install, configure, and manage or 10X performance advantage or 10X lower cost. Whatever the secret sauce is, make sure it reflects the real voice of the customer, not just a technology benefit that customer may not care about.
4. 4. Clear Expectations – As first time entrepreneurs, we assume that after our first meeting, we will leave the meeting with a check in hand. However, the reality is far from that. Consider it just like selling a product. It may require many meetings with a customer to close a sale. It starts with an initial meeting to describe benefits of your solution, the pain points it’s going to solve and showing a product demo. It is then followed by customer doing a product trial before he is ready to buy. Similarly, a first meeting with a VC is your entry point and your objective is to get a follow up meeting. A follow up meeting shows VC interest for a more detailed presentation followed by further meetings including due diligence with customers before having a full-fledged meeting with other members of the VC firm. If you have gone this far, the chances are that you are moving in the right direction. The final step is that the VC and his partners are fully excited and ready to negotiate terms of the deal. It's essential to have a clear expectation for the steps and the timeline of this entire process. Make sure that you clarify the timeline with the VC in your first meeting. Also, make sure that you are transparent in your dealing with the VC and providing correct information to them. If you build trust and confidence in your abilities and vision, then you might be on your way to getting your company funded by this VC firm. The steps outlined are as essential as the tactical steps in pitching to a VC and hence, it will establish trust.
In summary, my four 4KTAs are to establish trust, confidence and build a relationship, excel in execution, focus on the voice of the customer, and have clear expectations.
Naveen Bisht is a serial entrepreneur and Board Member, Chair – Programs, The Indus Entrepreneur (TiE ) and member of TiE Angels Steering Committee, based in Silicon Valley, California.