enture Capital firms see hundreds, if not thousands of pitches from startups every year. But they will only end up funding a small portion of these, especially with funding conditions tight right now. That means startups need to make the best of their chances and put their best foot forward if they get a meeting or Zoom call with a VC firm.
Here are six things startups can do to improve their chances and get that 'yes' with a VC.
1. Show that you are passionate
You’ve probably heard it before and it won’t be the last time, but passion is everything when running a startup. Not only do you need it to get you through the numerous challenges you are likely to face on your entrepreneurial journey but venture capitalists aren’t likely to take a chance on you unless you are exuding passion.
No, this is not simply because VCs like enthusiasm but because they want to see that you are all in and will do whatever it takes (within reason) to get the job done. There are many ways to show passion but the best chance you’ll have is on a Zoom call or at a pitch meeting. You can show it in your voice and body language but also with the knowledge you bring to the meeting and your preparation. When a founder is genuinely passionate about their company there’s no better endorsement and VCs will be able to tell.
2. Know who you are pitching
I am sure there are founders that have walked into their first five pitches and been five for five on term sheets but for most, it’s going to take some perseverance and a little bit of that can-do attitude. One way to get off to the right start is to know the VC and the specific investor you are pitching.
The first part of this is pretty generic. Know what financing rounds (seed, series A, series C, etc) the VC typically funds and sectors (fintech, crypto, cleantech, healthcare, agnostic) it specializes in, as well as some of the firm’s typical requirements for companies they tend to invest in.
The next part requires a little bit more work but can certainly pay off. The key to getting a VC interested is to connect with them early on. Your company is likely not the only pitch they’ve heard that day and they are going to get an idea pretty early on whether or not they are interested.
Look at companies that VC has successfully invested in the past and see if you can make a comparison or show a comparable metric that might get them interested. Maybe craft your pitch deck specifically for this VC if you think they are a good fit because they might appreciate the extra leg work.
3. Know your market and make sure it’s big enough
In case you weren’t already aware, you have to know your market inside and out when walking into these pitch meetings. VCs are pretty smart so they are going to know a lot about many different markets and they are also going to know pretty quickly if you are blowing smoke. You have to know your prospective customers. What makes them tick? Why do they absolutely need your product or service? How do you make their lives or businesses better? Where do they eat lunch? The more in-depth you know them the better.
The other important thing about your market is how big it is, and make no mistake, it almost always has to be big because capturing 10% of a $1 billion market is better than owning 99% of a $100 million market. You also need to show VCs clearly how you calculated your market size and why those calculations make sense. VCs are likely going to push back against your market size because it plays a big part in determining valuation, so you need to show a clear calculation and be prepared to support your assumptions.
4. Get them from point A to point B
During most pitch presentations, startups are typically making some bold promises. Founders need to do their best to show VCs exactly how they plan to grow from a four-person company in their garage into a multinational billion-dollar valuation. That means showing VCs the growth they plan to achieve and exactly how they will achieve it, as well as what has happened in the past that gives the founder confidence in their ability to execute on this plan.
Investors don’t want to invest in hope, they want to invest in a plan that sounds like it simply can’t fail. There’s no such thing as an investment without risk but you can certainly make a VC’s life easier by clearly laying out your plan. This also means showing how much money you hope to raise and where you expect to put every dollar of investment, as well as expectations for return on investment.
5. Show them your competitive edge
Believe it or not most people can think of a trillion-dollar idea pretty easily. But investors really don’t care all that much about a great idea. They care about execution. Companies rarely succeed on a great idea but they succeed because great founders are able to pull them off. And oftentimes that’s because these founders have a competitive edge.
A successful fintech startup may be launched by a banker with two decades of experience that sees a gap in bank technology. The next big dating app might be launched by a longtime executive at Hinge. What’s your competitive advantage? Did you serve a specific type of customer for years and now understand that customer’s problem better than anyone? It could be as simple as you got interested in something and then spent a year conducting research on that topic and now are an expert. Or maybe your co-founder has a certain skill set. Find your company’s competitive edge and make sure that VCs can see it clearly.
6. Get a VC to Say ‘No’
We’re actually stealing this one from Aaron Dinin, a lecturing fellow of innovation and entrepreneurship at Duke University, but it really is a tremendous insight. You’re probably reading this and being like hang on, don’t I want an investor to say yes and write me a check? Isn’t that what this post is all about? Yes, but that’s the end game. On your journey it’s actually not so bad to hear the word “no” a few or several times because it might lead you to a Yes much more quickly.
As Dinin points out, when a pitch meeting or call is over most VCs won’t deliver a straight-up no even if they have no intention of ever investing in that startup. The main reason is that there is really nothing good that comes from a VC saying no. For one, if they pass on that startup and then it becomes the next big thing the VC doesn’t come off looking so great, especially if the founder got offended by the no. The VC could of course be somewhat interested but may never be able to get over the hump and write a check.
This is bad news for the startup for several reasons. First, the startup will end up wasting time keeping in touch with the VC and trying to please them. Two, the startup doesn’t get transparent feedback. It’s far better if the VC says no and then perhaps points out something you didn’t see that improves your company or pitch and makes it much better for future meetings. Also, getting a no allows you to focus your precious time elsewhere. The key here is to make sure you’re getting honest feedback from that VC and sometimes there’s no better feedback than rejection.
Securing funding from a VC is a challenging but achievable goal for startups. By demonstrating passion, knowing their audience, understanding their market, having a clear plan, identifying their competitive edge, and learning from rejection, founders can improve their chances of success.
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