I recently read an article about Venture Capital where the headline was “Know the Risks and Tell a Good Story“. This is an excellent tagline for early-stage entrepreneurs to bear in mind when approaching VCs.
I think there are some basic nuts and bolts of how and when to approach VCs and add some empirical evidence that would compliment this article as well.
I’d like to begin with the overall strategy. I meet too many first time entrepreneurs who think they have to sell the entire business plan and close the deal in an elevator pitch [or whatever the first pitch is].
Take a step back. VCs meet thousands of entrepreneurs every year and invest in only a handful. Its very easy for them to say “no”. Very difficult for them to say “yes”. The point of the elevator pitch is to get a full meeting. Elevator pitches should be short and cover the following: “Who am I”, “What market am I in?” “Whats the solution”. Show enthusiasm, but be grounded at the same time. End with an offer to send an email with more info and ask for a business card.
OK, now you have met the VC and have his/her info. Follow up within 24 hours. Even if you’re final slide deck (powerpoint slides) are not 100% ready, you should thank the for their feedback in the elevator, and then outline how and when you will send materials.
When sending your slide deck to a VC, same rules apply for the elevator pitch: the point is to get a face to face meeting. Your slide deck should be comprehensive, but not overly detailed to the point where if they do have you in, they can rip holes in something you sent them. Keep it interesting and relatively short. The VC has to review 50 other slide decks that afternoon, so all you want to do is convince them that you have thought through your business, have a solid team, and wouldn’t embarrass them if you come in to pitch to a partner.
They have invited you to pitch at their offices. Congratulations, you are now the 1% of entrepreneurs who make it this far. You show up and…..the partner is busy, so you’re meeting with his/her assistant/associate. Don’t be disappointed or discouraged. The associates are gatekeepers and will report back to their bosses how you presented. The key here is to take the meeting as if you were meeting with a partner, and give the associate the chance to ask questions, and treat him/her like a rockstar. Again, follow up is key.
If you get to present to the partner(s) at a VC, you want to convey that its a big problem (i.e. big addressable market), you have an unfair competitive advantage, and you have a scalable and efficient revenue model that leads to either an acquisition or IPO.
If you pass this meeting you will likely enter preliminary diligence where they will want to learn a lot more about your technology, your financials and your team. If you have a solid plan (as a prominent Boston VC told me 2 years ago “you have to have 100/100 on [the VCs] checklist, then you can get funded), you have a good shot. That is if the VC is actively funding new companies, and if you hit their sweet spot of investment theses.
Of course every VC is slightly different, just as all entrepreneurs are unique as well. This article is meant to provide basic guidelines on how to get in front of decision makers in Venture Capital firms. The only way to get funded is to have a great team, great idea, and great market opportunity. Luck and timing don’t hurt either.
Lastly, I’ll end with a quote from the article I read last week which prompted this post:
Gil Beyda, founder and managing partner of Genacast Ventures, a venture capital firm in partnership with Comcast Ventures, noted: “I like to paraphrase Thomas Edison, who said that genius is 1% inspiration and 99% perspiration. To me, a startup is 1% a good idea and 99% perspiration and execution.” According to Beyda, while millions of people have good ideas, it is not about the idea; it’s about the execution.
