What should my initial VC pitch be?
When you set out to raise capital, one of your biggest challenges is to craft and deliver an effective pitch.
If you’ve got a business model that is suitable for Venture Capital (VC) funding, you will be participating in a very competitive environment for only a relative handful of capital allocations.
Far fewer than 1 in 1,000 VC pitches receive VC investment, so it is very important to make the most of your opportunity.
The first and most important factor is to research the VC firm before you pitch them.
First, research the VC firm itself. Start with the basics. Do they invest in your market? Do they invest at your stage of growth?
Next, ensure that they have an active fund that they are investing. If the fund is closed out or the remaining balance is being held back to sustain their portfolio companies through tough times, then the VC firm is not a candidate.
Last, check their reputation. Are they people who are assets to their portfolio companies? Do they add value beyond the cash? Talk to CEOs in their active portfolio and, especially, seek out CEOs from companies that the VC funded but later abandoned, shut-down or otherwise shared a negative outcome. It is very important to discover how the VC responds to adversity since every startup is a long string of adverse events overcome, one-by-one.
If the results are good up to this point, then get an introduction. You always want a warm intro to a VC since a blind email to them or a business plan “thrown over the transom” is simply a waste of everyone’s time and energy. Work your network and find an avenue to an introduction. In person is best, a phone call is next-best and an email introduction will suffice.
Now, you’re finally in a position to pitch your can’t-miss idea to the money guys who can make all your dreams come true with their boundless capital. All they need to do is “get it” and everyone will be rich beyond their wildest dreams. If that’s your perspective, then you’ve got a lot to learn about startups and VC funding.
First, VCs review dozens to hundreds of pitches a month. They have almost certainly already seen some variation of your idea and probably know of a few teams already working on it. Your first challenge is to realize that your can’t-miss, unique idea is almost certainly neither can’t-miss nor unique.
Second, VCs see the same slides from every team that pitches them. Every single pitch promises unbounded riches via a hockey-stick revenue forecast slide. Not a single VC on the planet believes that slide. Your second challenge is to come to terms with the fact that your Excel spreadsheets are all fantasy. Every. Single. Cell.
Third, and most critically for the initial pitch, VCs have very little time and notoriously short attention spans. If you attempt to tell the life story of your company beginning with the night you had a dream about it, you have essentially zero chance of ever getting funded. Your third challenge is to realize that almost nobody cares about the Surround-Sound, Technicolor, 3D version of your story–except you.
Where does that leave you for your initial pitch?
It leaves you in a place where you may have a fighting chance to have a sit-down meeting with a VC, if you execute your initial pitch well.
To do so, you must first ponder and accept two fundamentals of pitching:
1. What is important is what is important to the audience.
2. The purpose of the pitch is to get the next meeting.
For a VC or investor, what is important is the investment opportunity. Period. If your pitch is 99% about your technology or your life story or anything other than the investment opportunity then you lose.
Investors are interested in, ranked by priority:
- Upside opportunity
- Downside risks
- Market size
- Market growth rate
- Unmet need in the market
- Sustainability of the unmet need
- How you will meet that unmet need
- Barriers to competitive entry
- How your company will pay back the investment, meaning, how the investor will exit the company via acquisition or IPO
- Capital requirements for the current funding round
- Milestone that will be achieved with the current funding round
- Subsequent funding round requirements
- Everything else (including your technology, demo of same, company history, your life history, etc.)
Note that what you are most passionate about and what your current pitch is filled with is in the last bullet point.
Note that what VCs are interested in are fast growing, multi-billion dollar markets with sustainable unmet needs that you can meet in a way that is as low-risk as possible to the VC.
Let’s revisit pitch fundamental #1 again: What is important is what is important to the audience.
You need to deliver an initial message that meets the needs of your VC audience.
In short, deliver a message that addresses upside opportunity and de-risks the deal.
To do so, you will prepare a magnum opus email that will run 3,000 to 5,000 words. You will tell the entire story of your inspiration, your idea, your product, your company and your market. You will relate the glories of the future that awaits all who step aboard your bus.
That won’t work.
Last week a friend asked me for help with his initial email pitch to a VC for his company. He started with a message that was 476 words long.
I reminded him of the priorities of his audience.
He cut it to 391 words.
The pitch had no chance.
I cut it down to 160 words.
Can you imagine having the fate of your company, the fate of everything you’ve worked for, the fate of your entire team, riding on 160 words?
How could it be possible to tell everything important, all the critical things that every VC must know about your market, your product and your company in only 160 words?
The short answer is: it’s not.
People who try to stuff all of that ultra-critical-information into an initial pitch get pitched–into the trash.
Don’t tell it all. Tell what is important–what is important to your audience.
Those 160 words focused on what was important to the VC audience:
- Market size
- Market growth
- Upside opportunity
- Risk reduction
My friend got to the next step with the VC.
Which brings us to pitch fundamental #2: The purpose of the pitch is to get the next meeting.
Most people try to cram the entire story into their pitch. They are missing the entire point of a pitch.
The purpose of the pitch is to get the next meeting.
That means you only include enough information in your pitch to generate the next question. The next question means another interaction. Another interaction advances the agenda.
If you shape your pitch to your audience and ensure that you include only what is important to them, then if you don’t get a response, you know your company, your investment opportunity, your deal, is not a fit for that VC.
A good way to think about it is the classic elevator pitch. You and a VC enter a lobby elevator. You push the 2nd floor button. The VC pushes the 1st floor button. You’ve got one floor of elevator time to deliver your pitch.
If you focus on what’s important to your audience, and the VC is a match for your opportunity, the VC will stay on the elevator to learn more. In fact, the VC will follow you off the elevator to learn more.
In your initial pitch to the VC, deliver that one-floor-of-elevator-time pitch. Stick to the essentials of what is important to the VC.
If it’s a fit, you’ll get the next interaction; you’ll get the next meeting.
And that’s the purpose of a pitch: to get the next meeting.
You can’t raise VC money without engaging VCs. You’ll be much more effective and efficient at engaging VCs if you focus on what’s important to them and on getting the next meeting.
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