Rick Segal’s 12 Step VC Process

Rick Segal had a good post on his The Post Money Value blog regarding the VC process.

He broke it down into the 12 steps that his firm applies to funding opportunities.

It’s a good read, and will give you a brief overview of the VC funding journey.

If you are seriously pursuing VC funding, you’ll want to read up on it.

Here are some relevant titles:

The Startup Game: Inside the Partnership between Venture Capitalists and Entrepreneurs

Venture Deals: Be Smarter Than Your Lawyer and Venture Capitalist

Mastering the VC Game: A Venture Capital Insider Reveals How to Get from Start-up to IPO on Your Terms

Raising Venture Capital for the Serious Entrepreneur

Term Sheets & Valuations – A Line by Line Look at the Intricacies of Venture Capital Term Sheets & Valuations

The Business of Venture Capital: Insights from Leading Practitioners on the Art of Raising a Fund, Deal Structuring, Value Creation, and Exit Strategies




Why didn’t I get funded at the Angel event?

I’ve seen more than 200 startup pitches in the last couple of years.

Most pitches do not get funded.

Sometimes people who don’t get funded reach out to me and ask, “Why?”

Here’s an example of why one entrepreneur’s pitch did not find any response from the Angels in the room:

Congratulations on your idea and your startup.

You have identified a pain point in the marketplace.

Also, as you probably discovered, while you’ve discovered a pain point in the market, nobody at the angel investor pitch event was jumping up to invest in your idea.

I think some of the reasons are:

  • Business model (service vs. product)
  • Scalability (business model and processes)
  • Sales model (scalability, efficiency, etc.)
  • Team (solo startup, almost always a big red flag)

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A Swing and a Miss

As part of my consulting services, I am tasked with evaluating companies for VC, private equity and angel investors.

I recently attended a private pitch by an experienced entrepreneur to evaluate the potential of the company for some interested investors.

The entrepreneur was the prototype of what many aspiring entrepreneurs or early stage founders wish they could be:

  • Silicon Valley startup veteran
  • Multiple startups
  • VC funded in previous companies
  • Had successfully exited and made his investors money
  • Talented engineer

In short, he had a sterling track record, impeccable credentials and noteworthy references.

To the run-of-the-mill tech startup founder, he was the poster child for “who gets funded when I don’t.”

And, he failed.

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The Short Story on Pitches

The short story on pitches is:

1.      The purpose of the pitch is to get the next meeting. This rule applies to everything from a 30 second elevator pitch to a one hour VC pitch. Note that the purpose is NOT to tell the entire story, especially about your technology, what you built and how it works.

2.      The most important things to talk about in a B2B business model pitch, in priority order:

a.      Relevant and target market size (see stage 1 at Idea to Exit)

b.      Market pain you are solving

c.      Sustainability of that pain (will the pain be around long enough for the company to grow into and be viable over the company’s life cycle)

d.      Level of that pain (who, specifically, is in pain, e.g. CEO, CxO, VP, director, manager, users)

e.      Price they will pay to solve that pain

f.       Recurring revenue aspects of that price

g.      Sales model (type [direct, channel, etc.], sales cycle, signing authority, # of functions you need to sell to, e.g. finance, CMO, IT, etc.)

h.      Distribution channel(s)

i.       Barriers to (competitive) entry (Intellectual Property (IP) rights (patents), proprietary sales/distribution channels, etc.)

j.       Everything else, especially the technology, what you built and how it works


Note that what you know the most about, have the most passion for, etc., is down at the bottom.

This is why most pitches fail.

Most startup guys come in and spend 99% of their time on their tech, what they built, how they built it and demoing what they built. That is, in the end, the least important thing when you are pitching.

The most important thing is the pain you are solving, the scale of that pain, the sustainability of that pain and who owns that pain.

The impact on pitching and funding are:

  • Large scale market (.5 – >billion dollar scale) = VC
  • Medium scale market (several hundred million) = Angel & Super Angel
  • Small scale market (<several hundred million) = bootstrap, Friends & Family

You can cover points a – f in less than 90 seconds. That’s enough time for an elevator pitch.

Remember, all you want them to do is follow you off the elevator. The point of the pitch is to get the next meeting.