Pitching your business to a venture capital (VC) investor can be daunting. You’re potentially competing for a limited pool of money against a crowd of other founders with innovative ideas. Even start-ups with fantastic growth potential often make basic mistakes, such as being unfamiliar with their financials or not learning about investors before the pitch.
Investors say ‘no’ more than they say ‘yes’, being well prepared helps you stand out and build trust.
Here are seven tips to help you pitch your business to a VC investor.
- Have the right type of business
VC investors are looking for a specific type of business: one with significant potential for growth and scaling. If that’s not you, you may need to rethink your business model or financing strategy.
One reason investors say ‘no’ is that the business isn’t projected to grow fast enough for VC investment. VC investors are looking for growth or disruptive technologies.
Expected growth rates vary by industry, but it’s not unusual for VC investors in some fields to target 10% monthly sales growth. A typical metric is, ‘Are you 10 times better than the competition?’.
- Find the right investors
It’s important to research the right investors for your business and tailor your pitch to them. Various VC investors focus on different industries, deal sizes and start-up stages.
Beyond the specificities of your business, finding personal connections, such as a shared alma mater, can give you an edge over the competition. You also need to find investors you can click with on a personal level.
You can learn about potential investors and the VC ecosystem by networking with other founders and attending start-up events.
- Focus on the market
One of the most frequent VC pitching no-no’s is to heavily focus on all the great features of a product, while underplaying why it will benefit customers. The benefits tell an investor how big your market could be—the main thing an investor cares about.
Your product will probably change in the early stages, but what’s less likely to change is why it benefits people. The benefits tell an investor if the product will change a customer’s life or is just a nice-to-have. It’s easy to fall in love with your product but lose sight of the bigger market picture that an investor cares about.
Start the pitch with a brief explanation of the product, then quickly move into what it does for customers, how much time or money it saves them and the pain points it solves.
- Know your numbers
Your job is to convince an investor that your business is poised for spectacular growth, but do you have the numbers to back that up? Surprisingly, many founders don’t. Yet, solid numbers are crucial to your pitch.
You often see tech founders who have little or no business knowledge and aren’t comfortable with numbers. But investors need numbers to understand your company’s potential market and scalability. They expect the founder to know the finances and key metrics of their company.
You should be very familiar with your financial projections and statements for the next three, six and 12 months. Projections should strike a balance between being plausible and reflecting your high-growth potential.
- Be honest about the strengths and weaknesses of your team
Investors will want to know a lot about your team: not just resumes but what each person will do to contribute to growth. The team is extremely important in the early stages of start-up, be honest about any skill gaps and how you’ll address those.
- Find good advisors
It’s vital to work with legal and accounting professionals who understand start-ups in your sector and can give you appropriate advice early on. Engage these advisors before looking for investors. They can open doors to VCs and advise you on tricky questions like valuation and structuring agreements.
- Learn from “no”
Don’t get put off by an investor’s ‘no’. Their feedback can be very helpful for future pitches or reviewing your business. They may also be willing to introduce you to customers or other investors.
You may just not be a good fit for the investor, or they may have already invested in a business similar to yours. Ask the investor why they said ‘no.’ Investors have really strong networks and can give great advice. I get referrals all the time from other investors.
Guest blog from EFM. Article originally posted August 5th 2019.
EFM is a nationwide team of Finance Directors, Business Advisors and Financial Controllers and they can help ensure your business plan/pitch deck is investor ready – to find out more contact firstname.lastname@example.org or call 01582 516300.