So you have a startup and your excitement is hard to contain.You have a novel concept and are in the process of building it out.To get to this juncture you have used your own funds plus monies from friends and family.
The idea of living the dream and starting up the next billion-dollar unicorn is one that I’m seeing more and more regularly.
For many of these startups, the rude awakening is that it is not an easy path. If this is an endeavor that you are doing part-time then progress is slow. But if you take the plunge and work on it fulltime, then it is likely that your cash-flow projections might leave you shorter than anticipated.
So if you’ve reached the point where you’re ready to pitch to a VC — what’s the best way to go about it?
Getting ready to pitch
First, you have to have a unique idea that is going to be the centre of the pitch.That customer insight, based on facts, is what you what to test.Don’t make the mistake that what you believe to be true is universal.This needs to be part of your market research, and tested with a good sample.
Once you have that idea, then build out your MVP.This will start to test your own personal limitations and in every team, there are strengths and weaknesses.Be that technology, marketing or sales – every startup will have gaps.
It’s best to identify them and if possible, seek out advisory board to help you fill the voids.
As you are non-solvent, then you will need to establish this on the basis of a future equity arrangement.The most critical element is to get advice — and that means hearing things that you don’t want to hear.
Preparing your MVP and then testing this in a segment of the market is the right way to proceed.If you can get some revenue from this effort it will also help prove that there is a need for the product.
What to expect when you pitch
You have your tested MVP and received some results, and perhaps some sales revenue.Then you have effectively developed a business case, with expected costs, margins and distribution growth projections.
Then the hard part, how do you take this and distill into a seven to 10-minute pitch? Yes: Most pitches are decided within the first few minutes.There is no alternative but to have the best salesperson pitch — and that should be the CEO.
When you pitch to a VC there is a short list of what he or she is looking at:
- Do they believe that the MVP product has wow factor?
- Does the CEO and the team impress you?
- Is there any revenue that validates the MVP?
- Assuming there is no IP protection, then how easy is it for others to copy this?
- Does your request for funding make sense, the amount and how the funds will be used?
The pitch has to nail the above checklist; if you have gaps then it is very likely that your request will be graciously declined.Read more: Queensland govt funds ‘Startup Precinct’ project
Remember a VC is not a bank. They are in the business of making a margin from successful startups.In truth only one in ten startups succeeds, so VCs have to back winners otherwise they also don’t eat.
The pitch is a sales event, but has to be grounded with facts that support the case.A VC will be pitched to 30-80 times per month, and can identify any BS pretty quickly.
In every pitch, you will need to provide an honest assessment of the competitive landscape and why your startup is superior.
There will be times that a VC will see part of your pitch and really value that component. In these instances they are joining the dots on what else they have seen in other startup pitches.
Assess the value of the VC
A good VC provides much more than purely funding: They will also provide your advisory support and open doors.As you pitch and then do the Q&A, you will have the chance to engage in dialogue that provides you some insights into what other value a VC can provide.
However be aware that this is not the time and place to be demanding to hear the value-adds.But they can be a source of know-how around funding, IP lawyers, network connections, technology platforms and other disruptive startups that compete with you.
The VC will be able to assess afterwards does he or she believe in your product enough that he is willing to invest time to the startup.Most VCs are used to kissing many frogs before they find their prince or princess.
The aftermath is tricky can be confronting for the CEO of the startup who has invested time, energy and money.My advice is the listen to whatever the feedback that is provided, even when you disagree.
It doesn’t mean the VC is always correct, but as it is a small world you never know when you will be back for another round.
Furthermore, a VC is always attracted to a CEO who is confident, but not arrogant.When you come across as not ‘coachable’ and willing to take input, then that is not a great sign for the VC.
Most likely you have to regroup and make another run at pitching. But also don’t be blind to the fact that perhaps your startup idea is not as great as you think. If you can pivot and apply the feedback, then your chances of a winning hand improves.
Good luck with your pitch!