How to Pitch to a Venture Capitalist?

If you are the founder of a company trying to raise your first cheque, it is important that you know all aspects of pitching to a venture capitalist. I, Sanjay Mehta, the founder and partner of 100X.VC will give you a few clues which guide the overall thought process of a VC. This will help the founders in learning how to engage with a VC.

Few essential questions which are important in this context include: 

  • What are the questions to be answered by founders while pitching a VC?
  • What preparations does the founder need to do before going to pitch a VC?
  • What homework do you need to do before pitching a VC or what questions would a VC ask? 

What is the Reason Behind Your Company’s Existence?

Many times, I have seen, as an investor, that when you meet a founder, it takes at least five to six to come to the point. In the first 60 seconds, you need to be ready with the elevator pitch and gain the confidence of the VC investor. Few questions are essential when you are pitching a VC who is interested in your idea as an opening statement or even if you are sending an email pitch to a VC. It is imperative to clearly define your problem statements and solutions.

  • The general topics which should be covered under elevator pitch are the reasons behind your company’s existence, your mission statement, solutions to the problem that you offer, and value proposition- among others.
  • The next thing that a VC can discuss is the market size. At 100X.VC also we believe that the market size has to be large enough for any founder to raise venture capital. They prefer to invest in a business with a significant market size opportunity. Not all businesses are venture fundable. If you want to build up a large business leading to high growth, there should be a huge market size to put in money. You must know your potential, addressable opportunity, focus, positioning, and segmentation. You need to dictate why VC is so crucial for your business. 
  • The next thing you will have to explain to the VC investor is why your product is better in comparison to the other products in the market. Usually, it takes a large capital to change consumer behaviour. For example, painkillers are easy to adopt and sell themselves, while vitamins take a lot of time to change consumer behaviour. The virality with velocity is very important in this aspect. VC investors usually get attracted to exponential growth. 

Generally, VC investors are usually talking about the right timing, exponential growth, and readiness of your infrastructure for selling your product and idea to scale. You need to investigate the key ingredients in your business that are available in your business to scale across or for your products and ideas to be viral. You should be able to tell whether the underlying infrastructure available can go viral with velocity.

Why Is this the Right Time to Build Up the Start-up?

Now you may ask, why “Timing is Everything”. Is there any economic push or you are going to invent better ways of doing things? Is your product a result of changing technology? For example, UPI has changed the payment structure completely. GPS is the most accepted technology that has wholly reprogrammed consumer behaviour. Another important aspect related to the right timing is cultural acceptance. We have seen, for example, that with autonomous cars, there is a reprogramming of consumer behaviour.

Understand where you are Now

You must know how much capital you need for your business to scale. When you are unable to use all your capital at once, specify your strategy for allocating the capital. How can you raise a small amount of money and take it to the milestones and build it as a large capital fundraise?

Know your Team

You must know your team and identify the competency gaps. Each team possesses its holes. You have to identify the specific holes that will be created after raising funds for new hires. According to me, the investors will be interested in the answers to these questions. You need to build in mind of VC investors, the basic landscape in which you are operating across.

Landscape of Competition

You must know your competition. What is your unfair advantage? You should have an answer to the question of why you are going to win the race. What are the entry barriers and how different are you? What revolution are you going to bring and why are you going to win the competition? Answers to all of these questions are important for the VC to understand in order to gain a better insight into your company.

Why are you Better than Established Businesses?

This, I believe, is very important. You will have to explain why you are better than the already established business entities. There should be an execution plan and a monthly rolling business plan. Are you providing any new methods? You must have a reason for your business to remain a customer attraction for lifetime value.

Tips to Improve your VC Pitch

I have provided some tips to improve your VC  pitch. Most of us have created decks or deck slides. These are some of the tips which I believe the founders can take care before they go out and raise their first check  -

1)  At the beginning of the blog, I talked about the elevator pitch which founders should work on. You can begin your elevator pitch with the following words and craft yours accordingly:

“I intend to offer (insert product/service) to (insert type of customer) so that they will be able (insert benefit)”.

2) You can tell a VC how your products can be converted into a valuable business. It may be solutions provided by you for a problem or a smart technical guy offering a great technology.

3) Using numbers and setting a measurable goal makes your pitch more authentic and realistic. Thus, there are better chances of seeking VC attention. The hypothetical goals and lofty dreams are usually ignored. In the pitch stake, I have seen founders making mistakes with multiple metrics. Using one metric for money at a time is better to avoid any extra calculations that have to be made by the viewer.

4) You must possess mandatory entrepreneurial skills like taking decisions and making it right, be comfortable with the unknown and possess perseverance and have the ability to build wealth and not just income.

5) One of the mistakes which I see across is founders expecting salaries at the seed stage. There should be a big no to putting forward this idea. Unless investors come and invest in your company, the company’s value will not be derived. The biggest red flag for any investor will be you owning the largest share and not the company.

Few Considerations for Preparing an Email Pitch

Keep your email pitch short and concise. Let investors learn something new from it. Images, advisory boards and customer case studies will work. Keep headlines and closing lines as persuasive as possible. Always attach a PDF deck and mention contact details.

- 100X.VC Team

Published on: March 14, 2020