Since our first “Ask the VC” session was so popular, we decided to give it another go: this time with Marc Phillips, Managing Director at Arafura Ventures and author of Inside Silicon Valley: How the Deals Get Done. Marc and Gadiel Morantes, Chief Revenue Officer at Early Growth Financial Services, focused on crafting a winning startup pitch.
One of their first pieces of advice was to ask for feedback when you get a “quick no” from a VC. It’s important to ask why, so that you understand what factors led to the investor’s decision to pass. Armed with that feedback, you can retool your pitch for the next investor.
Here’s our roundup from the Q&A on what makes for effective startup pitches:
What’s venture capitalists’ biggest pet peeves when dealing with entrepreneurs?
Some founders don’t make the connection for investors as to why they should invest in you. Do the research to get familiar with VCs’ personal and professional backgrounds; “we’re designed to help you.” You need to be able to explain why (besides money) you want a specific VC involved with your company. Also do some digging to make sure you’re not approaching those who have invested in your competitors.
Another thing: cold emails are a hard sell. Instead, try to meet VCs at industry events where you can approach them afterwards to exchange business cards. You can also follow up after an industry event someone’s spoken at, or based on a blog post a VC has written as a way of introducing yourself. Warm introductions are much better though. Mine your existing network for connections to investors you are targeting and work hard to expand it. If you’re not a good networker, find a partner or an advisor (with the caveat that you should quantify your expectations as to how many introductions you’ll get) who is good at making introductions.
How important are startup advisors? What role do they play in getting VCs to invest?
Advisors are very important in lending guidance and in showing that you are well-liked and respected. To meet potential advisors, you can use a similar approach to that you take to network with VCs. Read more on how they can help grow your startup in How to Choose the Best Startup Advisors.
How important is the early team in attracting investors?
Team is important. Some of the VCs we’ve spoken to say that in early-stage deals, the decision of whether or not to invest hinges on the team. For Marc, while the early-stage team is important, success is determined not just by the initial builders, but on your product roadmap and the people who will build the next iteration.
How detailed do early-stage business plans have to be?
VCs assume “it will take longer and cost more money.” That said, investors like those who under promise and over deliver. So be very clear in communicating your business milestones and key metrics. Don’t be overly aggressive with your business plan unless you have the figures to back you up. You’ll lose credibility. Do give yourself wiggle room though.
One thing many entrepreneurs do that is counterproductive is reporting late and presenting data and information with gaps. Having a framework and routine for reporting is key. If this is a weak spot for you, get help putting together your financials. Being consistent and transparent is how you build trust. Get your investor reporting done on time on a regular basis — email is fine. We’ve said it before and we’ll say it again, know your numbers cold. For Marc, being able to talk through and explain variances between your budget forecasts versus your actual performance helps show you understand your business.
Circle back to your “soft nos” too from time to time with updates of your progress. Gadiel and Marc agreed that “you should always be raising money.” The investor world is small. And it’s helpful to align yourself with people who can add value to your company whether now or down the road.
How comprehensive does a pitch deck slide on competitors have to be?
You don’t have to present an exhaustive matrix of all your current and potential competitors. But as Marc said, “either you id your competitors (key players) or VCs will” and you’ll lose credibility. Having a handle on the competitive dynamics is key to making sure you understand the marketplace you’re competing in. It also enhances investor understanding of your business. Don’t think that having competitors is a concern. If anything it validates your market. And just identifying your competitors is not enough. Go beyond that by demonstrating what differentiates you from the competition.
Lastly, remember that pitch decks often get passed around. The visual impact of your first page, your hook, is critical to persuading investors to learn more. Take a look at some of our previous posts for more on pitch deck essentials.
Do you have more questions on pitching or lining up VC financing? Ask us in the comments section below or contact Early Growth Financial Services for a free 30-minute financial consultation.
Deborah Adeyanju is Content Strategist & Social Media Manager at Early Growth Financial Services (EGFS), an outsourced financial services firm that provides small to mid-sized companies with day-to-day accounting, strategic finance, CFO, tax, and valuation services and support. Prior to joining EGFS, Deborah spent more than a decade as an investment analyst and portfolio manager with leading financial institutions in New York, London, and Paris. Deborah is also a Chartered Financial Analyst (CFA) charterholder.