If being the CEO of a tech startup has taught me anything, it’s that growing a company requires all kinds of financial support. Matching the right type of finance to a specific business need is not always as easy as you might think. So if you’re in need of funding, the very first thing to do is to work out exactly why you need it. Think about why your current revenue stream isn’t giving you the capital you need to achieve your objectives. A lot of business owners mistake a simple cash flow problem with the need for the rocket fuel of a big equity funding injection. Most of the time rocket fuel is not what you need but on the off chance it is then you’re really going to need to prepare your pitch to impress potential investors, particularly if you’re looking at venture capital.
How do you secure the opportunity to pitch? Firstly, as far as possible, don’t make a cold approach. If there’s a specific VC you want to bring on board – or a list of several targets – try to find a common connection. This is where LinkedIn can really help. Getting a warm introduction to a VC from someone they trust or respect is far more likely to yield a positive response.
The most important thing to know when presenting is what your key messages are. VCs see a lot of presentations so they’re not going to remember everything you say; you’ve done well if they take away three key points. Work out in advance what you want these points to be and make sure that they’re covered by the most interesting parts of your entire presentation. For early stage companies, the VC will be most interested in the size of your potential market and the team, whereas for companies with a track record behind them, the VC will also be interested in unit economics and growth.
You need to give the VC the opportunity to see your product in action. This should be the ‘wow’ moment. Your demo should not be a features walkthrough. Instead put the VC in the position of your target audience: show them the problem and demonstrate how much better you’re solving it than the rest of the market. And, crucially, make sure to practice your demo. It might feel like you can wing-it but you can’t. You should be prepared for the VC only wanting to see the demo and not the slides (see below), so weave your key messages into the demo.
The slide deck
Someone once told me the only skills you need to be successful in investment banking are excellence in Excel and PowerPoint. Unfortunately, making it as a tech entrepreneur requires a lot more than that – but those PowerPoint skills are still necessary. The slides you use to pitch for investment should be clear, well-designed, tell a narrative and hit several points: the problem you’re addressing, how you solve the problem, potential market, key customers, competitors, revenue model, use of proceeds, the team and three-year projections.
If you do a good job in sparking their interest, a VC will want to ask questions. They might even want to ask their questions so much that they interrupt your presentation. This is fine. If it’s something you’re going to cover later, make that clear and continue where you left off. If not, decide if you can answer it quickly or, if it requires a longer answer, be honest and tell them you’ll get to it at the end. Be prepared for blunt, direct and difficult questions. Try to think of these in advance and prepare your answers. If there’s an obvious question for them to ask, answer it before they get the chance to ask it. You might not know the answer to some questions, in which case it’s best to be honest; tell them you’re still figuring out the particular point.
Something that worries a lot of entrepreneurs in this situation is how to agree a deal on valuation. There are a few things to keep in mind here. Valuation is dependent on the specifics of the deal; it’s just one element of your agreement, so don’t focus on it too much. Also, it’s up to the VC to name the first number; they spend a lot of time pricing deals, so it’s on them to get the ball rolling. However, don’t negotiate by starting at a ludicrously high valuation target. Everyone can see through that strategy and it will only put the VC off.
Some businesses have moved away from VCs and raised directly from the public via equity crowdfunding platforms. This has benefits in terms of raising awareness and obtaining higher valuations but drawbacks in terms of a fragmented investor base. Additionally, when you raise funds from a respected VC – like MarketInvoice has from Northzone – you get the significant added benefit of bringing serious expertise on board. These guys spend their entire lives growing businesses, they’ve seen a thousand ideas that work – and probably just as many that don’t work. And, if you want that experience on your side, you’re going to need to convince some pretty impressive people that you and your business are worth their time and money.