How to successfully pitch to venture capital

Introduction

In the world of venture capital, you need to be prepared for any question that your investor might ask. The questions will run the gamut from simple (what’s your business plan?) to complicated (what are your competitive advantages in this market?). The one thing they all have in common is that they want answers: not just any answer, but an insightful and detailed response.

If you can give a VC an answer that shows them how much thought you have put into your business model and what kind of person you are as well as being accurate, then you have a much better chance at getting their money!

We think of venture capital as a way to get the financing necessary to grow a company, but the reality is that most companies can get by on their own cash flow.

The truth is: most companies don’t need venture capital.

VCs are not the only source of finance. If you have enough money in your bank account, then you’re good to go! But if you don’t have an unlimited budget and/or need funding beyond what’s available in your bank account, then it’s important for you to know all your options and determine which ones make sense for your particular situation (e.g., angel investment vs crowdfunding vs invoice financing).

It’s also important for us [the founders] because we want our startups not only succeed but also be around for decades or even centuries like some of our favorite businesses today are still thriving after hundreds of years (like @starbucks). We want them growing into successful corporations with millions or even billions dollars worth before they go public so we can retire comfortably someday and enjoy life now rather than later!

The decision is not based on how much you need at the time: it’s based on what you’re going to become in five years

So, if an investor wants $5 million and your business plan shows that by year two you’ll be doing $20 million, then yes—that would be good for them. But if another investor wants a lesser amount and sees that by year three or four, your company will do $50 million with its current funding levels? That’s also good for them. It really comes down to: Do they think your company can be huge? And at what point do they think it could get there?

Being prepared for this kind of question shows that you also have thought about these things and have some sense of what you might do with them.

The most important thing to remember when pitching venture capitalists is that they are not your friends. They’re looking for a return on their investment, and they want you to be successful so they can get their money back.

It’s not easy to get that capital from a VC firm, but there are some things you can do to increase your chances of success:

Understand what the VC firm does and its investment focus. You should also know about its portfolio companies; it’s helpful if you’ve met some of them or have read about them online.
Prepare for questions like “why do we need another social network?” or “how will this product make money?” You might even want to rehearse answers with other entrepreneurs who’ve pitched before or with someone who knows everything about your industry (like an investor).

The hard part is that you only have one chance at making a good first impression.

Unfortunately, pitching to VCs is a lot like going on a date. You have one chance to make a good first impression, and if you don’t do it well, it’s unlikely that you’ll get another shot. The most important thing to remember about pitching is that your audience wants to hear how you solve their problems. They want to know how exactly how their investment will help your business grow into something big and exciting—and ideally profitable enough for them to sell the company for millions of dollars down the line!

You should be prepared to answer questions about your business and the market you’re targeting (if applicable), as well as questions about your team and how they’ll use the money raised during this round of funding (if applicable). You should also be prepared to address exit strategies: What happens when investors want their money back? How many rounds have been invested so far? What kind of financial projections do we have based on our prior experience?

VCs can become involved in helping with setting strategy, launching new initiatives and product innovations, recruiting, and even helping with crisis management.

VCs can help with strategy.
The VC can become involved in helping with setting strategy, launching new initiatives and product innovations, recruiting, and even helping with crisis management.

A VC may be a board member, or may exercise influence behind the scenes (‘shadow board’)

The VC may be a board member, or may exercise influence behind the scenes (‘shadow board’). In any case, it’s critical that you prepare for their involvement in your company on a day-to-day basis. If you are looking for funding from a venture capital firm, make sure you understand how they will fit into your business and how much control they will have over your operations.

If the VC gets excited about your idea and wants to invest quickly, they will probably try to cut a deal within two weeks. However, it may take six months or more to finalize a term sheet that both parties are happy with.

If a VC wants to invest quickly, they will probably try to cut a deal within two weeks. However, some deals take several months or more.

A good way to gauge how open they are to your idea is by listening carefully for these words: “That sounds great! Let’s do this right away!” Or conversely, “There are so many other things we need to talk about before I can give you an answer today.”

VCs want to know all about your business plan, cash flow projections and exit strategy.

You can’t just show up and say, “Here’s my idea.” You need to be prepared with a full package on your startup: an executive summary, detailed business plan, cash flow projections and exit strategy (for when you want to sell).

The first thing a VC wants to know is whether or not you have a profitable business. If you don’t have any profit projections in your plan, it shows that you haven’t looked into this thoroughly enough yet. The other thing they want to know is how much money the company will make—when will it be profitable? They also want to know when the company will become profitable.

Conclusion