My present role as Senior Investment Manager at Founders Factory has seen me assessing the materials and pitches of many early stage start-ups with a view to optimising the stories told for the investor they are pitching to. I have sat in countless pitch meetings of our portfolio companies with external VC funds — and here is what I have learned in the process:
Make sure to get to the magic in your business in the first 30 seconds — whatever that is. Be that your personal background, a patentable or otherwise defensible tech angle or a new twist on a previously known business model. There’s nothing worse in pitches for me than to not understand what it is I’m being presented early on.
Play into the investor’s intellectual curiosity
Let him or her participate in the thought process — maybe even let him or her get to the final conclusion him-/herself. Understanding the scale or magic of the opportunity by themselves will give the investor a sense that his/her intuition is closely aligned with your business cause. This could make your business stand out among the many investment opportunities an investor goes through on a weekly basis.
Never try to hide risks and challenges
Those will come out later in the due diligence anyways — most investors do their homework. It’s much preferable to admit to those weaknesses, as it shows how you are thinking through them and maybe even involve the investors in the problem solving process — it will help the investor understand the way you think. Furthermore, you are playing into the investor’s urge to feel useful and stimulating his / her intellectual curiosity — most likely there will be some valuable advice in there for you.
Don’t discount junior VCs
This is not a new point to make — I’ve seen quite a few blog posts explaining the hierarchy in VC (see Fred Destin’s view on this here) and how to use it to your advantage. However I still see it on a daily basis that founders do not understand or respect that opportunity. For me that’s a waste. Young VCs are hired to support their partners and are encouraged to speak up internally. By having a young VC on your side, you have won an important ally that, although he/she may not have a final say, has the power to influence investment decisions internally. Also, these Young VCs speak and listen to the partners at least every week. They know what partners care about, what motivates them, what questions they may ask — all valuable pieces of information before going into the investment committee. Use it!
Be flexible with your story and think of it as an organic conversation
Most likely you’ll have memorised the pitch front to back, however VCs have varying styles — some hear you out to the end, others interrupt and ask questions as and when they have them. I personally much prefer it to be an organic conversation where I can ask questions whenever they form in my brain. This should be completely natural for a founder. You have conversed and convinced people organically in conversations since you learned to speak in early childhood. It’s stunning how often I see founders forget those natural skills and turn into arm-waving sales people (I do sometimes wonder who these actors are that are earning some extra cash by teaching those over-the-top ‘presentation skills’ that make everyone watching feel rather cringe). Go back to your roots. Be yourself and converse naturally and organically. Know your story well enough to jump a little if the VC prompts you with questions. This will make the whole meeting flow and feel natural.
This point is absolutely crucial to ensure success and probably one of those points the least amount of entrepreneurs agree with or take on-board when told. Building your startup is incredibly risky in itself. Over-negotiating on valuation, which at this stage of your business is completely meaningless anyways, adds further layers of risks and uncertainties to an already risky situation and takes too much time away from you acting as founder / CEO and building your business. We have seen it time and time again that offers from investors that are reasonable and market-standard (and I’m not talking about outlier investors wanting 50% of your business) are being re-negotiated by founders which almost always leads to delays and often in deals falling through. Delays also create unnecessary doubt and caution with follow-on investors. If the offer is market-standard (at seed stage around 20–25% of equity), take the money. Wasting even five minutes on negotiating valuation shows the entrepreneur is focusing on the wrong things.
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