How to nail your investor pitch and walk away with multiple term sheets
The 9 most important things I’ve learned after pitching to over 40 investors and raising $125M in venture capital since 2011.
A few weeks ago I wrote about creating the perfect pitch deck. After such an overwhelming response (tens of thousands of readers, 45 questions via twitter/email and almost 5,000 shares via social media) I decided to follow up with a second piece on a topic that’s discussed even less than creating a pitch deck — actually standing in front of potential investors and pitching for capital.
As part of my 6 year journey building Bigcommerce, I raised 4 rounds of venture capital financing totalling $125M over a 4 year period.
For each round of financing, we created a pitch deck and went on a road show. For all 4 rounds, we received term sheets very early in the process and cut our pitching short, allowing us to get the capital and get back to building the business.
Here are my 9 best tips to help you do the same — that is, pitch fewer potential investors, get term sheets faster and raise capital so you can get back to building your business and executing on your vision.
Tip #1: Know the investor and their portfolio in detail
Before you pitch a potential investor, spend a few hours on their website. Get to know who the partners are, whether each of them has any operational experience running a company as founder and/or CEO, whether they took their company public or had it acquired and what they’re good at.
A lot of partners at venture capital firms blog too, so search for “[partner name] blog” and read through their posts to learn more about them and their views.
You also want to figure out which other companies they’ve invested in, why, how much and over how many rounds. You’ll want to avoid any investors who have put money into one of your direct competitors, as that would be an obvious conflict of interest and a waste of time.
Tip #2: Don’t pitch on a Monday
This one is short and sweet. Partners at every venture capital firm meet on Monday mornings to discuss potential deals and vote on investments. If you pitch on a Monday afternoon then you’ll be waiting a whole week to hear back on whether they’re interested in learning more or discussing a term sheet. By then, they’ll have listened to other pitches and may not hold the same level of interest they did on the previous Monday.
Tip #3: Find partners whose thesis aligns with your vision
Most investors have investment theses that form the foundation on which they research, analyze and invest in companies. For example, one of our investors has had a few different theses over the last few years. First it was travel, then e-commerce, then big data.
Inside a single venture capital firm, each partner can have their own investment thesis and it’s important to make sure at least one investor has a thesis that involves your industry or domain. For example, there’s no point pitching your mobile messaging app if none of the investment partners have formed a thesis that mobile messaging has a huge future.
Tip #4: Understand their fund size, life and stage
Venture capitalists raise money every few years from their LPs (Limited Partners) such as wealthy families and University endowments. Each time they raise (yes, they have to do a roadshow and pitch, just like us!), they create a new fund. These funds are typically numbered in sequence (such as fund 4 or fund 5) and have an investment life of about 10 years.
The life of a fund is important, because if you take capital from a fund that only has 3 years left in its life and receive an acquisition offer that you might not want to take, your investor may push you to sell so they can generate a return and attribute it to the same fund from which they invested in your business.
Always ask a potential investor how much capital they have left in their current fund and how many years are left before they raise their next fund.
It’s not always possible, but you want to receive capital in the first 5 years of a fund, which will give you at least 5 years during which to grow your business before the investor starts thinking about payback and return on the fund.
Tip #5: Speak to your strengths and areas of expertise
If your startup has multiple founders, they make sure you each stick to discussing what you’re comfortable with and what you’re an expert at. For example, if you’re a non-technical CEO then defer to your co-founder and CTO for technical questions about your architecture.
Tip #6: Don’t read your pitch deck line-by-line
Never, never, never load up your presentation and just read through it line-by-line . Always focus on one key point for every slide and talk to that point in detail. Look for queues showing extra interest as you speak as well as body language and drill into a specific topic if you feel it’s appropriate.
Tip #7: Every headline should be phrased as a selling point
Investors, like everyone else, will skim your deck before you pitch and while you’re pitching. Instead of a headline like “We have 100,000 users”, phrase it as a selling point, such as “We signed up 100,000 users in only 45 days”. Remember — you’re selling equity in your business, so focus on benefits.
Here’s the litmus test: if all they did was read the headline on each slide, would they call you in for a meeting? Make the answer “yes”.
Tip #8: Speak about your competitors honestly and in detail
Have one or more reasons why your product is better than the competition, but never underestimate them. Study their businesses inside out and clearly articulate (both visually and audibly) how you position against them. List their weaknesses and their strengths and if appropriate, talk about your plan to turn your weaknesses into strengths against them.
You want to be able to articulate why an incumbent has a huge market share and convincingly convey why you feel you have a shot at winning over their customers.
Tip #9: You don’t have to know all the answers
Don’t fumble if you can’t answer a question. Just remember the question (ideally write it down, including who asked) and politely ask if you can email or call the partner with the answer later that day or tomorrow, once you’ve had time to do some research or talk to whomever you need to talk to.
Trust me, it’s better not have an answer than to fumble , get nervous and say the first thing that comes to mind.
The other 99%…
There’s a lot more to raising a round of financing than simply creating a pitch deck and nailing its delivery. That’s 1% of the battle. The other 99% is building the right product, hiring amazing people, building a fantastic culture and understanding your metrics.
All much, much easier said than done…
Get my new book “SANE: How To Build Your Business Rapidly Without Going Insane” at http://www.dontgoinsane.com 📚