How to make a better first impression with a simple 3-part formula, and how to modify your pitch if you are talking to corporate VCs
During my day job as a venture capitalist, I have heard more than 10,000 elevator pitches. I have also been teaching entrepreneurship as an adjunct professor in graduate business school programs since 2003 and have seen over 1,000 students come through my various classrooms. As a result, I’ve thought a lot about what makes a compelling pitch, and how to help entrepreneurs and students with the challenging process of making a great first impression on investors.
I’ve found that many entrepreneurs are confused about the purpose of the elevator pitch, which is simply to get the listener to want to hear more. Very few professional investors are going to write you a check on the spot; most have a process that requires getting to know the entrepreneur over time.
That process includes hearing the elevator pitch, which generates enough interest to take a meeting. A good meeting leads to the investor discussing the opportunity with her entire partnership. That can lead to more meetings and preliminary due diligence. Successful diligence leads to meeting the entire partnership, which can eventually lead to discussing terms. If the terms are mutually agreeable, a legal process finally leads to an investment.
This process of getting to know each other is a lot like dating. Most people don’t propose or discuss how raise the kids on the first date — that can seem a little, well, psychotic. So the goal is to keep that initial pitch, the very first impression, compact and compelling.
As a result of hearing all these pitches and thinking about the venture capital process, I developed a simple formula for an effective elevator pitch: 1) tell me what you do; 2) tell me why should I care; and 3) tell me why you will win. I will reveal the fourth part of the formula, specifically for engaging with corporate VCs, below.
1) What Do You Do?
Many VCs disagree with me on this point, but I recommend that you don’t start with a story, or describe your market — even though your personal motivations for starting the business might be one of the most important factors a VC will assess. Just tell me what you do to start. An elevator pitch isn’t an on-stage performance like a TED Talk, where you are likely to have a patient audience. It’s a conversation starter with another human being who hears pitches for a living.
As soon as you describe the context of your business by saying what you do, I can quickly decide whether it fits what I do. For example, if you tell me that your company designs and develops therapeutics for certain types of cancer, I can quickly tell you that my firm does not invest in the development of therapeutics. If your pitch is quick and interesting, I can instead start to think about whether any of my friends who do invest in therapeutic development might be interested.
The key to all of this is telling me what you do. That means concentrating on your verbs. This reveals what function you are providing in your value chain. For example, if you say that your company “is involved in the mobile VR game market,” I still don’t really know what you do. “Is involved” conjures vague imagery; you need a strong action word to describe what you do specifically. Within the world of mobile VR gaming, a startup could manufacture cameras or headsets, design or develop software, or publish games. Each of these is a different business. Many VCs won’t fund hardware manufacturing, for example, so it’s really helpful to hear your focus right away.
If I’m confused about what you do, I will do one of two things: interrupt you and ask questions until I understand, or stop paying attention to you completely. Neither makes a great start to your pitch.
2) Why Should I Care?
Now I know what you do. But the next question you need to answer is why it matters to investors. This is where you can follow up with a story or the background on your market.
For VCs, “caring” usually means a large and growing market, although some investors may also be focused on specific social issues or other non-financial returns. If the financial opportunity isn’t large, investors generally won’t engage. “Large” usually means “billions.” In fact, the word billions is like catnip to investors. If you ever need to wake a sleeping venture capitalist, just say “billions” out loud.
But describing the scale of your market opportunity properly requires more than throwing out an indiscriminately large number. VCs want your opportunity to be big, but we also want to know you can accomplish your plan. It’s our way of testing that you are ambitious but also realistic — a difficult needle to thread. The way you describe your market should accomplish both of these goals.
In your elevator pitch, this can require telling us two things: that you are targeting an overall market that is very large (billions) but that you have identified an achievable initial target market that is in the tens or hundreds of millions.
While you won’t have time to “show your work” during your elevator pitch, you should be prepared if an investor starts to quiz you on the math behind your market size. Be able to describe a “bottoms up” calculation that includes the number of potential customers multiplied by the price of your product or service.
3) Why Will You Win?
Much has been written about “power law” effects in venture capital — the concept that two or three companies capture the majority of the value in a particular space. This demonstrates the importance of winning. It isn’t enough to start a company and survive, you need to emerge as the leader in your category for the investment to be worthwhile for everyone involved.
Remember that you are not pitching your company’s product or service, you are pitching why the business itself is attractive. And that includes explaining why you have a competitive advantage.
My experience is that this is the most challenging element of the pitch for entrepreneurs to articulate. Most can describe what they do and the size of the market opportunity, but identifying a true advantage is tricky. In an initial pitch, sometimes its enough to say you are the first or the largest, but expect that good investors will probe those statements and challenge you. In the early stages of your company, whatever momentum you can demonstrate is worth mentioning here: brand name customers, having completed your product or reached first revenue, growth rates, and even the names of your seed investors or advisors can all demonstrate validation that you are on a path to creating the winning company in your space.
4) How Can We Help Each Other?
So how should you modify the formula if you are pitching a corporate venture capitalist? Well, the special thing about corporate VCs is their relationship with a corporate parent. Think about what you could pursue together. The very best thing you could say at this stage of the pitch is that you just completed a successful pilot together, and you believe there is an opportunity to expand the relationship. If a corporate investor knows that there is support from a business unit champion, that’s a sure way to generate enthusiasm for learning more.
If you don’t have any existing business with the parent company of the corporate VC you are pitching, brainstorm how you could create a mutually beneficial commercial relationship. Is there an opportunity for licensing technology (in either direction), manufacturing or supply chain collaboration, a distribution relationship, or co-marketing? The more specifically you can describe how you want to work with the corporate VC’s parent company for mutual benefit, the better your chance of further engagement.
Good luck — we look forward to hearing your pitch!
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Scott Lenet is President of Touchdown Ventures, a firm that manages corporate venture capital funds, and an adjunct professor at the Marshall School of Business at the University of Southern California. Touchdown’s Los Angeles-based Associate Selina Troesch contributed to this article.
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