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Having suffered such huge loss towards the end of the internet era, Venture Capital (VC) firms look for fewer but safer investment proposals in startups that have realistic growth potential. Our template and ten tip list will guide you on how to ptich a VC.
Venture Capital now look for investment opportunities supported by a well researched business plan and an experienced management team. Inspite of this cautious approach of VCs, there is no scarcity of funds for investment in startups which have viable and cogent business proposals.
There is no advantage of presenting your plans before a VC who has never invested in the sector or region you are talking about. Therefore identify and shortlist only those VCs whose investment preferences match your requirements. You can use the factors given below to identify VCs who would be most suitable for your need:
The main purpose of your business plan should be to sell your business proposal. It should show the potential investors that if they invest in your business, you will provide them with a unique opportunity to get an excellent return.
However, no body goes through the lengthy business plans. Therefore, your business plan must have a very effective executive summary. In the executive summary, make sure you highlight the market, the product or service, management team, stage of the startup, location, market, market size, business, business model, capital structure, capital required, exit options etc.
Avoid using jargon and adjectives to define your product or service. Explain your product or service in simple language and emphasize its competitive edge or USP. While defining competitive edge of your product or service, ask yourself the following questions:
Here, your basic objective should be to show that there is a need of and therefore a ready market for your product or service.
You may have a grand business idea but working alone you may not be able to achieve the objective. It is the startup team which would ultimately convert your ideas into a profitable product or service. Therefore VCs look for a team consisting of members with relevant professional experience, deep technical expertise, and a track record of proven successes in the functional area in which the startup intends to work. Therefore, you must at least identify your team members before pitching to VCs, if financial constraints do not permit their hiring.
You can't provide any better evidence than customers to prove your claims about the marketability of your product/service. Explain about your existing customers as well as your potential customers. Very specifically explain the number of your existing customers, total revenue you generate, revenue per customer, cost per customer etc. Similarly, define your potential customer, explain in brief your plans and target for customer acquisition in next three or six months or as the case may be and the total revenue you would generate if you achieve your target. Define the various categories of your potential customers, if you do not have any existing customer.
To show that you have a properly thought out strategy for the financial implications of your company's growth plans, demonstrate a detailed set of financial projections.
Judiciously assess sales, costs (both fixed and variable), cash flow, working capital etc and support it with graphs and charts. Analyze your present and future margins in detail, bearing in mind the potential impact of competition. Your financial projection should also include the sale prices or fee charging structures of your product or service.
Remember, you are there to sell a product, your business idea, which can't be sold unless your client is satisfied with the product, which he/she intends to buy. Therefore, you have to convince VCs that there is a real need and hence commercial opportunity for your product or service.
This section is the most crucial for VCs therefore be prepared to be scrutinized carefully; be very specific and quantify your market in terms of size of the market, growth rates, recent technical advances, Government regulations, trends etc. Explain the right market segment and its size for your product or service preferable in graphical form. Finally, explain the percentage of the target market your company plans to capture, with its justification.
The cardinal objective of a marketing plan is for you to convince the VCs that the market for your product/service can be developed and penetrated. The marketing plan should include pricing, distribution and promotion strategy for your product or service. All aspects included in the marketing plan section must be rigorously supported by as much verifiable data as possible. While preparing your marketing plan, you may take inputs from your management team, customers, potential customers, advisors, consultants, trade analysts etc.
You have already calculated your current and expected income and expense. Next, explain them about previous funding, own investment, investment from family members, relatives, friends etc. If you have invested your own savings, it shows your genuine interest in and further requirement of finance for your startup.
Finally, explain how much finance is required by your startup and how it will be used. To explain the uses, you may include an implementation schedule, including capital expenditure, orders and production timetables etc.
Next, always remember, venture capital investors are not into charity, they are there to make money. So, explain to them how they can exit after making an excellent return on their investment.
Usually, the entrepreneur's first meeting with a VC firm takes place with a young, energetic and ultra-bright associate, who scrutinizes all documents diligently before giving you the green signal to pitch to the general partners. To prevail with either group, you must be prepared for every possible objection with data and expert endorsements, and should never lose your cool.
While making the actual presentation, be confident of your thought-provoking business plan. Focus on delivering an action oriented, clear and concise presentation. Your presentation must have the following features:
Clarity of expression
These ten tips along with buying Investor Pitch Deck – A skeleton template to walk you through the slides, will give you a great start to a successful pitch.