How to ace the VC pitch

Many entrepreneurs, having wrapped their passion and intellect around their “next big thing,” can’t wait to hit the bricks and share their insights and enthusiasm with waiting investors, convinced that the check writers will “get it” and willingly part with their investment dollars. Unfortunately – and, in some ways, fortunately – the fundraising process is complex and requires focused preparation. Entrepreneurs who prepare carefully will be in a much stronger position, both to articulate their plans well and to execute on those plans when they secure investment capital.

Are you ready to present your plans to an investor who will not share your level of expertise or passion for your chosen domain?  Professional investors are skeptical and, in most cases, generalists. Your job as the entrepreneur is to take your vision and make it as tangible and credible as possible. In the process, you are selling yourself — your market knowledge, product prowess, management ability, adaptability, and flexibility. You’ve got 30 minutes and about a dozen prepared slides to get the job done.

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Having built two companies, invested in dozens, reviewed thousands of potential investments, and succeeded and failed, here’s my advice for entrepreneurs preparing to raise capital from investors:

Invest in yourself first. Investors will look at your financial commitment (your “skin in the game”) as a proxy for both your dedication and conviction. Investing time is interesting, but hard dollars take the discussion to the next level.

Raise money when you don’t need it. Develop viable options. You may want to raise $3 million of startup capital from investors, but what if you can’t? Is there a viable “grow slower” option that you can pursue? Are there potential strategic partnerships that can help you jumpstart your execution plan? Having viable options strengthens your hand in dealing with potential investors. My guidance: You want no single point of failure when it comes to financing your business.

Know your customer better than anyone. Talk to potential customers. Understand and be ready to articulate their problems, desired solutions, the value of your solution to them, how many of them there are and how they will buy, pay for, justify, and budget for your product. Develop customer relationships that you can refer potential investors to for validation. Nothing sells a new idea like third-party validation. Be prepared for the questions: Who is the customer/decision maker? Will they buy? Who controls the budget? How will they measure success? What does the procurement cycle look like? What is the lifetime value of a customer? Answering these questions will force you to ask many more – all of which prepares you to be the subject-matter expert in the room when you are meeting with potential investors.

Have a product illustration available. Bring your product vision to life. The old adage that a picture (or a prototype or early product) is worth a thousand words understates the value of that picture when talking with investors. Demonstrate that you have the expertise to deliver on your product vision.

Demonstrate traction. Building on your customer knowledge and progress with customers or potential customers adds validity to your representations and market claims. Obviously, the more progress you can demonstrate the better. But some indication of customer commitment is always vastly superior to hypothetical statements of target customer behavior and intentions.

Lead with your team. At the beginning and end of the day, startup success more often than not is about the team of people implementing the plan. The more complete the team, the more credible the plan and your ability to execute. The stronger the domain knowledge and track record of success, the more likely you are to have your vision and plans accepted, at least initially.

While my points above might sound like common sense, the vast majority of entrepreneurs fail to adequately prepare in these areas. Remember, you’ve got 30 minutes and a dozen slides to: 1) convey the BFD (Big Fundable Deal) to an investor who is a generalist; 2) provide tangible and validating market insights; 3) demonstrate that you can deliver the solution you propose; and 4) show that you have a team that can not only execute, but anticipate and react in real-time when things don’t go according to plan. And believe me, things never go to according to plan; professional investors know this.

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I often compare the process of launching and building a company to running through a mine field in the middle of the night. Your goal as an entrepreneur is to convince the investor that you can navigate that mine field successfully and that it’s worth the effort and associated risk.

In terms of capturing and conveying your expertise, talk around your slides. This gives you a chance to demonstrate your knowledge and expertise. At the same time, don’t put everything you know on the table in that first meeting. Remember, the objective of your first meeting with an investor is to get to the second meeting. Deliver enough information to entice the investor to want to learn more.

As for presentations, there are seven things that I usually want to understand from an initial meeting:

1. Your Credentials
2. The BFD (Big Fundable Deal)
3. The Market
4. Competition
5. What You Own (IP, trade secrets, etc.)
6. Summary Financials
7. Parallel Time Lines (Product, sales/marketing, revenue, financings, etc.)

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Additionally, you should be prepared to discuss how much capital you are likely to require to succeed and the milestones against which that capital will be acquired. The flip side of this conversation is how your successful enterprise will likely be valued (using third-party metrics again).  This part of the conversation- – understanding the math of dollars in and dollars out – demonstrates the potential profitability of a successful investment, assuming you can interest investors through your articulation of the above seven points.

Bob Ackerman is founder and managing director of Allegis Capital and formerly a successful serial entrepreneur. In his spare time, he teaches New Venture Finance at the University of California – Berkeley in the MBA program and is active in the non-profit world – focusing on education and the arts.

[Top image credit: Aspen Photo/Shutterstock]