Presenting an idea to a venture capitalist is one of the most important steps an entrepreneur will make during the course of creating a company. If the pitch is successful, it validates the company’s existence and puts the entrepreneur one step closer to making all that hard work pay off. If it’s unsuccessful, the company may not make it off the ground.
Venture capitalists say making a great pitch takes specific knowledge about the company, the industry and the audience, as well as the ability to deliver a concise and compelling message in 20 minutes.
Motivation and Drive
When investors sit down with an
entrepreneur to hear a pitch, one of the first things they evaluate is whether
the person or team is driven and motivated to go out and build the company. Andreas Stavropoulos, managing director at Menlo Park,
Calif.-based Draper Fisher Jurvetson, meets primarily with companies in the
early stage of the investment cycle.
“You are often dealing with an entrepreneur who is working day and night on their idea,” he said. “Ideas can change all the time, but one thing you can’t change is how you come across."
Stavropoulos looks for ideas that will give a company the chance to get — and stay — ahead for many years. He wants those ideas that establish a company as an early player in the market and that will provide an edge over the competition. He also needs to hear how the entrepreneur expects to extract value from his or her company.
Bryan Stolle, general partner at Mohr Davidow Ventures (also in Menlo Park), said, “I like to say it is an irrational act to start a company because the odds are so against you being successful. It takes incredible focus and the ability to power through things to build the company.”
Stolle is also listening for the entrepreneur — who will most likely be the CEO — to show relevant knowledge and information about what problem the company will solve, who the customers will be and the market the product or service will join.
He also wants the entrepreneur to understand who he or she is pitching, so he advises startup founders to arrive at meeting knowing what businesses the venture capital firm invests in, what it needs in terms of a return on investment and a little about the person sitting across the table.
Frank Demmler, vice president of entrepreneurial services at Pittsburgh-based Innovation Works, looks for someone he “wants to get in the trenches with.”
“There has to be a likability factor because I want to see them win,” he adds. “They also need to be coachable, especially if they are a first-time entrepreneur.”
A Bad Pitch Isn't Always as Bad as You Think
Meetings typically last an hour, Demmler said. During that time, 20 minutes are usually set aside for the presentation, which he said should consist of 10 to 12 slides.
That might seem a short amount of time to explain something an entrepreneur has worked on for months or even years, but he said the key is figuring out a concise and effective way to communicate.
Even though a great pitch goes a long way to ensuring an investor funds a company, Stolle said a person with a great concept doesn’t have to be a brilliant presenter to get his or her message across.
“We’ve funded plenty of companies where the entrepreneur was a poor presenter,” he said. “A bad pitch isn’t one where the person is nervous, but one where they can’t tell us why their company matters or why it can be successful.”
In addition, an investor and an entrepreneur will most likely develop a relationship, so the experience isn’t a one-shot thing, Stavropoulos said. One reason they're there in the first place is because the investor heard something that grabbed their attention, he added.
“It can be hard to recover if you totally botch it, but seldom do we make a sweeping decision based on one presentation,” Stavropoulos said.
That is, unless the presenter demonstrates a total lack of humility. Frank Demmler cautions against any displays of “intellectual arrogance.”
“I’ve had people come in talking like they were God’s gift to technology and I was fortunate to have the opportunity to cut them a check, he said.
However, Nate Redmond, managing partner at Rustic Canyon in Santa Monica, Calif., said losing composure in front of investors can be a troubling indicator of how a leader might perform in high-stress situations.
"Starting a company is hard, so I never look down on an entrepreneur," he continued. "But any founder looking for money needs to know their business."
Tips to Getting it Right
Stolle offered three tips for preparing a winning he pitch:
1. Research the market, including its size.
2. Be clear on where the money will be spent. In other words, when the funds run out, what will the company have accomplished, and will it be enough to raise more funds. Investors look out over many years and several phases of fundraising.
3. Do more work on the financial model. Investors want to see projections for at least three years, with five years being even better. “It is not going to be right, and we completely understand,” Stolle said of the financial projections. “We are interested in what that tells us about how you want to build the business, how you think it will play out over time, and what assumptions you are making.”