Follow me

Please Don’t Pitch A Venture Capitalist Without This Checklist

I’m surprised at how many funding pitches I get which lack some of the basic information which investors require before funding.  I think this stems from two causes:

1) Lack of basic knowledge of the information investors require.  But I would hope that a reasonably competent founder could easily educate herself about what information an investor wants with some basic research.

2) A desire to hide important information which you think might be perceived badly, e.g, you raised $9m but are pivoting and would appropriately be valued at a seed level.  I think this is bad logic.  If you’re talking with an investor competent enough that you’d want her to invest in you, that investor will also be competent enough to surface the negative information you’re trying to hide.  By surfacing the negatives early, you help establish a relationship of mutual trust and respect.  This is why formal investment prospectuses always have a “Risk Factors” section, and also why I told my former girlfriend (now wife) about some of my idiosyncrasies (translation: weaknesses) before she had made any life commitments to me.

I’ve listed below the points I recommend you cover when pitching your business to early-stage investors, including but definitely not limited to ff Venture Capital.

Raising capital is about quality of outreach, not quantity.  Before approaching any investor, review their website to understand their areas of interest.  You have higher odds of getting a meeting with most VCs (including ffVC) if you are referred in.

First, I suggest you send a 7-10 page presentation deck (or link to a deck) with a one-page introductory email.  The cover note should include: name, website, elevator pitch, location, revenues (if any), detailed financing history (if any), and precise terms on which you are seeking to raise capital.  If you are testing the market to see what terms you can get, just say, “We are targeting to raise $X at pre-money valuation of $Y.”  Investors value getting a sense of your expectations.  I also recommend sending this email to your existing investors, for their use in forwarding out to people they know.

Here’s our checklist:

  • Overview.  One or two sentences about what you do, for who, so they can do what. Location.  You may find it helpful to use the Business Model Canvas summary form.
  • Team.  We want to know what qualifies you to execute your idea successfully and better than the five other companies in your space: work history, network, and skills are all key.   Your history is important: did you work together in a prior company or did you meet last week at a hackathon?  At an early stage, the key driver of our investment is the people, particularly how hungry and coachable you are.
  • Demo.  We almost always require a demo, or at least a mockup.
  • Market.  What is the problem, why does it exist, and how big is the opportunity?
  • Solution.  Your value proposition: how you solve this problem faster, cheaper, smarter.
  • Business Model.  How do you make money? Who pays, how much, from where?
  • Customer/user.  Who they are and how many? How will you reach/acquire them?
  • Competition. Know every competitor and what are the current solutions to this problem, and why they aren’t addressing your market adequately.  List the major competitors, understand their processes and what your competitive advantage is.
  • Financial Overview.  What are the expected revenues, expenses, and EBITDA three years out? How long will this round’s cash last you?  We typically fund companies sufficiently so that they can run 18 months until the next funding, if needed.
  • Funding. How much are you raising and how are you going to use the money? To grow a team, to support overhead, to expand?  How much have you raised thus far and from whom?
  • Milestones. What is your vision for the future, measured in milestones for the next 3 years?  Note that in our board meetings, we will evaluate your progress against these milestones.
  • Legal status.  Where are you incorporated?  Are you planning to relocate some or all of your team?

For more detail on the information to provide for a Series A pitch, I recommend read “6 things to pre-empt 90% of Due Diligence“.

We only know one thing for sure about your presentation: most of it will be proven wrong.  However, we want to know that you are expert in your market and that you have thought about the key issues inherent to your business.  As much as possible, emphasize the traction you have already achieved and the metrics you are using to measure that traction.

We suggest you title your deck in this format: [Company Name] [yyyymmdd], e.g., “Klout 20150524”.  This allows investors to differentiate your file from all of the other files they receive, and also easily track the evolution of your pitch as it changes.  Naming your file “Pitch.ppt” does not make you look thoughtful, considerate, or organized.  I suggest also polish your presentation, e.g., with a service like eslidebrightcarbonpresentationelevation, or outsourcedppt.

Some founders have commented to me that they haven’t written down all this information in deck form, and would rather just meet and talk through the issues.  My response: any competent investor will ask you these questions.  You can give the information verbally and the investor will try her best to transcribe it.  Or you can write it down and control the narrative.  I think it’s more efficient, scaleable, and better sales technique to write this down.  Then you can focus the meeting on discussion, not data transmission.

You may find helpful to review my series of posts on communications:

Almost all of the companies in which ff Venture Capital invests meet the criteria below:

  • We primarily invest in early-stage companies with technology-driven models. We are particularly focused on low capital expenditure, high operating leverage businesses.
  • We generally lead the Series Seed and/or Series A rounds with an initial investment in the range of $500K to $750K.  We may invest significantly more in follow-on rounds for companies in which we were an earlier investor.
  • We look for companies with potential to generate over $10m of annual EBIT within 5-7 years, and with long term potential to be valued over $1 billion.

We also suggest that you consider crowdfunding your business, e.g., through our portfolio company, Indiegogo.

Photo credit: View image |

Cross-posted in Forbes.

Subscribe to my newsletter