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.

Fundraising for an early-stage company requires a LOT of meetings. Y Combinator reports that, “On average, the [YC] companies that raised Series As had 30 coffee meetings with individual investors. 50% of these meetings led to pitches to individual partners. About 30% of partner pitches led to full partnership pitches. On average, 1 of every 5 partnership meetings produced a term sheet.  The fact that founders needed to meet with roughly 30 investors in order to produce a term sheet surprised us.”  Of course, YC companies typically have very strong decks and get meetings easily with top VC firms.  If YC companies are reporting a funnel this arduous, it implies that non-YC companies should expect to burn up even more time taking meetings.

I’ve listed below the points I recommend you cover when pitching your business to early-stage investors, including but definitely not limited to our firm. This is also relevant if you’re considering crowdfunding, e.g., through Republic* or Indiegogo*.

Raising capital is about quality of outreach, not quantity.  Before approaching any investor, review their website to understand their areas of interest, and highlight in your cover note what attracted you to a given investor.  Separately, you have higher odds of getting a meeting with most VCs (including ours) if you are referred in.

First, I suggest you send a 7-15 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:

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  • Overview.  The first page. One or two sentences about what you do, for who, so they can do what. Location and contact information.  I suggest use the Founder Institute Mad Libs elevator pitch.
  • 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. Include resume highlights.
  • 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? See How to Size a Market.
  • Solution.  Your value proposition: how you solve this problem faster, cheaper, smarter.
  • Metrics. It’s ideal to include comparison of your metrics vs. industry norms, e.g., with SAASGrid or See How to run your company based on metrics: what, why, how, who, and when.
  • Business Model.  How do you make money? Who pays, how much, from where? You may find it helpful to use the Business Model Canvas summary form.
  • 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 one and two years out? How long will this round’s cash last you?  VCs 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? What type of capital are you raising?
  • Timeline + 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?
  • Quick sanity check against information available online.  See 7 Minute Diligence.

Your website should also have the basic corporate information: an “About” page, “Team” page, and links to a presence on major social media platforms. I also strongly recommend fill a “Jobs” page with the roles that you’re recruiting for, even if you can’t afford any of those people today. This will help concretize for investors how you’re going to spend their money.

For an alternative checklist, see Guy Kawasaki’s list and “6 things to pre-empt 90% of Due Diligence“. I also suggest use the DocSend Startup Pitch Deck Analyzer and review Sequoia’s Elements of Enduring Companies. Lastly, for your data room, see VC Checklist Guide: 74 Items Investors Will Expect in a Data Room.

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.

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.  See Face-to-face meetings are important, but written collateral is mandatory for closing the deal.

As models, I suggest:

Suggested service providers for your deck:

Once you get deeper in conversation with an investor, they’ll typically give you a much more detailed due diligence checklist.  Some examples:

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

My favorite other resources on fundraising:

Photo credit: View image |

Cross-posted in Forbes.

Thanks to Sumeet Shah for the list of service providers.

*I’m an investor.

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