Jeffrey Bussgang is a General Partner at Flybridge Capital Partners. He recently published a book called Mastering the VC Game: A Venture Capital Insider Reveals How to Get from Start-Up to IPO on Your Terms. Here are his essential tips for entrepreneurs who are about to pitch venture capitalists:
- Know the sweet spot. VCs have types of companies and industries they tend to invest in, as do partners. If you do not match their investment criteria or fit into their area of expertise, you need to find another VC. No matter how good the idea. Do your homework, just as you would do before a sales call. Find out what they like to invest in and why.
- Reach out and get connected. Your company’s ability to communicate with the outside world is directly related to a VCs willingness to fund you. Get the word out about your personal brand and the company’s efforts and manage the information about you from the start. This means more networking, attending conferences, engaging industry leaders, blogging, tweeting and generally be active in the social media world. Your ability to network and publicize your business is directly related to how well you will be able to sell your product. And remember, VCs view cold-calling as a sign of weakness. Emailing a partner directly with no introduction from a connected contact just screams “desperate.” Navigate to a strong, warm introduction every time.
- Think like a risk manager. Every salesperson will tell you: sales 101 is getting inside the head of your target customer. For a VC, a funding decision revolves around minimizing risk and maximizing profit. Don’t make them uncover the risks. Feature them as part of your pitch and lay out your plan for managing the risks. Provide realistic assumptions—nothing kills a deal faster than when a VC rolls their eyes at the hockey stick charts that promise great profit margin than a monopoly like Microsoft! Project the image of a confident executor, not a dreamer.
- Don’t give up—even when you get the “pass.” VCs with a healthy deal flow review 300-500 deals per year per partner. Most active VCs typically have the capacity to invest in no more than one or two companies a year. This means that there is a 0.20 percent to 0.67 percent chance of any given company getting funded. Those are odds you wouldn’t want to take to Vegas! One great entrepreneur, Gail Goodman, was rejected by one hundred VCs before she got her company funded. It’s now a public company—Constant Contact—worth nearly a billion dollars! Be tenacious—don’t give up, no matter how frustrating the process is.
- Don’t settle for great science—because VCs won’t. Having better technology is a start, not an end, to a VC funding decision. Even the best scientists need to develop engaging, market-focused narratives. Don’t assume the VCs will do the heavy lifting for you—instead, do it for them. Walk through the targeted applications. Explain the team-building plan.
Obviously the more complete the team, the better, but the snapshot picture of who you are today is less important than the progress you demonstrate over time. One of the entrepreneurs in the book Eric Paleyof Brontes Technology, talks about the importance of showing VCs a “motion picture” as a way to demonstrate to VCs the speed of progress the start-up is making over time. Something they can extrapolate in your favor.
- Over-prepare—especially for the tough questions. I have seen thousands of good and bad pitch presentations. The ones that stand out are because of the thoughtful, insightful responses to the questions posed. Entrepreneurs have to be ready for the tough questions—anticipating them even before stepping into the room. Above all, don’t be defensive. When you’re being questioned by someone who doesn’t know your business as well as you do, it’s easy to dismiss them as ignorant or wrong-headed. Remember, the burden is always on you to make your business clearer and more compelling.
***In addition to buying Jeffrey’s book, you can read his blog, Seeing Both Sides, and follow him on Twitter at @bussgang to get the total scoop on raising venture capital.