CHAPTER EIGHT: Part E – Expecting to get funding from VCs without having pitched them is like expecting an invitation for a job interview without having sent an application. Only when you pitch your business to VCs will they assess your business and fund it if they deem it worthy.
While no amount of preparation will guarantee that you will be able to get a VC’s check, being unprepared is the shortest route to failure. You have only one chance to make the right impression about your business, and the last thing you want is blow that chance with poor preparation.
Before sending your pitch to a VC, you need to research the VCs that you will approach. Not every VC will fund your business, so it is very important that you narrow down your list to VCs that are always interested in your industry. In fact, you are much better off contacting two investors that are fit for your business than sending pitches to 20 randomly-chosen VCs, hoping that at least one of your pitches would fall on “fertile ground.”
How to Pitch Venture Capitalists Successfully
1. Send an email introduction
Having listed the VCs you intend to approach, the next step is to start the actual pitching process. How? By sending a well-crafted email that introduces your business and presents your elevator pitch.
Your elevator pitch is a brief synopsis of your business rendered in just a few sentences. A good elevator pitch conveys the problem you solve, the solution you provide, and the people you do it for (or, in brief, the problem, solution, and market size).
To come up with a powerful elevator pitch, you should think about how Netflix.com solved people’s problem of having to go to the video store to rent a movie. People hated traveling to and from the video store just to rent movies, and they hate paying late fees, too. But Netflix solved this problem by providing a solution that spared people from the stress of visiting video stores and the frustration of paying late fees. So, a brilliant elevator pitch would explain the problem like this:
“Frequently visiting the video store is strenuous. People hate traveling to and from video stores just to rent movies, and they hate paying late fees, too.”
As you can see, everyone can relate to this problem, which makes it attention grabbing. So, think of how to modify your “problem” so that everyone can easily understand it. The next item in your elevator pitch is the solution. A well-written solution to the problem solved by Netflix would go like this:
“Netflix enables customers to order for their favorite movies and delivers the movies right to their doorstep—and they never have to pay any late fees.”
Did you notice how the solution directly addresses the pain points of the problem? This is how you should write yours, too.
Highlighting the problem and your solution is just fine, but if the market size of the problem isn’t very large, you are not likely to get a VC interested. VCs want to invest in businesses that solve a painful problem in a giant market.
So, if research revealed that the Netflix idea will be of help to over 90 million Americans who visit video stores, then this statistic can be tied to the problem and solution to produce a short elevator pitch that comprises all the three elements. And it would go like this:
“Netflix helps over 90 million Americans avoid frequenting the video store by delivering movies directly to their doorstep without paying any late fees.”
Can you see how the brief elevator pitch conveyed everything that a VC wants to know? So, craft yours using the same model.
In addition to your elevator pitch, your introduction email should contain your contact information as well as a link to a website that contains all the information the VC may want to know about your business. Even if you don’t have a functional website yet, you should try to set up a single blog page that outlines your background and what you want to do with the company, or displays pictures of your products.
So, below is an outline of the key ingredients VCs will be looking out for in your email:
- Subject line (determines whether your mail gets read or deleted)
- Salutation/Personal connection (tells whether your business is legit)
- Elevator pitch
- Traction (tells if your company has momentum)
- Team (shows the competence of your team members)
- Social proof (can credible individuals vouch for your business?)
- The ask (what you want from the VC firm)
4 Additional Tips for Crafting Compelling Email Introductions
- Use a subject line that includes the name of your business and either what you do or your growth potential. For example, “Netflix.com: Online DVD Rentals” and “Netflix.com growing at 300% per month” will make great subject lines (be sure of your figures when using something like the second example, though). Avoid generic subject lines like “Investment Opportunity” or spam-like ones like “Earn a 5,000% Return!”
- Start with a meaningful personal connection. Address the recipient by name (you may need to research this). Avoid generic words like “Dear Mr. Investor” or “To Whom It May Concern.”
- Adding social proof can boost your chances of getting VC funding. You can include experienced advisors on your board, demonstrate that many real customers are using your product/service, or cite media coverage of your business.
- Include the funding stage you are at (seed, early-stage, etc).
A well-written, eloquent, brief, but detailed introduction email can help you get in the door to meet with a VC and give a full presentation. So, try as much as possible to tailor your email to recipient. You are not likely to have a second chance.
2. Send an executive summary or pitch deck
If your introduction email captivates the VC, they will request for a more detailed synopsis of your business. Now, your 40-page business plan is not what they are looking for (in fact, most VCs don’t read business plans—they only keep them). All they need is a 2-3 page executive summary or a pitch deck.
Your executive summary should highlight the following:
- A brief introduction of your business
- Your management ream
- Your Business model (primary source of revenue)
- The problem you are solving
- Your competitors
- Your customers
- Your present status of development (idea stage, development stage, have raised some revenue, etc).
- The amount you need
- Your target valuation
- Your current investors (if any)
- Your location
Your pitch deck is your business plan translated into slides (usually a PowerPoint document) as explained in the previous chapter. Keep in mind that you may be requested to submit your business plan and financial documents. So, always have copies of these at hand, too.
3. The due diligence
When the VC firm shows strong interest in your business, they will dig further into all the details of your business, from your financials to the details of how your business model works. This phase is called “due diligence.”
During the due diligence phase, all the research and support that you have put together will be subjected to thorough scrutiny. You will most likely be asked to prove how you arrived at the market size you are going after. You may be asked to have your early customers talk to the VC firm.
In short, the firm will do its best to ensure that everything you said about your business was correct. This may also be the phase when you will get asked the 10 questions given earlier in this chapter.