How to Pitch to a VC Firm
Want to get money for your dream business? You better learn how to pitch to a VC firm without bombing it.
If you're an entrepreneur that's low on funds, then you probably have been hoping to find investors who could potentially help you fund the improvements and updates that your company would need to succeed. One of the most promising ways to get serious funding without resorting to overpriced crowdsourcing loans is by approaching venture capitalist firms—also known as VC firms.
Venture Capitalist firms are companies that are filled with investors who are looking to invest in private companies that could potentially turn entire industries upside down. Having funding through a VC firm is a way to add prestige and potentially even get insider advice from the best people in the industry.
Truth be told, learning how to pitch a VC firm is a good skill to have, even if you aren't that interested in getting funding. You never know how finding a good pitch could improve your chances of sealing the next round of funds or getting that top quality advice you need.
Here's what advice the professionals have.
It's important to realize that there's no single way to pitch a venture capitalist firm.
One of the reasons it's so hard to learn how to pitch a VC firm is because there's really no single route to do it. Some are able to approach firms informally, tell them about the idea, and get the ball rolling that way. Others have to have a superb package and a fully formal approach.
Much like with dating and job interviews, what works for some does not necessarily work for others. Each venture capitalist will have their own requirements from applicants who want to gain funding.
No matter what approach you take, you will need to do your homework, compile paperwork, and show you know what you're talking about.
Among venture capitalists, nothing will make your company look stupid like having no plan, no metrics, and no backup research. This shows that you don't know how to pitch a VC firm—and worse, that you are wasting their time.
Pitching VCs is all about showing something solid. At the very least, compile a report that explains the following metrics and facts:
- Proof of Concept. Do you know that people want this? Is this a tried and true concept—or one that could easily become one? VCs are about sustainability, and they can't have that without knowing there's a demand for your product.
- Market Share. How many other companies out there have products similar to yours? How often do people buy products similar to yours? Is there room for growth in your market, and if so, how much will that market be worth? Experts say you should check out the Total Market Value, the Total Market Shares, and the Total Available Market numbers before you approach anyone.
- Scalability. How would you make your business grow? How would your business change as it expands?
- Profitability. What would it take for your company to become profitable? The higher the profitability, the more likely it is that a VC firm will be interested.
- Founder Vesting. How much equity and ownership do you want to keep in the company as a founder?
Surprisingly, a fully written, 90-page business plan isn't actually necessary for venture capitalists in many cases. In most cases, they just want a smaller writeup that shows you've put some thought into it.
Figure out how much you need—and account for it all.
The hardest part of learning how to pitch to a VC firm is figuring out how much money you need in order for your company to take flight. This would mean sitting down, giving yourself a budget (with some potential padding) for the entire year.
A lot of entrepreneurs feel weird asking for money and may lowball their needs as a result. This can cause a bottleneck later on, and that's not good for business. Ask for the whole fee.
You should also be avid about showing investors that you like your product.
Just like when it comes to day-to-day sales, the best salesmen are the people who are true evangelists about their products. All the guides that talk about how to pitch to a VC firm will not help you if you really don't believe in what you're selling.
If you aren't excited about your product, it will come through in interviews. Trust that your product is the best thing since sliced pie, and you will be very likely to get funding.
Timing is often key.
When trying to figure out how to pitch to a VC firm, make a point of thinking about timing. The thing that most venture capitalists and angel investors look for when it comes to the next project they want to fund is timing.
Specifically, they're looking for the right product and the perfect time. If you have a project that's brought in when demand is starting to reach a fever pitch, and you know how to implement it well, then investors will often immediately snap it up.
If you can't explain why now is the best time to start this project, then you may need to rethink your approach.
Live interviews should be treated very similar to a job interview—because in a way, it is.
A large part of knowing how to pitch to a VC firm is almost identical to having a job interview. Considering that you're literally interviewing people who you want to back you, it's understandable.
Many venture capitalist companies will not even consider an applicant who doesn't have the intelligence to wear interview-appropriate attire or show up prepared. It makes sense, since most VC firms won't want anything to do with a person who's inept.
A good rule of thumb is to choose the firm you want to pitch carefully, and then tailor the pitch to them. An experienced firm in your field will have the best chances of understanding what you want to create.
This shows that you know how to prepare for a job interview and that you know how to be taken seriously.
Make a point to demonstrate the long-term value and the super long-term goal when you talk to them.
VC firms don't just plop money down on projects and hope for the best in the short term. They want to know that your product will stand out among others in a way that will make people flock to it—and they also want to know that your first product will be the beginning to a grander, more impressive extension.
Providing value and a new way of looking at an entire line of products is the easiest way to show that you have a lot to offer. Explaining that clearly in a concise manner is the way to prove that you know how to pitch to a VC firm adequately.
Adding a little experience to your presentation can also help.
Investors will always want to see people who have experience in what they do. This means that you should try to make sure that you have a team who has a little bit of "skin in the game," and has experience doing similar work in other startups.
Though this isn't necessarily mandatory when pitching, it definitely does help.
Above all, you will need to practice with friends before you pitch.
The most obvious aspect of learning how to pitch to a VC firm is practicing it with others. If you go there completely unpracticed, there's a decent chance you'll freeze up or say something foolish.
Venture capitalists are pretty good at reading people, and they make a point of looking for people with foresight. If you do not display this, they will not take you seriously.
Lastly, don't get discouraged or freak out if you fail to get the funding you want.
You might know how to pitch to a VC firm fairly well, but the truth is that even the best investors will skip out on some of the top performing businesses out there.
VC firms don't always know what's going to win in the market. For example, a lot of the companies that were passed over on Shark Tank ended up becoming incredibly successful. Aspiring entrepreneurs should always be willing to keep trying, even when others tell them no.