Thursday Bram has written a piece targeted at small business owners entitled “An Introduction to Venture Capital.” I was a source for this article. She’s done a nice job asking some of the tough questions about raising VC, such as “When does Venture Capital Make Sense” and “How Do You Actually Find Venture Capital.”
Thursday is a journalist and writer and her work appears in a lot of small business focused blogs and journals. Check out her piece on venture capital!
Inc has a solid piece on terms to be careful of when raising venture capital. I spent some time on the phone with Darren Dahl, the journalist who wrote the piece, and he did a very good job getting his arms around some of the most important issues I’ve seen entrepreneurs trip over. Raising a venture round is very difficult and confusing terms are one area where VCs have a distinct edge over entrepreneurs. This Inc article is a good resource for founders trying to understand the terms presented to you by a VC.
A good venture capitalist will walk you through the terms after he/she has presented you with a term sheet. You should ask for this if it is not offered to you after you get a term sheet. You should prep with your lawyer prior to this and ask a lot of questions of the VC as they go through the terms with you.
And, while they are really expensive, get a good lawyer for your fund raise!
Very cool basic dilution/ownership model for venture capital rounds. Founders – keep in mind there are likely some terms that will trick up the VC’s preferred stock ownership, but this is a cool tool. I haven’t spent enough time with it to “break” it but I think it will suit the vast majority of typical venture investments at an illustrative level.
While I was a VC I put together a list of “pitch tips” for entrepreneurs pitching their businesses to venture capital funds. Of course, I probably should have glanced at them when I was helping Prasad pitch Pixily! To help me be a bit more organized the next time around I’ve compiled all of these tips here, with links to my original posts.
VC Pitch Tip #1 – Turn off your screen saver
VC Pitch Tip #2 – You won’t be eating much lunch during that “lunch” meeting
VC Pitch Tip #3 – Get to the venture capitalist’s office early
VC Pitch Tip #4 – You don’t need to wear a tie to meet with an early stage venture capitalist
VC Pitch Tip #5 – The Venture Capitalist will want to hear a lot about your team
VC Pitch Tip #6 – Bring a USB drive with your pitch saved on it
VC Pitch Tip #7 – Format your financial model for printing
VC Pitch Tip #8 – If you are going to use WebEx to during your venture presentation, send the slide deck over email ahead of time and have a direct phone line available
VC Pitch Tip #9 – Don’t show the VC the IRR they will get
VC Pitch Tip #10 – Technology venture capitalists love demos
VC Pitch Tip #11 – Keep the actual slide deck short but sweet
VC Pitch Tip 12 – Be able to complete your entire fund raising presentation in 10 minutes
Even me, who has seen a bazillion pitches from the other side of the table, totally forgot to get to the VCs office early enough for one pitch to comfortably set up the projector. And the first time, I almost sent off our financial model without formatting it to print – a huge NO NO.
Ah, well. Maybe for our next round I’ll be smarter. 
So, I’ve seen Prasad pitch quite a bit recently during his fund raising process. And I have to admit, the view from this side of the table is pretty different from the venture capitalist’s side. Thus is born the 12th tip for startup entrepreneurs pitching their business to venture capitalists – and this one is actually useful!
I know that I mentioned in my last VC Pitch Tip that your fund raising presentation should be short. This is a slightly different topic – regardless of how long your formal pitch is, you should be able to deliver the entire pitch in 10 minutes if needed. Yes, most VCs will give you an hour or so to make your presentation, but I guarantee that there will be times when you have to be able to deliver a convincing pitch FAST. There are many reasons why this could happen:
There will always be a point in your fund raise when you need to very concisely bring someone up to speed on your startup. And there are so many outside people involved with the diligence that you will need to repitch and repitch, even when the actual pitch isn’t the core reason for the meeting. Read the rest of this entry »
Onto my 11th tip for the entrepreneur pitching his/her startup to venture capitalists!
A 50 page PowerPoint presentation is too much. There are plenty of resources online that can point you to good examples of fund raising presentation (I like the CommonAngels one here); but it’s important to note that these presentations are all 10 to 20 slides long. If you have additional information that you MAY need to present, put it into an appendix that you can skip if that particular subject doesn’t come up.
Too long of a presentation causes several potential problems:
Keep your pitch deck short and impactful. If a slide isn’t getting across a major point in the business plan or strategy it probably doesn’t belong there.
Wow! I’ve made it to 10 tips in my series on simple tips that may sort-of help the entrepreneur pitching their business idea to venture capitalists. Here is tip number ten:
Like birds and small children drawn to shiny objects, IT venture capitalists love demos of new products and services. Provided, of course, that the demo works! Clearly this won’t work for some startups… in particular, the animal-waste-to-biofuel entrepreneurs don’t have to bring their digestors to the VC’s office. But, if you can even bring in an example of your solid state storage device for the VCs to pass back and forth, it will make your pitch more memorable.
There is definitely something about seeing a new web app work that gets me excited. I’m pretty sure most VCs have a similar feeling the first time they see something new. You should take advantage of this when seeking capital.
Your demo isn’t going to get you capital if your startup isn’t viable or if you can’t articulate the business plan. But showing the potential investors that your product works and letting them imagine how the user solve their problem with your solution. Again, sorry for the lame tip. I’m just trying to give the entrepreneur any possible edge they can get when pitching their business to VCs.
Keeping with the theme of periodically giving you info you probably don’t need about pitching your startup to venture capitalists:
Providing a venture capitalist with an exit analysis that shows how great of a return they will get from investing in your startup is one of the biggest rookie moves you can make. VCs don’t need you to show them how much money they will make by investing in your business. Doing those exit calculations is kind of the VC’s job. That’s what we do. Sentences and graphs saying:
are very off-putting. Venture capitalists cringe when they see these sorts of things in presentations. Don’t waste a slide on it and don’t waste the VCs time.
It’s pretty obvious that if your company goes from nothing to $50 million in revenue in three years there is a return to be made. Attempting to sell the venture capitalist on exactly how much they will make is unnecessary and distracting. Stay focused on explaining how the company GROWS to that $50 million size and leave the exit modeling to the VC.
Another tip for the entrepreneur pitching their business to venture capitalists. This pitch tip is for startups doing the infamous phone pitch…
WebEx and the like are great, but there are some dangers. Recently a partner and I spent 15 minutes waiting for a company to set up their WebEx. Unfortunately we only had an hour to for this conversation, so the entrepreneur ended up being a short-changed.
Don’t let a technical issue waste your valuable time with a VC! You’ve only got a limited amount of time to impress. By getting a softcopy of your presentation in the hands of the VC ahead of time you not only give the investor a chance to prepare for the conversation but you also give yourself the option of getting the conversation started without wasting any time.
(Note that I’m not ripping on WebEx – likely this technical issue was not with their service but rather some sort of a problem on the entrepreneur’s side… wait, now I look like I’m making fun of an entrepreneur, that was not my intention!)
When is WebEx most useful? When you are going to be doing a demo. VCs love demos! In fact, I may make that my next pitch tip…
Another silly little tip for the entrepreneur pitching venture capitalists:
If you send a copy of your financial model in Excel to a VC make sure that at least the summary page(s) are formatted to print. I realize this probably sounds a bit stupid – after all, you are trying to get funding to grow a business, not win any awards for Microsoft Excel skills. But you need to keep in mind how the VC is likely to see/use the model. Often the model is simply opened up from the email and printed… by an assistant… and handed to the venture capitalist as they are walking into the meeting with you. At this point the VC will look at the model and think “man, this entrepreneur has no idea how to project their startup’s cash needs.”
Does this sound far fetched? It happened to me last week. Read the rest of this entry »
vikram | 
05 26th, 2010| 