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!
VC Pitch Tip 12 – Have the ability to complete your entire fund raising presentation in 10 minutes
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:
- The VC is running late
- You luck into a quick meeting at a conference
- This is a follow up meeting with several VCs to quickly get them up to speed after one partner has already gotten excited about you
- You have some outside expert coming in for a particular diligence discussion and you want them to quickly know what the businesses is about
- Or, best of all, you are having such a good conversation with a potential funding source that you get really behind in your presentation.
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.
Onto my 11th tip for the entrepreneur pitching his/her startup to venture capitalists!
VC Pitch Tip #11 – Keep the actual slide deck short but sweet
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:
- You risk running out of time, and thus missing important aspects of your business. VCs are pretty judgemental, and if you don’t get to a particular part of the presentation due to time constraints the natural instinct is for a VC to assume that you don’t have a strategy for that part of your business! This is crazy but true. I saw this happen several times when I was a VC – a CEO I had invited in to pitch to partner didn’t make it all the way through their presentation. Whatever section that was missed by the CEO is what the partner thought was the major flaw in the startup’s business model. You have to hit all the important parts of your business. Do not run out of time because you have too many slides!
- You will look disorganized. It’s hard to navigate through a huge presentation if you are jumping around answering different questions. A simple presentation makes it easy to find the slide that you are looking for.
- VC’s value brevity. They don’t want to sit in long board meetings with a management team that can’t get their point across quickly. Your pitch is the first chance to help the VC imagine what life would be like if they sat on your board of directors. Make them think you’ll manage the board efficiently.
- You’ll look like a novice. Experienced fund raisers know to keep their pitch short to leave plenty of time for questions. Even if you’re not experienced, fake it ’till you make it!
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.