Pitch your startup to venture capitalists can be challenging, as you are competing against many other talented entrepreneurs with innovative ideas. The stress of the situation can make it easy to falter during your pitch. Even startups with strong growth prospects may make common errors such as not having a solid understanding of their financials or not researching the investors beforehand.
Pitch your startup to venture capitalists (VCs) is a critical step in securing funding for your business. Here are some tips for effectively pitching your startup:
1. Have the right type of business
Venture capitalists are looking for startups that have the potential for rapid growth and scaling. If your business doesn’t fit this profile, it may be necessary to reconsider your business model or funding strategy.
According to Scarborough, the primary reason investors reject a business is that it is not growing fast enough for venture capital. A company may have solid growth, but venture capitalists often seek out businesses that exhibit hockey-stick growth or are utilizing disruptive technologies. Expectations for growth rates vary depending on the industry, but it’s not uncommon for venture capitalists in some fields to seek out startups that achieve a 10% monthly increase in sales. A common question venture capitalists ask is if the startup is 10 times better than its competition.
2. Find the right investors
It is important to identify the appropriate investors for your business and to tailor your pitch accordingly. Different venture capitalists have different areas of focus, deal sizes, and startup stages that they invest in.
Personal connections can also give you an advantage, such as having a shared alma mater. Building a personal relationship with potential investors is crucial, as venture capital investment is heavily based on relationships. You will likely be working closely with your investors, so it’s important to find people you can connect with on a personal level.
According to Scarborough, you can gain insights about potential investors and the venture capital landscape by networking with other startup founders and participating in startup events. It’s also worth exploring investors beyond Canada.
3. Focus on the market
One common mistake when pitching to venture capitalists is to place too much emphasis on the features of a product and not enough on the benefits to customers. The benefits of the product are crucial, as they demonstrate the potential size of your market, which is the primary concern of investors.
According to Scarborough, while the product may change in the early stages, the benefits to customers typically remain constant. He advises to start the pitch by providing a brief overview of the product and then moving quickly to the benefits it provides, the cost savings it offers, and the pain points it addresses. He also advises not to fall in love with the product and lose sight of the bigger market picture that investors care about.
4. Know your numbers
As a founder, it’s your responsibility to convince investors that your business is on track for significant growth, but do you have the data to support that claim? Unfortunately, many founders do not have a solid understanding of their financials. Having solid numbers is essential to a successful pitch.
According to Scarborough, many tech founders have limited business knowledge and are not comfortable with numbers. However, investors need numbers to understand a company’s potential market and scalability. They expect founders to be well-versed in the financials and key metrics of their company and cannot rely on a bookkeeper alone.
It’s important to be very familiar with your financial projections and statements for the next three, six, and twelve months. Your projections should be realistic while also reflecting your high-growth potential.
5. Be honest about the strengths and weaknesses of your team
Investors will be interested in learning about your team’s roles and responsibilities in driving growth. It is important to be transparent about any skill gaps and how they will be addressed.
6. Find good advisors
It is crucial to seek the guidance of legal and accounting experts who are familiar with startups in your industry, as they can provide valuable advice and assistance before seeking out investors. By engaging these advisors early on, they can help you navigate the process and provide insight on important topics such as valuation and agreements.
7. Learn from “no”
Do not be discouraged if an investor declines to invest in your business. Their feedback can be valuable for improving future pitches or assessing your business model. Additionally, they may be willing to connect you with potential customers or other investors. Remember, rejection does not mean your idea is not good, the investor may have other reasons for not investing. It’s always a good idea to ask for feedback and to seek advice from investors as they have strong networks and can be great sources of guidance.