Looking for funding is not fun. It's frustrating and all-consuming. And finding the right investor who will agree to meet with you is only the first step. Then you have to give a pitch that will actually close the deal. Before you do either, you must understand how investors operate.
Here are three things I've learned through the process of raising venture funding for my company PetsMD:
Investors have the attention span of a nat. Keep your presentation to about 20 minutes. If they are interested and want to learn more, they will ask. If you are out the door in 20 minutes, ya ain't gettin' paid.
Investors tend to be followers, not leaders. There are those rare exceptions like, Mike Maples Jr. over at Floodgate who prides himself on running a VC house that takes more risks. But the majority of investors tend to follow the trends of the moment. If your product/company vision doesn't fall into a defined class, you may struggle to find a VC who understands your market. My advice: Don't waste your time. Focus only on the VCs who know your market or are familiar with your revenue model.
Investors have huge egos. In your meeting, they will be relaxed and they will calmly point out every reason why they should not invest in your company. Be prepared because they are VERY good at this -- it's their job.
Now let's get more specific about what your pitch should include. Below are some basic guidelines for how to prepare an investor-ready slide deck:
- Tell your story: Define quickly, the problem you are solving with your product. I have seen many young companies struggle with this part. If you cannot explain what you do (and why there's a need for it) in a few sentences and make your mother understand, you're in trouble.
- Know your market: Have real facts and figures here. Investors want to know the revenue potential and will need a snapshot of the market.
- Explain your revenue model: This sounds basic, I know, but too many folks I talk to easily take 20 minutes to tell me how their idea/company will disrupt the industry, before they ever answer, " How does your company make money?" Crickets. Remember, we are all here to make money, especially VCs.
- Know your competitive advantage: If you are ever asked, "Who are your competitors?" and you answer proudly, "Nobody!" well, my friend, you are dead in the water. You always have a competitor, maybe not one that's apples to apples, but you are not alone in this world and if you think you are, VCs will laugh you out of the room.
- Have realistic financial projections: You are not going to break even in a year. Period. So keep your financial projections very conservative. This is the point in the presentation where the VCs get to show off just how smart they really are and how good they are at numbers. In fact, they are better than you at this point. Be ready to defend your projections.
- Introduce your team: Keeping rule #1 in mind, dedicate just one slide to highlighting your team members and the strengths they bring. VCs invest in an idea, yes, but more often than not the team is the deciding factor.
- Ask for the moola: Remember this is why you're here -- don't be shy about it. I have seen too many decks without "the ask" slide. Be specific about how much you need and what you will use the funds for. VCs are in the deal to flip, so you will also need to explain your exit strategy -- acquisition, merger, etc.
- "The Slide:" As your conversation closes out, keep one slide still on the wall that is the snapshot of your entire presentation. The talking points if you will. List here the highlights that you want the folks in this meeting to be able to relay to the rest of the VC partners. Think CliffsNotes from college!
1. What about your concept did they struggle with?
2. What milestones would they like to see before reconsidering your deal?
Often, all they want to see are a few paying customers before they'll get involved. But you'll never know unless you ask, execute, and then keep them updated on your progress.
The bottom line: Build the relationship -- even if it starts with a no.
Tina Cannon is the CEO and co-founder of PetsMD, a pet health website and veterinary software company dedicated to improving pet health. She has a passion for entrepreneurship and mentors other young startups in Austin, Texas.