As most entrepreneurs know, you can't get very far without capital. In the world of startups, capital often comes by way of venture capital firms and/or Angel investors that buy into the idea you're selling. The startup economy is thriving, and your chances of getting a piece of the pie are good if you have a strong product and business plan.
Beyond the presentation and the research, determining what an investor would want from you as a potential investment is extremely importnatn.
There are some key things to know about venture capital (and the firms you'll be pitching) before you pitch so you can nail the presentation.
1. Industry Niche and Start-Up Development
Find out if their industry niche relates to your idea or is in a similar enough space that the VC will understand the relevance of what you are doing. Additionally, being from a similar industry means the VC can provide insights to help accelerate what your business. It is also good to know in advance what stage of development the VC is interested in so that you can highlight that as part of your pitch.
Related Article: 10 Things You Should Never Do While Pitching an Investor
2. Skill Set
Forming a relationship with a venture capitalist is very much like interviewing for a job. It’s a two-way street in terms of what you have to offer them in exchange for their funding. However, it is more than just the money they give you because you may have a skill gap. The venture capitalist might have legal, marketing or technical skills that could further your start-up.
By understanding where their expertise lies in advance of the pitch, you can acknowledge those in your presentation.
3. Business Style
Every VC has their own style in terms of how they approach what they do and how they work with the companies they invest in. They may be very active within social media and blog about what they are passionate about, or they may be less about the social stuff and more about the numbers.
You will also want to know what they are looking for in a startup and the person that goes with the idea. In order to pitch them properly, you will also need to have an idea of the style of pitch they like to hear.
4. Preferred Investment Amount and Rate of Return
Most venture capitalists are very specific about the size of investments they make and the rate of return they would like to see on that investment. You do not want to put all the effort into a pitch only to find out that they want to make a very large investment that you could not provide a significant return or that they only have a minimum amount available that does not align with your capital needs.
While a venture capitalist is clearly looking for that big idea and viable business model, there are specific values they uphold that are important to know in advance to both acknowledge and illustrate how they align with your own values.
These values can relate to ethical approaches, a need to participate in businesses that are making the world a better place or a way of operating. Venture capitalists are looking for a business that is fair, honest and promotes socially responsible action from the type of product and service, how it is manufactured or shared and how those involved in the business are treated.
Related Article: What You Need to Know Before Working with an Investor
6. Level of Involvement
In crafting a pitch, you want to base it on how they would be involved in your startup and acknowledge their preferred management style of working with their investments. If you realize the VC is too rigid or intrusive in how they get involved, you can opt out of pitching to that venture capitalist.
7. Previous Successes
There’s nothing wrong with checking references on a venture capitalist, including determining how many successful deals and how well the firm or venture capitalist has done in terms of helping a start-up grow to fruition. Get these references from the venture capitalist in advance and research how successful those companies have been since partnering with them.
8. Exit Strategy
A venture capitalist is typically looking for a short-term investment they can cash out to get their return. Not only do you need to know the type of exit strategy they want, including company merger or acquisition or an initial public offering, but you also will need to determine their expectations as to the timing of completing this strategy and obtaining their return on the investment. Knowing this in advance means you come to the pitch with an explanation as to how the cash out strategy will work.
Although you may have an overall pitch, you can use the aforementioned research to customize your presentation in a way that shows you did your homework and you value their preferences. This can go a long way to forming a relationship, just as much as having your business plan and strategy and proving your idea is a viable, sustainable business. You can find about the venture capitalist you are pitching to by visiting their website, social media accounts, blogs and reading press about them.