Technological advancement, the Internet boom and massive capital flow dominated the global economic scene throughout the 1990s. However, the growth of the internet and its fast acceptability in business & economy also propelled technology stocks to such a high level that the inevitable burst occurred in the beginning of the year 2000. There were few other reasons also behind the bursting of the bubble: Excessively over-valuation of companies without backing of fundamentals, availability of easy money from venture capital firms, replacement of established methods of business by irrational exuberance, illogical risk taking appetite and so on.
Having suffered such huge loss towards the end of the internet era, now Venture Capital (VC) firms look for fewer but safer investment proposals in startups that have realistic growth potential. They now look for investment opportunities supported by a well researched business plan and an experienced management team. Inspite of this cautious approach of VCs, there is no scarcity of funds for investment in startups which have viable and cogent business proposals. Here are ten tips to pitch your startup successfully to venture capital investors.
1. Select Your Audience:
There is no advantage of presenting your plans before a VC who has never invested in the sector or region you are talking about. Therefore identify and shortlist only those VCs whose investment preferences match your requirements. You can use the factors given below to identify VCs who would be most suitable for your need:
The stage of your startup
The industry sector in which your startup operates.
The amount of finance your startup needs.
The geographical location of your business operations.
2. Business Plan:
The main purpose of your business plan should be to sell your business proposal. It should show the potential investors that if they invest in your business, you will provide them with a unique opportunity to get an excellent return.
However, no body goes through the lengthy business plans. Therefore, your business plan must have a very effective executive summary. In the executive summary, make sure you highlight the market, the product or service, management team, stage of the startup, location, market, market size, business, business model, capital structure, capital required, exit options etc.
3. Your Product/Service:
Avoid using jargon and adjectives to define your product or service. Explain your product or service in simple language and emphasize its competitive edge or USP. While defining competitive edge of your product or service, ask yourself the following questions:
Is it a new product?
What purpose does it solve?
Is there any problem and inconvenience in the absence of the product?
Is it available at a lower price?
Is it of better quality?
Is it smaller/bigger in size?
Is it easier to maintain your product than the existing product?
Here, your basic objective should be to show that there is a need of and therefore a ready market for your product or service.
4. Your Team:
You may have a grand business idea but working alone you may not be able to achieve the objective. It is the startup team which would ultimately convert your ideas into a profitable product or service. Therefore VCs look for a team consisting of members with relevant professional experience, deep technical expertise, and a track record of proven successes in the functional area in which the startup intends to work. Therefore, you must at least identify your team members before pitching to VCs, if financial constraints do not permit their hiring.
5. Customers (both current & future):
You can’t provide any better evidence than customers to prove your claims about the marketability of your product/service. Explain about your existing customers as well as your potential customers. Very specifically explain the number of your existing customers, total revenue you generate, revenue per customer, cost per customer etc. Similarly, define your potential customer, explain in brief your plans and target for customer acquisition in next three or six months or as the case may be and the total revenue you would generate if you achieve your target. Define the various categories of your potential customers, if you do not have any existing customer.
6. Revenue Model:
To show that you have a properly thought out strategy for the financial implications of your company’s growth plans, demonstrate a detailed set of financial projections.
Judiciously assess sales, costs (both fixed and variable), cash flow, working capital etc and support it with graphs and charts. Analyze your present and future margins in detail, bearing in mind the potential impact of competition. Your financial projection should also include the sale prices or fee charging structures of your product or service.
7. Quantify Your Market:
Remember, you are there to sell a product, your business idea, which can’t be sold unless your client is satisfied with the product, which he/she intends to buy. Therefore, you have to convince VCs that there is a real need and hence commercial opportunity for your product or service.
This section is the most crucial for VCs therefore be prepared to be scrutinized carefully; be very specific and quantify your market in terms of size of the market, growth rates, recent technical advances, Government regulations, trends etc. Explain the right market segment and its size for your product or service preferable in graphical form. Finally, explain the percentage of the target market your company plans to capture, with its justification.
8. Marketing Plan:
The cardinal objective of a marketing plan is for you to convince the VCs that the market for your product/service can be developed and penetrated. The marketing plan should include pricing, distribution and promotion strategy for your product or service. All aspects included in the marketing plan section must be rigorously supported by as much verifiable data as possible. While preparing your marketing plan, you may take inputs from your management team, customers, potential customers, advisors, consultants, trade analysts etc.
9. Finance Required & Exit Opportunity:
You have already calculated your current and expected income and expense. Next, explain them about previous funding, own investment, investment from family members, relatives, friends etc. If you have invested your own savings, it shows your genuine interest in and further requirement of finance for your startup.
Finally, explain how much finance is required by your startup and how it will be used. To explain the uses, you may include an implementation schedule, including capital expenditure, orders and production timetables etc.
Next, always remember, venture capital investors are not into charity, they are there to make money. So, explain to them how they can exit after making an excellent return on their investment.
10. The Presentation of Your Business Plan:
Usually, the entrepreneur’s first meeting with a VC firm takes place with a young, energetic and ultra-bright associate, who scrutinizes all documents diligently before giving you the green signal to pitch to the general partners. To prevail with either group, you must be prepared for every possible objection with data and expert endorsements, and should never lose your cool.
While making the actual presentation, be confident of your thought-provoking business plan. Focus on delivering an action oriented, clear and concise presentation. Your presentation must have the following features:
Clarity of expression
Avoid jargon.
Use plain & simple English
Keep it brief
Take the help of your friends to check it for clarity of understanding
Length
The plan should cover the subject properly but should be short enough to maintain interest.
Avoid unnecessary detail
Appearance
Use graphs and charts for illustration.
Use titles and sub-titles to differentiate between different topics.
No spelling, typing or grammar mistakes
Happy pitching!
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—About our writer:
Sumit, is a New Delhi based real estate and retail business analyst and Indian real estate policy consel. He writes for Chillibreeze, Times of India and Economic Times.
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