Six Mistakes to Avoid When Pitching your Business Idea to a Venture Capitalist

Businessman presenting report of progress on the wall

“If you want to go fast, go alone.  But if you want to go far, go together.”

It’s a line that fits perfectly well here in 2016, with the Presidential election taking up news cycles and headlines everywhere. But, that line can also apply to growing a small business. Teams often do a good job of bringing together talented people capable of building or selling a product; however, what is often missing is the capital to do that or the capital to grow to meet your projected Economies of Scale.

And that’s not always a bad thing.  After all, there are multiple places that one can go to find funding.  With the rise in popularity of shows like Shark Tank, and the subsequent knock-offs that it has inspired, the Venture Capitalist funding model is popular these days. These VC pitch meetings have begun springing up in big cities everywhere, and as it were, I was able to attend one recently in the Washington, DC area.

I saw a lot of people doing a really good job of pitching some really interesting ideas.  But I also witness a few pitches bomb like that token nerdy kid does the first time he meets the hot chick in every Hollywood movie ever.  You know, before he comes up with the grand “master plan” to do something really cool and win everyone over?

So, after walking out of that meeting and reviewing my notes, I came up with a set of 5 Never Ever Dos when you’re pitching a product for VC funding.  If you stay away from these 6 bullet points, the idea is you skip the step where you bomb with the hot girl (or the VCs), and get right to the really fun part of saving the day and being everyone’s hero.

Never Ever Do #1: Never Ever Pitch a VC on your “Hypothetical” Project

Money is a desirable thing; however, VCs aren’t going to fund every idea out there.  And in most cases it takes more than a wink and a smile to make a sale.  It has to be viable, meaning the venture has to be making money or at least growing a client base.  Having detailed drawings and requirements are great, but a much more powerful statement is to show VCs a working prototype, being used by a growing base of real customers, with numbers to backup its growth.  Ideas are great – numbers are better.

Never Ever Do #2: Never Ever Pitch VCs unless you are absolutely clear and certain on what they can bring you, and what you can bring them

When you get to the pitch, VCs understand that your company is lacking in one or more areas; otherwise, you would not be there pitching them.  Nobody would willing give up a percentage in a business that is completely viable as is.  However, VCs can bring more than just cash to the table, and often it can help your pitch if you identify one or more other areas that they can help besides with their checkbook. Bonus points are awarded if you do some background research on the VCs, and target your pitch to a specific individual.

With that in mind, you need to be very clear about 3 things in your pitch:

  1. What you are asking for (money, advise, connections, etc…)
  2. Why you need what you are asking for (backed by numbers)
  3. What they, the investor, will get in return (what percentage)

Never Ever Do #3: Never Ever Pitch Unrealistic Financial Expectations

At this meeting there was an Entrepreneur pitching a social media site for salespeople to connect to share leads. Interesting idea, and the guy presented it wonderfully.  But in 5 years they think they can take a site that nobody has heard of yet, and “realistically” sign up 25% of the salespeople in DC and to make over $30 million in revenue. That’s a tough mountain to climb as they need a marketing campaign to not only bring name recognition to the product, but to sell a community on the need for their product.  Not to mention that’s a tough task for IT to scale to meet that demand that quickly.

It’s great to be fully invested in your product.  And whenever you create a product, you will be bias to that product. If you aren’t there is cause for concern. However, you can’t let that biasness bleed over to your sales pitch.  You have to be reasonable with yourself, and potential future investors.

Another common unrealistic financial expectation is the company evaluation.  So you follow Never Ever Do #2, and you tell the investor what you are looking for, why you need it, and what they will get in return.  Let’s say you are asking for $50,000 for 5% of your business.  You just valued your business at $1,000,000. Are you sure you are worth that?  If yes, that’s fine – it just goes back to making sure you have numbers to back it up…

Having detailed drawings and requirements are great, but a much more powerful statement is to show VCs a working prototype, being used by a growing base of real customers, with numbers to backup its growth.

Never Ever Do #4: Never Ever Pitch Meaningless Numbers

So let’s go back to my friend from the previous example – over $30 million in revenue within 5 years.  First question a VC asked him, “are you working on this full time?”  The answer was no.  A better answer would have been “no, but I will be transitioning over once we get x people to sign up.”  Nobody that I saw considered pitching their Break Even projections.  To me, it’s the easiest case to make.  My profit per unit/customer is X.  We need to hit Y units/customers to be profitable.  We are asking for $Z to help fund the following areas so we can hit that goal. <mic drop>

$30 million dollars on its own doesn’t tell me anything.  Amazon is perhaps the poster child of this, as they bring in millions of dollars with their Prime subscriptions, yet barely make a profit because of various investments.  And that’s fine…unless you are trying to pitch your business to a VC who will more than likely insist that you  turn a profit.

Never Ever Do #5: Never Ever Show Meaningless Charts and Graphs

For those that don’t know or use Gartner, they do a great job of comparing different companies within a given industry.  And they compare them on two categories, plotted on an X and Y coordinate system, with the idea that the farther to the top and right a tool is, the better it is.  For an example, check out this link where Gartner compares Business Intelligence and Analytics Platforms.

During their pitches, a lot of companies flashed a similar chart with, spoiler alert, their companies far to the top and right of their competitors.  And, I understand what they were trying to do. They were trying to take an industry standard approach to showing that they are better positioned than their competitors; however, I constantly felt like it missed the mark because…OF COURSE their business is better.  It’s THEIR BUSINESS.  I would have rather seen the Entrepreneurs either:

  1. Leave this out completely as there is no way it doesn’t come across as bias, or
  2. Talk to how their competitors missed the mark or how the changing competitive landscape now favors these two variables where you have the advantage

4 years ago our competitors smartly positioned themselves as a superior desktop product within Category ABC.  However, with mobile phones becoming more powerful and technology now focusing on a “mobile first” development strategy, we believe there is an opportunity to…

Never Ever Do #6: Never Ever Present without Practicing First

I feel like this should go without saying as events like these can be world altering for a company in its infancy; however, I saw a multiple folks miss the mark so here I am writing about it.  For this event there were some simple rules – each presenter had 4 minutes to present and 1 minute to answer questions.  That was it. Yet still, there were people that at the end of the 4 minutes, were only half way through their presentation.  Worse yet, they weren’t able to get to some of the more important details of their presentation such as financial projections or members of their team.

Know the rules.  Understand the rules.  PRACTICE the rules.  And LEAD WITH WHAT’S MOST IMPORTANT, because no matter how much you practice, your presentation will never go the way you expect it to you in your head.  You’ll get one chance at wowing the judges, don’t waste it.

To wrap up, for those of you looking to pitch a VC in the near future. First of all, kudos. It isn’t easy getting to where you are and you should have a sense of pride for your accomplishments to date. And after that’s, take my list of Six Never Ever Dos to heart and learn from the mistakes of others. Just as Sir Issac Newton once said, “if I have seen further than others, it is by standing on the shoulders of giants.”

Also, I’d love to hear from any readers who have pitched a VC before – either successfully or unsuccessfully.  What did you learn?  What worked best for you?  Have any other tips and tricks for budding entrepreneurs to leverage? Sound off in the comments.

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