How to Pitch to a Venture Capitalist

By: Mac McNichols

            You’ve got this brilliant, unique idea and think that you, too, could be the next Bill Gates if only you had a few dollars from investors to help you achieve your dreams.

Whoa! It may take a lot more work than you think, and more than an idea to get ready to make the pitch that will start you on your way to becoming a multi-millionaire.

The climate has changed recently and some VC’s have predicted a 50% drop in available venture capital for the future. If there is not sufficient money for existing companies to receive their next round of financing, venture capital firms may be even more conservative in funding new starts.

Introduction    I sold my business to a New York Stock Exchange company some time ago and have made investments in public and private high tech companies for over 25 years. When we sold the NYSE company to AT&T in March of 2000, I became a full-time Angel Investor and Venture Capitalist (VC). I have spent a lot of time listening, learning, and of course investing. Let me share with you some lessons learned and some guidelines for the content of your presentation.

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The Dingman Center at the University of Maryland has a recommended 12-slide Investor Presentation Format, which can be presented in 15-20 minutes:

1.      What do you do?

2.      What is the problem or need being addressed?

3.      Who are your customers and how many are there?

4.      How do you solve the problem or need?

5.      What are the alternatives to solving the problem, who are the competitors?

6.      What is your revenue model?

7.      What are the revenue and product projections?

8.      Who is the management?

9.      What are the funding history, company location and date founded?

10.  What milestones have been met and what milestones have been set?

11.  What funds are needed and what are the uses of proceeds?

12.  What is the company’s contact information?

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To keep it simple, I focus on four key aspects or sections of your pitch: Customers, Innovation and Growth, Management, and of course Financial. I look for a “balanced scorecard” - where I can assess and measure you against competing proposals. The percentage of time (charts) allocated to each of these aspects depends on the interest of the VC firm or individuals you will be briefing, as well as your stage of development.

Customers: Every business must stay customer focused and generate profit. For your new venture describe the proven need, your proprietary technical solution (product or service), and why customers will buy it. Define your particular market (size, growth, capture strategy), examine competitors (few or many), and demonstrate that a sufficiently developed “business case” (business model) exists – i.e. how your new business will generate revenue and profit. Prove your solution is cheaper, better, or faster. Prove you can adequately execute a strategy that quickly ensures profitable sales. Have a “value proposition” in your pricing structure. Don’t obtain customers by charging less and obtain staff by paying more. Don’t capture market share without “breaking even” and generating profit within two years. Don’t say you are “unique” and “there are no known competitors.”

Innovation & Growth: Show what intellectual property (patents) you have, what additional technology development is needed and how long it will take (at what cost) to complete. Describe your innovative marketing strategy and how you will execute it. Describe your distribution channels and the likely reaction of competitors as they learn of your new business model. Describe milestones achieved on your growth path, and show the goals you have set (how you will grow revenue and profits). Demonstrate an ‘effective’ growth strategy. Show an innovative sales process that can be replicated and leveraged with an infusion of funds (a growing return on investment). Give innovative solutions to the problem of servicing customers and growing them (can you afford free service or will you charge for this?). A model with initial sales (non-recurring) and cross sales (recurring) to the same customers suggests better utilization of customers and a potentially more ‘efficient’ sales team that can generate profits.

Management: The composition of the management team is critical. Discuss relevant knowledge and management experience of each member. Demonstrate completeness of the team (“we are looking for a VP Sales” weakens the pitch). Have an Advisory Board with industry-specific experience (and lots of contacts for quick sales). If your team can say, “this is the third company we have started” I am ready to invest! How is the company organized? Prove this team can execute the business model.

Financial: Show the financial history, projections, and funding requirements for your planned growth. If you have a pre-money valuation, and have already raised funds, show for how many months this will last. Don’t ask for funding to complete a prototype, but ignore funding needed for marketing. Be frank about your next stage funding needs, exit strategy and how the VC will get their cash out. Valuations are plummeting, so be prepared to give up a higher equity percentage for the same investment as others received only a few months ago. Ask for less, and show it will last longer by controlling your burn rate. Treat the VC as a financial partner.

Conclusion: Send a two-page Executive Summary a week ahead. Have your Business Plan, Financial Plan, and Marketing Materials at the briefing. But most importantly, know your subject, know your competition, and convince the audience in 20 (or 45) minutes that you can execute and make their investment pay off handsomely. Be brief, be honest then be quiet!

PS. If the projector doesn’t work, be able to give the pitch anyway. _______________________________________________________________________

About the Author:

Dr. Gerald ‘Mac’ McNichols is an engineer who “helps entrepreneurs grow” as CEO of McNichols & McNichols, Inc. [(MC)²]. He is also Principal of the MAC Capital Fund, and President of the McNichols Foundation, as well as a limited partner in several local VC funds. E-mail: mac@mcnichols.org.