How to pitch your business to venture capital investors
Pitching your business to a venture capital (VC) investor can be daunting. You’re competing against a crowd of clever founders with amazing ideas. And the pressure to succeed makes it easy to fumble your pitch.
Even start-ups with fantastic growth potential often make basic mistakes, such as being unfamiliar with their financials or not learning about investors before the pitch.
“Investors say ‘no’ more than they say ‘yes,’” says Michelle Scarborough, Managing Director, Strategic Investments and Women in Tech at BDC. “Being well prepared helps you stand out and build trust.”
Here are seven tips Scarborough offers to help pitch your business to a VC investor.
1. Have the right type of business
VC investors are looking for a specific type of business: one with meteoric potential for growth and scaling. If that’s not you, you may need to rethink your business model or financing strategy.
“The number-one reason investors say ‘no’ is that the business isn’t growing fast enough for VC,” Scarborough says. “A company may be growing fast, but VC investors are looking for hockey-stick growth or disruptive technologies.”
Expected growth rates vary by industry, but it’s not unusual for VC investors in some fields to target 10% monthly sales growth. “A typical metric is, ‘Are you 10 times better than the competition?’” Scarborough says.
2. Find the right investors
It’s important to research the right investors for your business and tailor your pitch to them. Various VC investors focus on different industries, deal sizes and start-up stages.
Beyond the specificities of your business, finding personal connections, such as a shared alma mater, can give you an edge over the competition. You also need to find investors you can click with on a personal level.
“VC investment is very relationship-based,” Scarborough says. “You’ll probably spend more time with them than with your family. You definitely need to like and woo them.”
You can learn about potential investors and the VC ecosystem by networking with other founders and attending start-up events. Don’t be shy about expanding your search beyond Canada.
3. Focus on the market
One of the most frequent VC pitching no-no’s is to heavily focus on all the great features of a product, while underplaying why it will benefit customers. The benefits tell an investor how big your market could be—the main thing an investor cares about.
“Your product will probably change in the early stages, but what’s less likely to change is why it benefits people,” Scarborough says. “The benefits tell an investor if the product will change a customer’s life or is just a nice-to-have. It’s easy to fall in love with your product but lose sight of the bigger market picture that an investor cares about.”
Start the pitch with a brief explanation of the product, then quickly segue into what it does for customers, how much money it saves them and the pain points it solves.
4. Know your numbers
Your job is to convince an investor that your business is poised for spectacular growth, but do you have the numbers to back that up? Surprisingly, many founders don’t. Yet, solid numbers are crucial to your pitch.
“You often see tech founders who have little or no business knowledge and aren’t comfortable with numbers,” Scarborough says. “But investors need numbers to understand your company’s potential market and scalability. They expect the founder to know the finances and key metrics of their company. You can’t rely on a bookkeeper.”
You should be very familiar with your financial projections and statements for the next three, six and 12 months. Projections should strike a balance between being plausible and reflecting your high-growth potential.
5. Be honest about the strengths and weaknesses of your team
Investors will want to know a lot about your team: not just resumes but what each person will do to contribute to growth. “The team is extremely important in the early stages,” Scarborough says. Be honest about any skill gaps and how you’ll address those.
6. Find good advisors
It’s vital to work with legal and accounting professionals who understand start-ups in your sector and can give you appropriate advice early on. Engage these advisors before looking for investors. They can open doors to VCs and advise you on tricky questions like valuation and structuring agreements.
7. Learn from “no”
Don’t get put off by an investor’s “no.” Their feedback can be very helpful for future pitches or reviewing your business. They may also be willing to introduce you to customers or other investors.
“You may just not be a good fit for the investor, or they may have already invested in something similar,” Scarborough says. “Ask why they said ‘no.’ Investors have really strong networks and can give great advice. I get referrals all the time from other investors.”