Three Considerations to Impress Venture Capital

The average investor probably meets around two new companies a day in face to face meetings.  There are probably thousands of proposals sent through emails and social media.  When considering startups for investments, investors, especially venture capitalists, need to quickly discount the 99% of proposals which will not work so they can focus on the 1% which is worth serious consideration.  From all this, investors need to predict the next unicorn or dragon. 

To get an idea to the investor, it is important that the management team of a startup ensures what they have passes through three gates.  This means the startup team needs to qualify the investor just as much the investors qualify startups.  This process of qualification saves al lot of effort.  There is no point in having a great pitch, and then sending it to the wrong potential investor. 

Meeting an investor is about raising capital.  Investors and their representatives will still meet people they have no immediate intention of investing in to have an idea of the business, and network.  For them, this is part of the job.  For the startup, it is often a waste of time, unless these investors are in a position to recommend someone more suitable. 

This is why the executive summary is crucial.  It should state, in a two or three paragraphs, the type of company, the target market, the industry, where the company is based, and how much the company is looking to raise.  It should also be clear whether we are looking at B2B or B2C, or both.  This should be matched against the investor thesis.  If there is no match, then there is no point reaching out to that particular investor. 

The second consideration, assuming the first gate is passed, is the founders.  Investors are not investing in a product or service.  That is incidental.  What we are investing in is the people behind the idea.  There are a lot of people with great ideas, but they will never be successful entrepreneurs.  This could be an inadequacy in values, or certain skills.  Founding a company is not just about having an idea, but a vision of how that idea can be interpreted and reflected on the market.  That vision must be accompanied with a strategic plan to seize market share. 

When an investor asks a lot of questions about the product and service, and not the team, and how the business will be built, it either means we have a predatory investor who might steal the idea, or more likely, someone too polite to tell the founders they are not impressed.  Instead of outright rejection, it is easier to talk about the idea, and then claim they will consider it. 

Finally, investors put money into a startup because they believe it can scale.  A great business idea and a competent team is not sufficient.  Running a restaurant, or opening a retail outlet might make good business sense., but if the concept cannot be scaled up, most investors will not be interested. 

Too many founders tend to focus on the product or service, and immediate market share.  Their goal could be immediate income replacement, and to make a small profit.  That sort of pitch will not interest a genuine investor.  What investors look for is the scalability of customer acquisition models, and the strategic position of the business in the long term.  That is what they are investing in.  Any investment plan with a predictably scalable customer acquisition model through leveraging would interest the right investor.  That is how the real return on investment is calculated. 

A founder who understands how investors, and venture capital, in particular, works, has a better chance of getting the required investment.  As such, it is important to remember that any pitch must consider these three considerations, and address them.