How To Craft and Deliver An Effective VC Pitch

Submitted by Kip on Thu, 12/09/2010

Over the past year I’ve been working with Thomvest Ventures (check out the website at www.Thomvest.com) as a Venture Partner (in addition to my regular consulting and seminar business). One of my responsibilities is to sit in on the pitches from entrepreneurs asking for initial or additional funding.

What amazes me is how poorly crafted many of these presentations are. While I can appreciate that for many aspiring entrepreneurs, giving a persuasive presentation has never been at the top of their personal development list. However, that’s no excuse for not doing a good job putting together convincing arguments why someone should risk putting money into your start-up (especially given the incredibly challenging task of securing VC funding these days, where only 1-2% of pitches are funded by a given firm).

So instead of giving these aspiring entrepreneurs a “thumbs up” at the end of their pitch, I wish I could give them some simple pointers on what they should and could have done better in their presentations.

Here are the top 10 issues I’d suggest entrepreneurs should be sure to address in their funding pitch:

1) What’s the pain point you’re trying to address and are people willing to pay for a solution? - This should be the starting point for the conversation for a simple reason: there are a lot of problems in the world today in need a better solution. That’s what’s entrepreneurs should be focused on solving (otherwise, it’s just an interesting hobby). The second half of the question that needs to be addressed is your target’s willingness to pay for a solution (because if your customers decide it’s not worth paying for either directly or indirectly, you’re going to have a tough time monetizing your business).

2) Why does the current pain point exist and why hasn’t it been solved yet? It would be very helpful when explaining your proposal to share a bit of the history leading up to this “a ha” moment. What other solutions are out there? Why didn’t they work? What have you learned from studying what they did?

3) How are you going to reduce or eliminate this pain point (i.e. what’s your value proposition)? In one sentence, tell me how this is going to work (such as “We’re going to accurately gauge how your brand is currently perceived on the Internet using proprietary algorithms and daily data feeds”).

4) How is your solution unique and/or proprietary? It’s wonderful and often very profitable if you’re the first one to solve a big problem. It’s not so wonderful if there are a number of other companies also able to solve the same problem (because that’s going to probably lead to you competing primarily on price, not a very sustainable strategy unless that’s what you’re planning for “value” to be your key competitive advantage).

5) Is this a big enough opportunity to get excited about? It’s a clique that VC pitches need to include some claim about this being the next “billion dollar category”. While I don’t think there’s any magic in a billion dollars, you are going to need to show this is a big enough opportunity that it’s going to have the potential to create a significant return for the investors (otherwise, you’re better off sticking with angel investors).

6) How are you going to market your service or product to generate awareness and trial? “If you build it, they will come” only works in the movies. While I fully appreciate you probably will not have a large marketing budget when you’re just getting underway, there’s no excuse for not having a well thought out marketing objective, strategy and plan. If your product is so great it’s going to generate plenty of social media buzz, that’s terrific….just make sure you can show how you’re going to leverage the buzz once it starts.

7) How realistic are your financial assumptions? They call it a “burn rate” because if you run out of cash too early, everybody gets burned. Are you being conservative enough in your revenue projections and ability to control expenses? From what I’ve seen so far, there’s no harm in being cautious when it comes to carefully managing cash flow projections (because of the huge penalties for coming up short).

8) Who’s on your team and what makes them so special? Give yourself extra bonus points if your team has been successful with other start-ups. That’s not enough by itself but at least you can point out that this team is “battle tested” and are less likely to be surprised when things don’t going according to plan (and things never go according to plan).

9) Who are your strategic partners? You’re going to have a lot more credibility and odds of success if you’ve already signed up respected partners in your category that want to work with you and your team.

10)What are you going to use the investment money for and what are the key milestones to measure your progress? Odds are very likely you’re not going to get to profitability with your initial funding (and perhaps not even to being cash flow positive) but at least be able to demonstrate how this funding is going to put you in a strong position to raise your next round of funding while on your way to becoming a profitable enterprise.

If you can answer these 10 questions during your 30-minute pitch (which is what you should limit yourself to so you’ve got plenty of time for Q&A), you’re going to be well ahead of most presenters. There are some terrific books on this topic I’d recommend in putting your pitch together, especially “The Art of the Start” as well as “Reality Check”, both by Guy Kawasaki. Fred Wilson of Union Square Ventures in NYC also writes a terrific blog that’s great at explaining everything you wanted to know about VC’s but were afraid (or didn’t know who) to ask at http://www.avc.com/a_vc/mba-mondays.

One final tip: practice, practice, practice. You’re only going to get one chance to make a good impression in front of a VC so make it count.

Small businesses less than 5 years old generate 100% of the job growth in this country, so for the sake of all of us, good luck and here’s to our mutual success. I’d love to hear from both VC’s and entrepreneurs on their thoughts on this topic as well as their own tips to securing funding.