10 Topics To Know Cold for Your Perfect VC Investor Pitch
You’ve been slaving away, creating your product and company while bearing the weight of the world on your shoulders. Now it’s time to take your company to the next level. You’ve reached out to your network for investor contacts, and now the all-important meeting with investors is booked. You have three weeks to prep. What do you do?
Investors can be tough, and you want to make sure you can roll with everything that is asked during your pitch presentation. For the novice, investor questions may seem perplexing, challenging, and hard to predict. Eventually you’ll discover there is limited universe of questions to be asked.
I have been through four fundraises, through good times and bad (see my post: 25 Ways Investors Will Reject Your Startup). I have found that while no entrepreneur has the best answer to all of the questions below, having a good prepared responses and a firm understanding of the 10 topics below make all the difference. While all of the questions below may not tie perfectly to your business (it primarily focuses on web and mobile companies), most of this applies widely and should help you prepare effectively for that pitch session.
1. Know Your Company: What You Do
This one should be a no-brainer for most founders. You essentially are the company. You live it, breathe it, and like it or not, sleep it too. In spite of this, many founders don’t have their elevator pitch streamlined. They’re too in the weeds.
There is a short window to pique the investor’s attention and the company intro is the time to do it. If you don’t grab their attention at the get-go, it’s all over. So make sure you have succinct and compelling answers to the following questions:
- What does your business/product do?
- Who are your users?
- What is your company’s mission?
- What is your long-term company vision?
- What is your exit strategy?
2. Know Your Team: Who You Have and Who You Need
Having a strong understanding of your team’s unique attributes, core strengths, and weaknesses will be critical to convey during your conversation. If you’re dealing with most smart investors, they will actually care more about the team than the technology (as strange as that sounds). In your conversation, it will be important to articulate a) why your team is uniquely positioned to win and b) that you have the self awareness to plan for hiring additional players (to fill voids in skill set and bandwidth) and c) have a sound plan of who you are going to hire, and how you are going to attract top talent. Here are some questions you should be prepared to answer:
- What makes your team special? Give examples.
- How have you and how are you going to out-recruit other startups? How about companies like Google and Facebook?
- What is your hiring plan over the next year? Two years?
3. Differentiation and Competitive Landscape: What Makes You Stand Out?
You are building something amazing and unique, of course! But much as you might see it that way, you need to succinctly convey this uniqueness and demonstrate how you’re going to win amongst a sea of competitors (many who have 100-1000X the resources of your team) is a challenge, but will be required to get the attention of investors. And it will be important to discuss your unique advantages over the competition. Be aware that “Why couldn’t Google just do it?” is a classic question. Here is what you need to know:
- Who are your top competitors?
- What gives you a competitive advantage in a crowded market?
- What are the barriers to entry?
- What is special/unique about the technology?
- Are there switching costs associated with moving to and from your product?
4. Product and Company Strategy: What You’re Building
Many founders are great at thinking big and have a clear vision of where their startup will be in five years and billions of dollars later. What makes the difference is whether you have a strong product/company strategy to tactically get there. One worthwhile exercise is to lay out a release roadmap of key initiatives (by quarter). Ask yourself, is there logic to the staging of the company and product initiatives? Are key metrics assumptions, resourcing, and value appreciation milestones baked into the plan? This will further substantiate your raise amount and your financial assumptions. Here are some more questions to challenge you on this subject:
- How are you prioritizing efforts and initiatives over this year? Next?
- How are these priorities laid out over time? What is your high-level release plan?
- What initiatives/metrics are most critical to the success of the business?
- What initiatives/metrics are not critical to the success of the business?
5. Acquisition and Activation: If You Build It, How Will They Come?
You may have the best product in the world, but unless you can convince people to use it, no one will care. Having a clear strategy for driving acquisition and activation is critical to getting users in an efficient manner. Don’t worry if you don’t know exactly how you plan to get to 10 million users. What’s important is that you have a clear sense of how you are chipping away at the challenge by showing metrics focusing on optimization of visits, then signups, then active users, and eventually monetize-able users.
Be able to easily explain the logic of your process in order to reassure investors. And you should have your current metrics locked in your mind to show you are on top of your data. Here are some questions you will hear on the subject:
- What is the % of traffic by each major source?
- What is your registration rate?
- What is the total number of registrations by month and all time?
- What is the % traffic growth month over month? Year over year?
- What are your current efforts to increase traffic diversity, registration rate, and growth?
- What is the short-term (0-6 months) and mid-long term (6-18 months) impact on acquisition metrics?
- Be able to speak to deliberate efforts to drive acquisition during the last year: What initiatives did you employ? What made you successful? Why can you apply this talent to further improve this metric?
- How does platform expansion efforts play a part here? Is there risk of cannibalization? How will you mitigate?
6. Engagement: What Will People Do With Your Product Once They Arrive?
Do you have 5 million visitors who only visit one page and bounce, or do you have 10 thousand rabid users whose visits last more than 28 minutes per session? Each product/company has different ways they engage users and the optimization of your product can vary. Talk about how you engage your users to maximize value. Value can be calculated in a variety of ways (user utility, lifetime value, revenue/visit). Describe what engagement you are optimizing for, where you are today, and how you will continue to optimize this metric. Here are some questions you can expect:
- What are your page views per visit broken down by source?
- What are your current efforts to increase engagement + expected short-term (0-6 months) and mid-long term (6-18 months) impact?
- Be able to speak to your deliberate efforts to drive engagement during the last year: What initiatives did you employ? What made you successful? Why can you apply your talent to further improve this metric?
7. Retention: After They Have Come and Gone, Will They Return?
Investors tend to have an interest in the lifetime value of your users. For many companies, the more the user visits, the more that can be made. If you are paying for users, ideally you can show that you make more per user than you spend to acquire them. Nonetheless, knowing how you measure retention and a grasp on your plans to improve this metric (in relation to your lifetime user value) will help you greatly on the topic of retention. Here are some questions to test your knowledge:
What is your daily active users / monthly active user ratio for both registered cohort and all visitors? – (many VCs have jumped on the bandwagon and ask this question because Andrew Chen mentioned it on Techcrunch)
- For your registered user cohort, how often do people come back?
- How many active users do you have?
- How do you define “active users”?
- Can you describe in detail the demographics/behavior of your active users?
- What is the average lifetime pageviews/visitor? For active users?
- What is your metric for retention? (Different companies measure this differently)
- What are your current efforts to increase retention?
- What is your expected short-term (0-6 months) and mid-long term (6-18 months) impact on retention?
- Be able to speak to our deliberate efforts to drive retention during this year: What initiatives did you employ? What made you successful? Why can you apply your talent to further improve this metric?
8. Revenue: How are You Going to Create a $Billion Business?
Don’t stroll into an investor’s office without a monetization strategy. Most likely, you are not Instagram. Some of the largest value appreciation milestones you can plan for include initial substantive revenue, positive unit economics (making more per user than you spend to acquire them), and the holy grail - profitability. Separately, it will be good paint the picture of how big your business can be and where the revenue will come from (your customers). Here are the questions you will be asked:
- How are you monetizing? What are your metrics for monetization?
- Who are your customers and what is your sales strategy?
- What is the addressable market size? How did you calculate?
- What do you need to get right for your company to be successful? Is there a relationship with: Traffic growth? Active user growth? Team? Margins? Sales cycle? Market?
- What is your average current and expected revenue per visitor and per active user?
- What are your current efforts to increase monetization?
- What is expected revenue for this year? Next year?
9. Funding
Funding is one of the last topics discussed in a typical investor meeting. You are almost through. Having a firm grasp on what you want to raise (and how long it lasts), how you plan to use the money, and the key milestones you will achieve are very important. If you have done your homework elsewhere (financial model, hiring plan, company strategy) the numbers here should roll right onto the page. Here are the questions you will get from investors on the topic of funding:
- What is your current burn per month?
- What is your current revenue per month?
- Speak to your funding history: Amount raised? Previous investors? Post valuation for last round? Size of total and remaining employee pool? High level cap table breakdown?
- What is your expected cash-out date?
- What is your expected valuation for this round? (Trick question…don’t answer with specifics. You will be bidding against yourself.)
- What are your funding needs for the next 12 months? 18 months?
10. Know Yourself
I have seen countless Quora questions asking about what to wear, how to act, and what to do to impress investors. The most important thing you should know and be comfortable with is yourself. Know your strengths and also acknowledge your weaknesses. Note that nobody can do everything well, and you are most likely already extraordinary. Make sure to convey your infectious enthusiasm and passion. This will matter more than a perfectly polished “presentation.”
I end this post with my favorite presentation from Dave McClure (Master Chief at 500 Startups): Startup Viagra – How to Pitch a VC.Now that you know the questions you will be asked, this is a fantastic distillation of how to build your pitch deck.
25 Ways Your Startup Will Get Turned Down By Investors
If You Aren’t Getting Rejected on a Daily Basis, Your Ideas Aren’t Ambitious Enough.
After speaking with a number of fellow “Hustlers” (fellow fundraising CEOs), I was able to amass an awesome list of classic messages people have received from investors after initial contact or initial pitch. As the title implies, below are 25 ways people get rejected from investors.
Maybe I am a bit weird, but I tend to find rejection as a fuel to my fire. When I was in college, I got the Chicago Crains Magazine List of top 300 companies to work for. I hacked the list and mail merged “personalized” letters and applied to over 290 internships. I received over 250 rejection letters but got 3 offers. I plastered the rejection letters over my door and highlighted the part where they told me why I was not a fit. My favorite letter was from McDonald’s (corporate). It had a watermark of Ronald McDonald and friends. I can say that I was rejected from McDonalds. Ha!
In grad school, I kept my 2 rejection letters (I got in the third try) from Stanford pinned above my desk. I found it both funny and motivating.
After going through two successful venture fund raises for ShopWell, I found it fun to create this top 25 list of rejection messages from investors that I, and others in my network, have received. I hope you enjoy as much as I do:
General Lack of Interest or Uncertainty
- No response
- We don’t see this as a fit at this time (the classic non-answer)
- I was regrettably unable to get it over the finish line with my partners.
- We are hesitant to invest as the lead, but keep us informed if you get a lead term sheet.
- I’m unsure on this one. Let me set you up with one of our associates who has more expertise in this area.
Bandwidth
- I am currently overwhelmed at the moment, and can’t spend the time pursuing this any further.
Competitive
- We see this being competitive to one of our portfolio companies.
- We have concerns that there are not strong competitive barriers to prevent others from doing what you are doing.
Market Thesis
- We want to see how [insert portfolio company] plays out before we invest again in this space.
- This space is too fragmented at this point for us to see a clear cut winner.
- We don’t currently have a thesis on this space yet, and therefore are going to need to pass.
Firm Fit
- We tend to invest locally, and you are located too far away.
- You are slightly too early for our firm and we can’t see around the curve yet.
- You are slightly too late for our firm at this time as we invest earlier stage.
- We would invest if you had a local lead investor.
- We don’t have more room in the current fund to invest.
Product Market Fit
- I just don’t see people doing [insert primary action of your app] as a mainstream activity.
- We would be more interested if you included [insert random feature/technology] in your product.
Distribution and Market Traction
- We don’t see a clear path to cost effective user acquisition for your company.
- We would like to see more months of [insert metric] before we feel comfortable moving forward.
Monetization
- We are unsure of your business model and will need to see more proof points before we feel comfortable.
- Your market isn’t big enough.
Team
- We will feel more comfortable if you have added a/team of [insert hire(s)] to your team. There is too much team risk in this competitive environment.
Company Structure
- We don’t like the cap structure of the company.
Other
- I left the firm and therefore cannot make investments on behalf of [insert firm] anymore but you should check out my new venture! It is so cool.
I’ll end this post with this classic:
UPDATE: I am honored to say this blog post was re-blogged on VentureBeat here. Thanks for all the supportive tweets I just completed a follow up post highlighting the inner dialogue of the venture capitalist here when turning down a startup.
So…When is the Best Time to Pitch an Investor and More Random Advice
I saw this question on Quora, and had to answer it. But before I begin, how about a classic shot from the oh-so-realistic show Shark Tank on ABC (since this is EXACTLY how venture pitches go).
About Timing
I have found that my best pitches were less of a “pitch” and more of a “conversation”. These more conversational pitches have tended to be during lunch or at the end of the day (especially on Friday). My experience here may be an outlier, but during these more conversational pitches, I was able to successfully get the investor to like me (first) and then like the company (second). By being outside of the constraints of a one hour time limit (end of day) or at a lunch hour (when people are more conversational), I have tended to be the most successful.
Other Tips to Improve Your Odds:
Try not to pitch by phone
The odds are stacked against you over the phone as an investor is likely multitasking. It is also difficult to truly have the connection you can achieve with an in person meeting. In many cases, traveling long distances may not make sense, but know the odds are stacked against you over the phone.
Try to pitch a decision maker
The odds are extremely stacked against you when you pitch an associate. Associates are even more risk averse than partners. They would rather be wrong and pass on a good deal than recommend a deal that doesn’t look perfect to the partnership. Odds are, your startup will fail…and therefore an associate’s default is to pass with any sliver of doubt. Additionally, associates generally don’t have the track record, experience, gut, clout to spot and push a good deal through. They will need to go through others in the firm to get a deal through (who haven’t met you) and your chances will most likely be diminished significantly. Think of it as a steel gate in front of a steel gate that you will need to plow through on a tricycle. One gate is a pain in the ass. Two gates…well you have the idea. You probably gathered it makes more sense to pitch a partner (with the highest authority possible) who has the highest likelihood of falling in love with you/your company).
Get them to like you first
Forget your company…if the investor doesn’t like you (which they can probably determine within the first 60 seconds), they will figure out a way to pass on your company. Remember, the investor, if they move forward with an investment, will have to deal with you for 5+ years of their life. Make them want to spend that time with you….then convince them that you will bring home the $ Billions…
Now for the gratuitous shot of the Maltese Falcon:
