Did you know? Less than 1% of small businesses raise startup venture capital. That’s right! Venture capitalist investors say no, more than they say yes.
What does that mean for you as a founder? Is there a need to pitch a venture capitalist for funding? Of course! You just need to do better than the other brilliant entrepreneurs.
That means arming yourself with the proper knowledge for your pitch and presentation to venture capitalists is essential.
Here are five tips to effectively present a business idea to a venture capitalist.
Before you go on to make your pitch, you need to do your homework first. First, understand the type of business venture capitalist investors are looking for. These are businesses with explosive growth potential that are capable of scaling. If that’s not you, reconsider your business idea or means of finance.
Secondly, research the right investors and tailor your pitch to them. The focus of various VC investors differs based on industry, deal size, and stage of the company’s development.
To learn about your potential investors, check out the Crunchbase database or Pitchbook, or similar sites to learn more about them. For instance, this investing profile reveals some crucial information, like the sweet spot of this investor, which can help you tailor your pitch accordingly.
If you want to secure funding for your business from a venture capitalist, you need to know your numbers. This means having financial projections for the next 6 and 12 months and statements from the founders about their commitment to the business.
The VC investor will want to see that you have a clear understanding of your financial situation and that you have realistic goals. They will also want to know that the founders are committed to making the business successful.
By being prepared and knowing your numbers, you can give the VC investor the confidence they need to invest in your business.
One of the biggest pitfalls when pitching a product to investors is to overemphasize all the positive features while underplaying the benefits to the customer. Investors care most about your benefits because they tell them how big your market could be.
Know your audience and how they will value your product. Then, explain to them how your product will meet their needs better than your competitors’ products. Focus your pitch on the benefits.
For instance, discussing the benefits rather than the features if you pitch a fitness product. Talking about features makes the presentation sound dry and distracts the investor from your benefits.
Do you want people to take a chance on you with their money? Be prepared to be put on the spot when pitching a venture capitalist. Ask any CEO, and they will tell you that VCs are tough and competent and will not hesitate to ask tough questions.
But the good news is they aren’t looking for the correct answers; they want you to answer how you would respond if you were right. So, put your best foot forward and confidently deliver the response – prepare answers to the tough questions beforehand.
Even with the best preparation, you could still get a no. Remember, less than 1% of startups get VC funding. But don’t let your head drop because of rejection. Listen to the reasons your pitch failed. There can be some insightful comments in the feedback that could help you improve your business plan. Learn from the experience and pitch again the next time around.
Investors are people, too, so be yourself when pitching a VC investor. More importantly, you need to learn how to communicate your offer effectively and persuade them that you have a viable business plan worthy of their hard-earned money.