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Pitch Preparation: What VCs Are Looking For

On last week’s premiere of Bravo’s latest reality show Start-Ups: Silicon Valley,  brother-sister entrepreneurs Ben, 32, and Hermione, 27, Way struggled through their pitch to venture capitalist Dave McClure.

Things got off to a bumpy start when Hermione—who had made an impression on the provocative McClure by sending him a gutsy text message—was woken up by the 500 Startups founder from a nap under a desk at one of his conference rooms. But there are worst things for an entrepreneur to overcome than a questionable first impression. After all, many a Silicon Valley VCs are known to be quite the quirky personality. And Hermione has plenty of charisma to fall back on.

Where Ben and Hermione lost their way was in their presentation and messaging. The two, both serial entrepreneurs and most currently cofounders of Ignite, a personal health tracking system that includes both a web application and a physical device that integrates with any smartphone, were taken aback by McClure’s style. Prepared to fully go through their PowerPoint deck and dazzle their VC no doubt, the Ways were shaken when McClure took the driver’s seat, grabbed their computer, and went through their slides himself. “It was annoying,” Ben said.

But it was perhaps in the first 90 seconds that Ben made his fatal error. Hoping to impress, he mentioned that he was currently involved with more than 30 ventures. That would scare off any investor—no matter how good the pitch is. Because investors are looking to figure out three major elements during the initial pitch:

  • Who is the entrepreneur (and by extension the team)?
  • What is the idea (and is it sellable/scalable)?
  • How well has the team thought about valuation?

In volunteering that they’re involved in so many different projects, Ben revealed two negatives: First, he’s likely to be unfocused when it comes to this particular venture. Second, his other companies are not successful enough to fund this latest idea, hence his need for outside funding. With these two factors working against him, it’s no wonder that McClure’s final answer was a no.

Still, we’re optimists. Having had to knock on more than a few doors to get cash, we’re no strangers to the trials and tribulations of raising money. So with that in mind, we have some tips for Ben and Hermione on some of the considerations that VCs might be looking for:

  • Serial entrepreneur and VC Brad Feld mentions the need for metrics. As he and his Foundry Group partner Seth Levine set out to write an entire book about what metrics matter in the startup world, he writes that he’s “amazed at the lack of financial literacy of many entrepreneurs and investors. But it’s more than just the accounting data – it’s the metrics that apply to every aspect of the business.” So in considering which slides to put together for investors, carefully consider how you’ll measure yourself, how to benchmark your business, and how to assess success (or loss)
  • Angel investor and startup mentor Will Herman says that forecasting sales “is fundamental to making good investment decisions. If you don’t know where and when revenue will be coming in, you won’t be optimizing your use of capital.”
  • Scott Gerber, founder and CEO of the Young Entrepreneur Council has the following advice for startup founders: Learning how many leads equals conversions, what’s your cost to acquire a customer, whether you’re pulling off a brand marketing play or a cost of acquisition play is crucial to your bottom line. Once you know these critical measurements, use technology to build a system that can project your revenues, costs and ROI. Present that—with a detailed explanation of your assumptions and how you got there. That will show your investors that you’re not only smart but that you also took the time to think about the risk that they’re taking

And one last piece of advice for Ben, Hermione and any other entrepreneur out there considering taking outside funding: You’re likely going to be on a long journey with your investors. So before you take the money, think whether they’re a good fit for you, because once you sign on the dotted line, you’re going to be working long hours together and your vision has to mesh. At this point in the process, there’s nothing worse than having a bad financial partner. So difficult though it may be, it’s perfectly within your right as the founder to say no.