12 Reasons Startups Miss out on FundingAugust 2, 2016
Danielle O’Rourke is the CEO and Fund Manager for ROND Capital, a Nashville-based private equity firm. Danielle also serves as a board member to Ovia and Clockwise.MD.
Congratulations! You’ve made it past a venture capital firm’s initial vetting process and have been invited to pitch your business. This is your chance to tell your story and convince the VC that you and your business are a good investment. Unfortunately, for many entrepreneurs, this is the last meeting they will ever have with that VC.
I see so many promising companies squander this opportunity by making mistakes around preparation, meeting etiquette and pitch delivery, which can all easily be avoided. So position yourself for a successful funding round by avoiding these common mistakes entrepreneurs make when pitching their businesses:
- They show up with an amateur pitch deck.
Pitch decks are an extension of your business and often a VC’s first impression. A pitch deck that looks like you threw it together an hour before the meeting is unprofessional. With all the free or relatively inexpensive resources and tools available for PowerPoint design, you have no excuse for a low-quality pitch deck. Avoid cheesy clip art, small text, crowded slides, inconsistent design elements and hard to read charts.
- The pitch deck and/or pitch itself does not cover all the key topics.
A deck is usually sent in advance of meetings and is reviewed again after the pitch. Your deck should be able to tell your story and provide the key information about your business without additional context required. At a minimum your deck should clearly answer these key questions:
Who are you and who are your key team members?
What does your company do?
What problem are you addressing and how meaningful is this problem?
What products or services do you offer?
What is your revenue model?
What is your addressable market?
Who is your target customer?
Who is your competition and how are you differentiated?
What traction have you had to-date?
What is your value proposition/ROI and what results have you generated for clients?
How do you project this business will grow and how much capital is required to make it happen?
How much visibility do you have into your near-term projections?
How much capital are you raising and what will that capital be used for?
- They demonstrate a lack of market understanding.
As the CEO, you are the subject matter expert on your business and market. You should be able to answer every question about your market concisely and thoughtfully. Although very basic, here are a few questions that I see CEO’s struggle to answer.
Who are your competitors? You always have competitors and not understanding that shows a clear lack of market research. If you answer this questions with “we have no competitors,” you have lost your opportunity to show that you understand your competitors and that your business is superior.
Who is your target customer? What this question really means is: “Who needs your solution the most?” Who is it a priority for? Who can afford your solution? Who has major pain around this? Being able to answer this shows that you have narrowed in on a product / market fit and aren’t a product in search of a problem.
What is your addressable market opportunity? Addressable market opportunity is how much revenue your business could theoretically generate if you were to gain 100% market share, not the total spend of a given sector. Show that you put thought and research into the total opportunity for your business.
- They show up underdressed.
You never know what conscious or subconscious biases a person will have toward people who don’t dress in business attire for important meetings. Why risk a poor first impression over something so simple as upping your attire? Err on the side of being more conservative.
- They only address the most senior person in the room.
You will never have a thorough understanding of internal politics and decision making. Address and show respect to every person in the room like they are a decision maker.
- They haven’t explained what the company actually does and we are 25 minutes into the pitch.
Sometimes entrepreneurs tend to dive straight into the weeds and forget to explain what it is their business actually does. In the first few minutes, I should understand at a high level what you do.
- They never come up for air.
Don’t make the mistake of saying “I want this to be conversational” and then talk for 55 minutes of the 60-minute meeting. Before you move on to new topics, ask meeting participants if they have any questions on what you have covered so far.
- They have the wrong mix of people in the room.
Don’t show up with 10 people from your team only to have the CEO talk the entire meeting. On the flip side, if the CEO can’t answer questions about key topics, the CEO should bring the subject matter experts who can.
- They respond to a question, but don’t actually answer it.
Take a minute and think about the question that was asked and give an honest answer. If you can’t answer the question, tell the asker that you will follow up with the appropriate answer. Don’t give a long round-about answer to distract from not knowing or wanting to provide the answer. Investors see right through this.
- They get visibly frustrated at or argue with the VC when there is a difference of opinion.
Some VCs purposefully ask questions to test your patience and see how you react. Politely state why you disagree, use supporting evidence to back up your opinion and move on. Don’t lose your cool.
- They have completely unrealistic growth expectations.
A hockey stick growth opportunity is the holy grail of VC, but having unrealistic or unsubstantiated assumptions around your growth will lower your credibility. An investor would rather see more conservative growth projections coupled with well thought out, researched and defensible assumptions any day.
- They can’t articulate a growth strategy.
Capital doesn’t grow a business. Capital doesn’t win you customers. Capital allows you to deploy the resources and strategy you need to grow. If you have succeeded in convincing the VC that this is a great market opportunity and product, the immediate next question is “what are you going to do with my capital?” You need to be able to articulate your growth strategy. The answer is never, “Well, we are looking for a partner to help us figure that out.”
What can an entrepreneur do to really stand out to investors?
The best pitches tell a story, with the ultimate conclusion being that the business is a good investment. Good pitches naturally lead you through why the business was started, what makes it special, where it is today and what the opportunity going forward is. In that process they convince the VC of three fundamental things: This is a large and important problem they are solving; this is the best company to solve that problem; and this is the right entrepreneur to take the business to the next level.
About ROND Capital
ROND’s mission is to be the best possible private equity partner for small to mid-sized businesses. Our name stands for Return On New Development and that is the core principle by which we operate. We are focused on helping entrepreneurs generate profitable growth and create true value in their businesses.
Inflammo helps growing companies access and deploy capital through an end-to-end accounting and finance platform. Schedule a meeting to learn how Inflammo positions businesses to be investable, scalable and ahead of the curve.