With one trillion dollars ready for funding new ventures and with cloud and mobile technology accelerating the speed of innovation, entrepreneurship is thriving. By June of 2016, over one hundred Venture Capital Funds have raised nineteen billion dollars. This powerful combination of technology and capital represents a unique opportunity where the current generation of innovators can get inspired to co-create ventures that result both in economic and societal growth. These new enterprises require venture capital, and raising money is a sophisticated exercise in storytelling. One of the most frequently asked questions I hear is: “How do I prepare my pitch to raise seed money?”
It takes two to Tango, and there are always two sides at the negotiation table. Understanding the needs of both parties is crucial for successful negotiations and a productive pitch.
“Each capital-raising event is unique, and the different players, economic environment, and business climate affect the dynamics of the process. The pitch is an exercise in Communications 101. You need to focus on the story, the target audience, and the delivery mechanism.”
I have been on both sides of the table. I had the opportunity to launch new divisions at ABB, Microsoft, and Yahoo, which required securing funds from each corporation to start the new business. I also managed business due diligences for mergers and acquisitions for large tech, educational, and media companies.
As an Angel investor, I have participated in a handful of seed and Series A rounds.
As an entrepreneur, I helped to close the series A for Concurix (acquired in 2015), and I raised $11M in two rounds for Jobaline where I was also a co-founder, taking the company from ideation to leading in its sector. Right now I am actively advising two enterprise tech enterprises that are raising $2~5M each.
Each capital-raising event is unique, and the different players, economic environment, and business climate affect the dynamics of the process. The pitch is an exercise in Communications 101. You need to focus on the story, the target audience, and the delivery mechanism. The three elements intertwine and need to be adjusted depending on the occasion.
On a recent flight back from New York I came up with the following three steps that have worked for me in the past, whether talking to investors in the US, Latin America, or Europe.
- Understand your audience and target the right investors. If you just needed money, you would go to a bank.
- Find investors that complement you. You want experts that can help you with your blind spots on go-to-market, business development, technology, talent development or operations.
- Go beyond your zip code and beyond your state. Get outside the echo chambers.
- Forget you are raising money. You are only asking for feedback on your venture and intros to potentially interested parties. The best money comes from those that align with your vision, and they will encourage you to take it from them.
- A founding CEO is always raising money and always selling. As a founding CEO, assume that selling the vision to investors, analysts and potential customers will take 50 percent or more of your time; the rest of the time will be spent building a great company.
- Forget the slide deck. Seriously, forget it. Craft your story as a personal and credible story to be told. Start with an article that is 1,000-2,000 words long which will be a 10 to 15-minute story. Once you do that, craft a shorter version that fits in an email, and that can be read on a mobile device without swiping up more than once. This is your door opener. Once you open the door and secure 30 minutes to tell your story, tell that story and follow-up with a demo, even if you just have a prototype. A demo is worth 1,000 slides. If you need some audio-visual help, try a short video, no longer than two minutes, or rely on a simple whiteboard where you sketch the elements that support your storytelling.
“Sell the problem, and sell the human aspect of that problem, before jumping into selling the product or service.”
- Create a leave-behind executive summary and save it in a folder in the cloud alongside reference material, team bios, and professional references.
ARE YOU READY TO TELL YOUR STORY?
“What inspires you? What are your beliefs? What are your motives? Startups require passion and persistence, which flows from purpose. Find your purpose. Show why this venture is personal for you.”
Once you find the answers to those questions, start creating your story, covering the following six critical areas
YOU AND YOUR TEAM. This is a personal loan backed by zero assets and nothing but you and the team behind you.
- Google yourself, and if applicable, your company and see what you find. Your pitch has to fill in the blanks, complement or overcome whatever Google shows.
- Why should investors trust you with their money? What have you done before that positions you well to have success now? What have you completed, launched, created? What have you learned from your failures and successes?
- How do you deal with ambiguity and quick decision-making? How do you deal with failure? Have examples. As a founder, you will likely be operating, during the early stages, with less than twelve months of cash reserves. You do not want to raise too much, and investors do not want to give you money to sit in the bank. Will you panic under those circumstances?
- What inspires you? What are your beliefs? What are your motives? Startups require passion and persistence, which flows from purpose. Find your purpose. Show that this is personal for you.
- Can you afford it? The first leg is a trial period of eighteen to thirty-six months with constant work 24/7. Can you and your loved ones afford it?
THE PROBLEM. Not a solution in search of a problem.
- What is the problem you are looking to solve? Keep it simple.
- Do you have the problem? If you don’t personally have the problem, that’s a warning sign. Investors need to see who in the team is an expert in the problem area.
- What’s the opportunity? Not a revenue graph that mimics a hockey stick, or the “one-percent of one-billion” revenue projection, but a proper sizing of the addressable opportunity and what makes you think it is addressable.
- Expand your idea of value. Define your value in human terms, not in business terms. Your real value is about what you believe in, what you’re trying to do in the world, and how you make others’ lives better.
- Can you describe it in a few words and is it easily understood? Try the “This is like <blank> for <blank> but with this <blank> advantage
- Are you addressing pain or providing pleasure? Talk about people, not about users, and let them speak through you.
- Is it easy to try, easy to observe?
- What is your relative competitive advantage?
- How do you plan to take it to market? Have you done it before? Show the numbers.
PRODUCT DEMO & ideally early traction/user or prospects feedback
- The key focus is your burn rate and controllable expenses. You will likely not hit revenue targets, but you can control how much time you have to figure things out if you control the burn rate.
- How will you make money? What is the Unit Economics?
- What are the key metrics of your business?
- How much cash do you need and how are you going to use that money? At the seed stage, you are building the product, at series A you are testing product-market fit, and later you start to figure out sales and go-to-market for growth.
- What are your blind spots and how does the team complement you? How does the team complement each other?
- What great teams have you built before? How will you build this one?
- Technical and marketing skills – find the balance.
- Finances and biz dev – always overlooked.
- Mentors and advisors – the real deal. Think about value added, not a list of names.
Salazar, Luis J. “Social Entrepreneurship – Our Opportunity and Our Moment.” L J Salazar Tech Society Seattle Ny San Francisco. N.p., 19 July 2016. Web. 15 Aug. 2016.
- Pitchbook Infographic – VC Fundraising H1 2016 – http://files.pitchbook.com/images/2Q_2016_EOQ_Datagraphic_-_VC.png