Every day, investment firms receive countless emails from entrepreneurs eager to pitch them their next big idea. And every day, business founders worldwide spend countless hours refining their pitch decks in hopes of landing the capital they need to grow.
Unfortunately, there’s often a disconnect between what founders want to say about their company and what the investor wants to hear. I suspect this disconnect arises because founders struggle to look at themselves through the eyes of an investor when they craft their pitch.
If you’re a startup founder trying to attract capital, here are six concrete steps you can take to maximize your potential for getting that game-changing “yes.”
Do your research
This first tip may seem obvious, but you’d be surprised how often founders get this wrong. The very first thing you should do is to thoroughly research the venture capital firm you’re approaching. Just as you target customers who you think would buy your product, you need to target VCs who show an affinity for your space.
Find out answers to the following: Does the VC have existing investments in your industry? And does your growth stage meet their criteria? If you need $2 million for a Series A but the smallest checks the VC firm typically cuts is $5 million, you’re not going to receive an investment. Investigate as many firms as you can to build your understanding of which of them is right for you. Invest in strong due diligence and you’ll save yourself time down the line pitching firms who simply aren’t a good fit.
Build long-term relationships
If you meet with a VC who declines your investment opportunity, “no” doesn’t have to be the end of the conversation. Instead, notice if the investor asks you to “keep in touch.” I, and other VCs I know, utter these words sincerely, because we want you to keep us updated on your growth. “No” might actually mean “not right now.” Quarterly investment updates via email are a great idea. Every six months or so, you might also try to grab a coffee with a target investor or reach out in some other way.
Tell me you want to talk to me about where the business is, where it’s going, what you’ve learned and what challenges you’ve faced so far. You might not get a meeting every time. Time is precious on both sides. But if we stay in touch and you’re making good progress, you’re keeping the door open for a future investment opportunity.
Think beyond the dollar sign
Growing a business requires more than financial capital. The right venture firm can help you with every aspect of accelerating your business. Think: acquiring talent, running operations, developing strategy, opening doors and more. To put it simply, know what you don’t know, and demonstrate to me that you have a holistic understanding of why we’re a good fit for each other. When I make an investment, I’m investing in the entrepreneur as much as the company. So, if I feel like you’re coachable and already thinking about how I can help you, I’ll have greater confidence that we can build success together.
Target your market
One of the biggest mistakes I see entrepreneurs make happens when they talk about their market. I’ve heard countless iterations of, “There are 1.4 billion people in China and we think we can capture five percent of that market.” You’ve got to get more specific than that. Savvy investors want to see a detailed market analysis. Analyst reports can be a good place to start. At a bare minimum, your market analysis should include the current state of the market, how much it’s growing, what share your competitors have been able to capture and the total market size.
Often, entrepreneurs come in talking about all the different applications their technology could be used for. While that’s theoretically impressive, what I’m really looking for is focus. A big idea is one thing. I want to know how you’re going to get there. The nature of entrepreneurship requires founders to keep their eyes on so many targets that it’s easy to get distracted. And distraction leads to mistakes. Show me you have a plan.
Show me you have targeted a particular customer segment and have a roadmap to solving their problem. Articulate your growth strategy. I love to hear, “Once we’ve penetrated this market, our next step will be…” The more doggedly focused you are, the more confidence I have in your ability to get things done.
Be realistic about the competition
Articulate how you’re different than your competitors. I want to hear more than “we’re the best.” Grandstanding is less impressive than an accurate self-appraisal. Give me the good, the bad and areas of improvement. Look, you’re never going to be better than your competitors on every front. We don’t expect that, and it’s a red flag if you do think that’s the case. Instead, what’s important is that you have a realistic assessment of your competitors’ strengths—and a plan to take advantage of their weaknesses.
Most of all, when you’re trying to attract capital, remember that the conversation isn’t all about you. Instead, make it about how you and the venture firm can work together to build something incredible.
About the Guest Author: Cres Ferrell is Vice President at BIP Capital, a venture investor in the Southeast serving entrepreneurs, investors and operators. Cres currently focuses on SaaS businesses and how to apply their growth to new markets. A non-traditional VC, Cres began his career in engineering after graduating from Georgia Tech, and went on to spend 15 years working for corporations in manufacturing, retail, consumer products, business services and consulting. Cres established himself as a successful entrepreneur after building and selling two prior companies – COLDfire Technology and 4th Strand, with a greater than 50X return to investors. Follow Cres on Twitter @cresferrell.