Startups: My Five Best Tips For A Successful Early Stage Venture Pitch

Last week I shared an article that contrasted the “lessons” about venture capital presented on the TV show, “Shark Tank” with the real world experience of trying to raise money. The quick takeaway was simply a reminder that Shark Tank is a reality show that is valued as entertainment. It’s not instructional TV—nor is it intended to be.

Shark Tank likes pitches that involve funny costumes and theater. They also like simple businesses that require small amounts of cash and little in-depth consideration. Business that people at home can understand after a couple of beers.

In the mid-90s, International Data Group ran into a similar challenge with one of our conferences. It was named “Demo” and prized great on-stage demos above all else. This approach arose from the early days of the personal computer business when a slick demo was your ticket to sales, fundraising, and a small island with your name on it. People aspired to be “Demo Gods”. And the audience was all but humming “here we are now, entertain us”.

In the early days of the PC business there was a solid correlation between great demos and great businesses. However, as the decade evolved the center of gravity in the computer industry moved from the desktop to unsexy but powerful things like middleware, databases and the web. The Demo conference ultimately lost its reason for being.

An intermission for trivia: One of the Demo God alumni is Melinda Gates—now Mrs. Bill and the second name on the very fine foundation. She won the acclaim for presenting “Bob” an animated cartoon enhancement to Windows. It was a good demo of an insignificant product that disappeared rather quickly.

In the real world of venture capital, you will rarely get funded on the spot just based on your pitch. There are typically two central objectives of a pitch: to recruit a champion within the venture firm who will help shepherd your deal through the committee; and to get that person excited enough that they want to get to know your business better.

Here are five tips that will make your early stage pitch better.

1. Capture your audience early

Most VCs have the attention span of a flea. They will decide in the first minute or two if your business is interesting or not. They won’t walk out typically but if they lose interest they will start checking their email and worrying about their fantasy sports teams. They rarely re-engage. Strip away all the boring stuff. Don’t hold anything back for a slam-bang finish. Use all your best material up front. If you have their attention, the rest of your material will look just fine.

Your number one goal is to get them leaning forward in the first two minutes.

2. Dream big dreams

VCs always ask whether a business is “venture scale”. This translates to “if it’s a success, can this be big enough to forgive a bunch of other failures” because that’s the nature of VC economics–lots of little losses and a few big wins. As a result, they aren’t interested in businesses that don’t have the potential to be home runs if all goes well. It may not make sense. It may not seem fair. But it is what it is.

Dream big or go home.

3. Have one coherent strategy

The first job of a venture CEO is to not run out of cash. The second job is to not get distracted by bright shiny objects. As the entrepreneur recruits people to the team and seeks money, the people that he/she talks to will often try to embellish the idea. They’ll have great suggestions for how to add features and serve new customers. These ideas often find a home in the pitch deck with the result that the company’s strategy appears to involve charging off in all directions at once. Embrace the notion of MVP—minimum viable product. What is the simplest product that your customer will pay for? Then develop a plan that puts all of your energy and resources into bringing that product to market as quickly as possible.

Convince the investor that you know what’s important and will relentlessly execute

4. Match money to mile stones

Especially as an early stage company, the odds are good that you will need to raise several more rounds of funding prior to an exit. Before I can invest in this round, I need to believe that you will be able to finish the job in later stages. With a bridge loan, the operative question is always “a bridge to where?” That’s fundamentally the same question for each round of investment. Where does this round take you?

Think about acquiring provisions to cross a desert. You don’t want provision to get halfway across. You need assurance that you can get all the way, safely across. The same logic applies to raising venture capital and spending it to build a business. You need a plan to get to the next destination safely.

In my experience, there are three possible goals: another round; a sale; or cash flow breakeven. Each of the three is potentially a good endpoint but it’s important to identify which of the three you are aiming for and how you’ll use the money to get there.

How will you use the money you are raising to create enterprise value?

5. Recruit a champion

Committees don’t make anything happen. The safest VC strategy is to wait. For the most part, they have a no cost option on your business. They take a look and then say “thanks, let’s stay in touch”. Unless another firm steps up and locks up your company, the VC can see whether you are building your product, attracting users and generating revenue all without investing a dollar.

It’s like playing poker in a game where you have to play with real money but the VCs can wait until they see many of the cards before they put any chips on the table.

From outside of a firm, it’s incredibly hard to get a big, diverse partnership excited about doing your deal. To get it done, you need an internal champion. This is a person who decides that they can be a big winner because you will be a big winner. At the extreme, they are willing to pound on the table and choke their partners to get the deal done. Only the passion of a strong champion can overcome the inertia of a committee.

Get one partner within a VC firm who will drive your to your deal to completion

Bonus idea: Use this “four act” structure for your pitch
Act 1: Opportunity
i. It’s big, exciting, and available
Act 2: Approach
i. We have a unique way to capture it
Act 3:. Reason to believe:
i. Why are you the team to build this business
ii. Why you will succeed
Act 4: Pot of Gold
i. There’s an IPO or M&A for a good price at the end of the journey and we’re all going to make a lot of money