However brilliant your business idea might be, here’s the reality: Venture capitalists hear hundreds, if not thousands, of pitches per year.
So what sparks a VC’s interest? Every investor, like every consumer, is looking for something to get excited about. With that said, there are a few ways to pique every VCs interest with your pitch.
Remember, you’ll only get one opportunity to make your pitch. Here’s how to make it stand out from the crowd:
- NAIL YOUR NUMBERS.
VCs can appreciate “cool” like the rest of us, but the reality is that they’re investing in potential upside and using your existing progress as a key data point. If you can’t show them numbers that suggest your business has traction, then you’re better off waiting to pitch and focusing on building those results.
Which metrics do VCs care most about? That depends on the stage they specialize in. You should speak with VCs themselves to know for sure, and ensure that when you go to raise you will be in the ballpark. If you don’t do this, you put yourself at a massive disadvantage right off the bat. Less fluff, more results.
Early-stage investors like me look at early traction around:
- CUSTOMER ACQUISITION COST
Just how expensive is it for your startup to sign a new customer? Blended CAC refers to your total cost to acquire a customer divided by all customers, no matter the channel. Paid CAC, meanwhile, describes the price to bring in a new customer through paid channels. Be prepared to share both numbers in your pitch.
- CUSTOMER LIFETIME VALUE
How valuable is each customer you acquire? Without this information, your CAC doesn’t mean much. It’s OK to spend a lot while acquiring a high-value customer. Startups with a low CLV can’t spend much selling customers if they’re going to be profitable.
As a startup, what if you don’t yet know the true lifetime value of your customers? Do it the rough way: List out all your sales, describing the amount and source of each. Add up the total customer value of each source — remembering to subtract your cost of goods sold — and divide each group’s spending by the duration of spending.
- MONTHLY RECURRING REVENUE
VCs like me care about recurring revenue because it creates stability. A subscription customer doesn’t need to be resold, and this revenue base makes financial modeling easier. Any company seeking over $1 million from a VC should be able to show at least $50,000 in MRR, with a plan to grow that MRR to $80,000 within half a year.
- WEEKLY REVENUE GROWTH
On the note of revenue, this metric is all about showing fast growth. Shoot for 5-7% revenue growth per week, which is speedy but not so fast the startup risks implosion. This will naturally slow down as a company grows.
- TOTAL ADDRESSABLE MARKET
No market is infinite. One issue with highly specialized or expensive products is that they may not have many potential buyers.
There are two common methods for calculating your TAM. The top-down method uses industry reporting, such as, “Forrester data shows this market will be worth $6 billion by 2025.” The bottom-up one, on the other hand, uses early sales and audience data to calculate TAM. This tends to work best for niche companies that know their user base and have an established price point.
There are dozens of other metrics VCs use: gross profit, annual contract value, active users, churn, burn rate, and more. If you have a relationship with the VC prior to your pitch, simply ask what metrics they like to look at — which brings me to my second tip.
- TAILOR YOUR PITCH.
Numbers impress investors, but tailoring your pitch sets you apart. Before rattling off a half-dozen data points, explain to the investor why you’re approaching them.
Before you pitch an investor, dig into their background. Remember, VCs specialize: You probably won’t have much luck pitching a new fintech service to a former hardware developer.
In your pitch, make sure to address:
- WHAT THE VC CAN BRING TO THE TABLE
Nobody is good at everything. Don’t be afraid to point out weak spots of yours that the VC can shore up.
Are you clueless about exit or acquisition strategy? Is product strategy your Achilles Heel? Look for areas where the VC can augment your skills.
- SIMILAR STARTUP INVESTMENTS
Has this VC invested in companies like yours before? Great: Prove that you’re in the same swim lane.
If you don’t see similar products in their portfolio, maybe the match is your audience. If you received a warm intro from your CTO, perhaps you play up the relationship.
- PERSONALITY OR CULTURE FIT
Just like entrepreneurs themselves, some VCs are laid back. Others are more particular or hands-on.
Whatever you’re looking for, be clear about it. You don’t want to find out your personalities aren’t compatible after you’ve tied the knot.
When in doubt, start by describing a few things you admire about the investor. Much as I hate to admit it, VCs have egos. If you’ve always appreciated Mark Cuban’s straight-to-the-point style or breadth of business interests, point that out in your pitch to him.
3. DEFINE THE PROBLEM IN SIMPLE TERMS.
You may be pitching an esteemed business professional, but that doesn’t mean the key to their checkbook is jargon. Describe what your business does in simple terms, as if you were explaining it to a child.
Broadly speaking, your pitch needs to do three things:
- STATE YOUR USER’S PROBLEM OR OPPORTUNITY.
What causes someone to buy your product? Prove that it’s painful — or alluring — enough for them to pay for a solution. Another product’s missing feature is not a “problem.”
- DEFINE THE SCOPE.
If just a handful of people experience your problem or opportunity, then your product probably isn’t worth developing. Think about roles, and try to put data to them. If you have an edtech product that facilitates remote learning, you might point out that America has more than 3 million full-time teachers
- PROVE THAT YOUR SOLUTION IS THE BEST ONE AVAILABLE
The iPhone wasn’t the first cell phone, or even the first smartphone — but it was the best-designed and most user-friendly one. Play up what makes your product different.
One pitfall to avoid here? What I call “Swiss Army Knife syndrome.” Pointing out how many features your product has suggests you don’t know your audience, you over-spent on your MVP, or both.
The good news is, VCs are people, too. Do prepare for your pitch, but don’t be intimidated. The worst they can say is “no,” and if they do, there’s probably a better fit out there for you anyway.
Do you have a business idea to pitch me or questions on how to prepare your pitch? Reach out for a consultation.