How to Get Ready to Present: Founders need to realize that investors think about their company in a completely different way than they do. Their request for funding needs to be presented within the investors’ frame of reference. Arranging the first round of investment is difficult enough without having it made more difficult by overlooking this fundamental fact of life.
Elsewhere I have written about the wisdom of arranging a professionally supervised red-teaming of a request for funding. I’d like to reinforce that suggestion here. Success in arranging funding is mostly about getting ready and only to a lesser extent about making presentations. It is 80% preparation and 20% execution. The risks of being unprepared are substantial and often can prove lethal to a company’s future.
The venture capital community is itself a tightly knit and interconnected group of professionals who regularly communicate with each other. They are dedicated to improving their results through professionalizing their decision-making process. The early stage investor community is a small part of the total venture capital community and even more tightly connected. Increasingly angel investor groups are behaving like the bigger venture fund managers. Their criteria for investment are tightening. Their expectations from founding teams are for more professional presentations as well as a more thorough going understanding of the company from the investor’s perspective.
Navigating these dangerous waters without an experienced guide is like running through a darkened room full of furniture. Do yourself a favor. If you are going to start looking for early stage investment, get a guide – listen, learn and improve your chances for success. Give me a call or send an e-mail and I will be glad to organize a time to discuss how you can significantly improve your chances of being funded.
© Dr. Earl R. Smith II
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Related Articles:
- Lack of Accountability – The Core of Failure
- Angel Investing – Governance
- Financial Strategies – Some Basic Rules
- Red-Teaming: Improve Your Chances of Getting Funded
- Venture Capital – The First Meeting
- Gap Analysis
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8 Responses to “Presenting to Early Stage Venture Capitalists: A Few Things to Remember”
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Alan, Thanks for the comment and kind words. I am glad that members have found the articles interesting and useful. As to the comment, it is good to remember that venture investment is by far the most expensive way to fund a start-up or early-stage business. As for funding people that investors already know, I’m not sure that the number is as high as 95% but I am sure that it is well over 50%. Most venture capitalists have relationships with CEOs in waiting – people they know and trust. I have known CEOs who have run serial companies funded by the same investor. That being said, I have not seen a higher success rate among these companies – and I have seen some real dogs that were a waste of money. One of the best hints for entrepreneur wannabees is to take a collaborative towards investors – build relationships of trust – and avoid the dogma that “all investors are stupid and all entrepreneurs are brilliant.” Just my two cents, Dr. Smith
Alan S. Michaels wrote:
Hello Dr. Smith,
Thank you for starting this Discussion; and I greatly enjoyed reading your article.
*** I also want to specially thank you for all the great articles you have been posting in our News Tab – your great content has made our News section valuable reading.
As for “things to remember when presenting to early-stage and angel investors”…. about three years ago I attended a major conference with a panel of Angel & Early Stage Investors, and the keynote speaker made a comment that surprised most of the attendees, myself included. He said:
“This is the last place you should come for funding because it is rare you will get any. And for the firms we provide funding to, over 95% of the money we collectively give is to people we already know. For the remaining 5%, the lucky 5%, the fees we require are far higher than what any bank or credit card charges if you could correctly compare the actual costs.”
Is the above true? (All seven of the expert panelists agreed with the above statement, and like most of the 200 in attendance, I accepted it as fact…. but would like your superior expertise.)
Quentin Parker wrote:
Sell the feeling, not the product.
If you sell yourself, you miss the point of gaining interest, because of the focus.
Take yourself out of the pitch as best possible.
Let the product or idea sell itself. Answer their questions, be patient, think about your reply first. There is no rush, no need to perform.
Your best replies are “Yes”, “No”, and “I don’t know, yet.”
Confidence is like laughter, infectious.
The fact that you are in this position with an angel means its yours to lose now.
No one wastes their time on things they are not interested in.
Be brief, succinct and confident.
Janet, Thanks for your comment – I am glad that you found the article useful. Many do not take the time to see the process from the perspective of the investor and that can cause all sorts of challenges. Investors are always impressed by the attitude which focuses on delivery – monitization of the value proposition – and the ability to turn markets into clients. Earl
Janet Nelson wrote:
As I am not an Angel Investor I cannot quote guidelines. But what I can quote from my years in strategy and market growth (from 0 – $100M in just over 3 years) paying attention to the risks and then putting the plans in place to offset or mitigate the potential bad-news is equally important as ‘selling’ the good news. I’ve found it the best way to 1) get my management to fund the activities and 2) deliver without failure.
Thomas M. Loarie wrote:
Well done. Since I am one of those legacy people in the industry, I always pitch first to those who know me well initially. I am able to discern the gaps that need to be filled in very quickly. It is most important for those that have not traveled this path before to remember that each presentation is a learning experience. Accept the learnings and integrate them into a revised pitch. The pitch and the plan will have a life of its own. Be flexible but be persistent.
Ralph Mango wrote:
I have been involved in 2 such situations. In one, we were dealing with venture capital for a financial services venture. Among several mission-critical issues I posed to the two principals was whether they expected to start from a flat-footed start, ground zero, if you will, or was there any possibility that the investors could provide deal flow. In the first scenario, it could take as long as 18-24 months to reach break-even; in the latter, break-even could be reached as quickly as 12 months. Each scenario obviuously carries significantly different capital requirements. In presenting financial projections, I have always subscribed to a best-probable-worst case trilogy wherein the assumptions for each are accompanied by identified risks to each plan, as well as management’s proposed risk mitigants by which to compete. It is vital that management open their thought processes, conflict resolution, and problem solving approaches to the scrutiny of those who are writing the checks. Their survey of the industy, the comeptitve landscape, regulatory, if any, environment, are examples that cannot be understated.
Finally, the unexpected. In the situation I mentioned earlier, we were assured by a lead investor that they would provide deal flow from the outset. Accordingly, we raised $ 5MM. Subsequently, their executive team decided to withdraw from that commitment, ultimately sinking the enterprise before it really gained traction.
Dr. Smith,
I enjoyed and appreciated your insight as usual. Thank you!