Businesses don’t just grow overnight as if by magic. They take months and years of hard work, sacrifice, and investment – and sometimes they need a little helping hand to realise a founder’s lofty ambitions.
Approaching a VC for investment could be the key to unlocking your business’ true potential. However, we appreciate it’s not easy and can be more than a little nerve wracking and overwhelming.
Here at Praetura, we’ve invested in plenty of early stage businesses – so we know what it is that makes an investment pitch stand out against others vying for our attention, money and expertise.
If you’re going to approach a VC for investment, read these 6 essential tips for getting the thumbs up.
Tell us why you’re unique
Similar to applying for a job, securing investment is incredibly competitive, and it’s getting more and more competitive all the time. VCs are approached with new opportunities on a regular basis all vying for their time and money.
With such a competitive landscape, you need to show what makes you unique. Why should a VC invest in you over the other founders who believe they’re a better prospect than you?
Show the VC what makes you and your business backable. You want to leave them feeling like they have no choice but to invest or risk missing out on a guaranteed return. No-one wants to be Dick Rowe (the guy from Decca who turned down the Beatles), so find that USP and sell yourself.
You may only get one chance, so make it count.
Have a well thought out business plan
Talk to some founders and they’ll tell you how they wowed the socks off investors and secured funding without a business plan. They may well be telling the truth, but they’re very much the exception to the rule.
Most institutional investors will want to see a detailed business plan accompanied by an integrated financial model covering areas such as profit and loss, cashflow and balance sheet on a monthly basis. Make sure you have all bases covered.
Make sure your figures stand up to scrutiny, too. In a very basic and slightly lazy comparison, how many times have you watched Dragon’s Den and seen pitches fall down because their business plans unravel as soon as the Dragons start to pick them apart? VCs may drill down into your plans, so make sure they’re as watertight as possible.
Speak with your accountants, business partners, even your family members, to make sure there are no glaring errors in there before you pitch.
Perhaps the worst thing you can do is not be honest with a potential investor, so make sure you lay your cards on the table from the outset.
Don’t shy away from any personal or business challenges you’ve had in the past. Everyone’s made mistakes and bad decisions in the past, but any decent VC will appreciate honesty and transparency. They can even help you overcome any long-lasting issues or help prevent you from making those same mistakes again.
There’s nothing worse for an investor than unearthing a problem that should have been disclosed from the start. The real problem then becomes the integrity of the founder and the damage that can have to future business relationships.
Be realistic with your valuations
This can be a very emotional area. There’s nothing that turns an investor off more than an inflated valuation of company. When we see unrealistic valuations, it’s usually down to one, or a combination, of the following:
- Miscalculations, guess work, or an inability correctly value the company
- Not being honest about the valuation
- A level of arrogance
If you’re just going to pull a number out of thin air or compare yourself to another company that’s raised millions and claim yours is better, then it’s really not going to get you very far. Consider the stage your business is at, the traction it currently has and make accurate projections based on past performance and where you realistically envisage it going.
Most VCs will be open to a debate around valuation, but they’ll still expect you to have done your homework and be able to back up the valuation you make.
Again, honesty is always the best policy – backed up with accurate numbers if possible please!
Consider the addressable market
We see plenty of pitch decks containing information on the market opportunity and what they consider the addressable market. This makes sense in theory as it is important to take these things into consideration. However, on far too many occasions, this is poorly executed and often feels more like a box ticking exercise.
Many simply don’t factor in large aspects of the addressable market, such as existing market players, new competitors, or the difficulty of accessing that market.
Now this isn’t easy. Some investors may advise you to think as big and as broad as possible in order to show your ambition. However, that very much depends on what stage your company is at. For younger or smaller scale companies, a well-considered more focused addressable market will earn you much more credit than a huge high level market that you may never reach.
Listen to feedback
VCs back management teams and look for individuals and teams they can work with. You may not agree with what a VC has to say about your business or your pitch, but everything they say will be based on experience and be for your benefit.
They’ve seen hundreds of pitches and know if your business plan and valuations hold water, so listen and take on board what they have to say. If you’re open to suggestions rather than being inflexible in your approach, then even if this pitch isn’t successful, you’re much more likely to win the investment next time around.
Of course, you don’t have to act on everything they suggest, but being openminded is an invaluable trait to possess in such situations. It shows that a management team can listen and work with a VC even before investment, which bodes well for potential future working relationships.