Wednesday, March 24, 2010

Six Things Not To Do When Pitching for VC

Here are six common sense pitching tips I gleaned from various SXSW discussions. Hope they come in handy.

1. Leave the jargon at the door. The folks that you are pitching have to hear dozens of pitches a week. A buzzword that sounds hot to you, sounds obnoxious and stale to them. Keep it simple and just explain why your business model is great.

2. Ask everyone for advice, but DON'T take it all. When you are fleshing out your business, you should bounce it off of as many smart people as you can. Potential investors. Potential mentors and peers. Potential employees and co-founders. Potential drinking buddies. Who knows where you will gain insight. Generally, you shouldn't worry too much about someone stealing your idea. In the consumer-facing internet space, just about every company has at least three clones out there somewhere. (Obviously, in some sectors where IP is paramount, you should disregard this advice, e.g. Life Sciences, Cleantech, etc.). What will make you successful is your team and their ability to execute on the idea, iterate quickly and pivot when necessary. More feedback is better. But, don't feel the need to incorporate everything everyone says. Show your founders intuition and filter the good from the bad. The only thing worse than a half-baked idea is a pitch deck suffering from feature bloat. Which leads to ...

3. Keep your pitch short and sweet. Don't let it get longer than 20 to 30 minutes and 10 to 15 slides. If you feel like you need more than that, then consider the possibility that you need to learn more about the essence of your business. Work on refining it.

4. Don't make unrealistic projections. Everyone needs to do a TAM analysis of some kind or another. And it is incredibly tempting to find a $50billion market and say to yourself, hey, if we only get 3% market share we will be doing $1.5billion a year in revenues. Sweet. Let's be honest here -- that just simply isn't going to happen. And your potential investor knows this. It is much more impressive if you can do a bit of research and leg work to develop your market from the bottom up. You can still come up with some pretty wild projections, but at least you will have established the metrics against which you should be measured.

5. Please don't argue with the person you are pitching. You aren't going to convince them. They don't like it. Really, no one wins here. If you disagree with a point someone is making, let them make it, respectfully disagree, maybe give a cogent counter example, and then agree to move on. You can still have a successful pitch -- and, in fact, you can use the disagreement as a reason for an additional touch. In a few days, you can contact the person you disagreed with and supply them with strong evidentiary support for your position. Data and proof will overcome most doubts. Also, by following up you will show good qualities to the investor, like follow through, sticktoitiveness and initiative. Arguing just irritates people.

6. Don't get hung up on the pre-money valuation. Too many entrepreneurs meet their waterloo over valuation at the A round. Not only is this shortsighted with respect to future rounds, but it may very well cause the entrepreneur to miss other important issues in the current round. With respect to future rounds, keep in mind that you will suffer much more dilution in a down round if the current valuation cannot be sustained, than you will by doing a reasonable pricing now and a much higher pricing in 18 months when you are raising 5 to 10x the capital. With respect to the current round, keep in mind that the base pre-money valuation is only one of several key terms. If you force an investor to raise the pre to a higher level than they are comfortable with, they will just adjust other, more opaque, terms to get their pound of flesh elsewhere. For example, they could increase the size of the option pool, take a multiple liquidation preference, take participating preferred or take an accruing dividend. As a founder, you may very well be better off with a lower pre-money valuation, but with plain vanilla preferred stock terms and a small option pool.

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Dividends and Preferences by Hank Heyming is licensed under a Creative Commons Attribution 3.0 United States License.