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Funding 101: Prep

 

Pitching Venture Capital Firms

A fair warning about pitching venture capital firms: No amount of preparation will guarantee that you will raise venture capital. But being un-prepared is the fastest way to fail. You really only get one shot making the right impression with each venture capital firm and the last thing you want is to blow your chances because you didn't spend the time to know your business inside and out.

In the previous section we explained how to find venture capital firms to send your elevator pitch to. Now we’ll explain what you’ll need when they ask you to present.

Executive Summary

Over the years the reliance on venture capital firms to review the traditional executive summary has changed. The traditional executive summary was a 2 – 3 page document that covered the highlights of the 50-page business plan. In the days of PowerPoint and Web profiles, more of this information has moved to short form “just show me, don’t make me read 3 pages” type formats.

Still, it doesn’t hurt to have a well-written 2 – 3 page synopsis of your business handy in case someone asks for it. Not every venture capital firm has embraced the newer techniques and ultimately it’s just a narrative version of your pitch deck and pitch profile anyhow.

Pitch Profile

Most of your introductions to venture capital firms are going to come through email, which means most of the information you’ll want to share is either going to be an attachment or a link. Since attachments can easily get eaten up in spam filters, your best bet is to include a link to your public pitch profile. You can create a pitch profile on Invstor.com or Bizplan which will detail who you are, what your company does, and how to contact you.

The pitch profile doesn’t have to include any public information you don’t want it to, but it should certainly exist in case the venture capital firm wants to view your information immediately.

Pitch Deck

The most useful piece of pitch collateral you’ll have for raising money from venture capital firms is going to be your pitch deck. Your pitch deck is a 10 – 20 slide presentation that covers the basic elements of your business plan, from the initial problem that you are solving to the plan you have for how to exit the business and make a ton of money.

Pitch decks are great because they force the entrepreneur to be brief, work great for presenting information visually, and are most useful in a meeting when most pitches really happen.

As a side note, pitch decks are becoming the de facto response to “send me some more information” among venture capital firms. If you don’t have your pitch deck ready, you’re not ready to be reaching out to venture capital firms.

Business Plan

Contrary to what you may think, venture capital firms don’t actually read business plans, but they are sure glad you have one. Business plans aren’t really about the document itself, they are about the planning that goes into composing the document.

It’s highly unlikely that you’re going to get asked to submit a full business plan to a venture capital firm, but you’re likely going to get asked all of the hard questions that could be answered in the business plan, so putting one together is a great exercise in preparation.

Financials

Of all the documents that you’re going to be expected to be armed with, the financials are the most important.

Most venture capital firms are going to expect a reasonable four year projection of the income and expenses of the business. They’ll want to know how quickly you will be able to get the business to break even. They’ll want to know what you intend to use their money for. And of course, they’ll want to know how you intend to give it back to them with a healthy return.

Be prepared to provide an Income Statement, Use of Proceeds, and Breakeven Analysis at the very least.

Due Diligence

The last item is kind of a catch-all that we’ll call “Due Diligence”. When the venture capital firm gets more interested in your deal, the next phase of discovery is called due diligence. During this phase they will dig into all the details of your business, from your financials to the details of how your business model works.

This is where all of the research and support you’ve put together will be put to the test. You’re likely going to get asked to prove how you arrived at the market size you’re going after. You may get asked to have your early customers talk to the venture capital firm. Assume the firm is going to do its best to make sure everything you said was true actually checks out.

Be Prepared

The time to get all of these materials together is before you decide to start reaching out to venture capital firms.

They are going to assume you are ready to go and are well-prepared. Stalling for weeks to quickly put your materials together after you’ve been requested to pitch is not going to end well, so like the Boy Scouts – be prepared!