No matter how convinced you are that your business has legs, a venture capitalist will see it going nowhere unless they are convinced that you can teach it to walk. It’s really not down to your cashflow forecast or your market research. Unique Selling Point? Not always the deciding factor either. The single most important factor a VC will consider before investing in your company is the people running it. Bottom line: if you can convince them that you are the entrepreneur who is going to make them a lot of money, you’re set.
I’ve done some research and it would seem that there are 10 characteristics that VCs look for in an entrepreneur. I’ve also got five points you should consider when trying to convey them. What you must communicate is that you have:
Trust trumps all. Will you do the right thing even when the investor is not watching over your shoulder? They want to be sure that you will.
You need to have enough passion that you could inspire an entire stadium to chant for your cause. The VC knows that this passion will be contagious amongst the people within your company as well as external stakeholders and will drive you through hard times.
Do you have experience starting an enterprise, creating value or taking something from beginning to end? VCs love serial entrepreneurs because even if you didn’t do it right the first time, you’ll have learned your lessons and be better equipped now to create an organisation.
Do you really know your market? Domain expertise is essential.
Notice that this comes 5th on the list. People often think that all you need to do is show that you’re “good” at marketing/sales/management/coding etc. A skilled person does not equate a good entrepreneur. However, skills are important. Let yours be known.
This is easy if you’ve developed a team before. If not, you’ll want to convince them that you have the charisma to inspire, management style to motivate and the ability to get people to follow your lead.
It’s bound to get tough, will you stay committed?
… to project where this is ultimately going.
… to ensure that these projections are rational.
You want them to be fully confident in your abilities. If you’ve knocked 1 to 9 out of the park, chances are they will be. Ultimately, though, they’ll want their opinion to be heard, so they’ll be looking for someone with an ability to listen.
Note that these characteristics must be conveyed, not stated. Here are some pointers to consider:
Your word alone is probably not enough. In some way, shape or form, you should be mentioning that somebody else has approved your idea, that somebody else out there has wanted to work with you, or anything else to assure them that this investment makes sense.
You want to tie your idea to the rest of the world. For example, talk about the problem you’re solving in a way that they’ll relate to, or, perhaps, reference companies they’ve heard of.
Anything that makes them think or forces them to make a mental leap to understand will stop the flow of the presentation. Keep spiel about your business at a level basic enough to be understood clearly, without patronising.
Honesty and Accuracy
Anything you tell them that they know is not true, e.g. “We are the first people to have this idea. We have no competition.” will reduce the validity of everything else that you say. What if the entrepreneur happens to have heard a pitch with a similar product before? Or have a friend whose business would in fact be competition? Avoid bigging yourself up with false or empty claims.
Eliminate inconsistencies, typos or errors. Minimise anything that could go wrong. Make sure you never contradict yourself. Be sure about what you need from the VC. Be sure about how their investment will allow you to reach your goal. Be sure of what your goal is. Be consistent with what you want and be confident in sticking to it.
A pitch is about conveying who you are and getting people emotionally involved. VCs are smart and will have a fairly good nose for smart investments. So remember, the VC is going to invest in your business only if he/she is convinced about investing in you.