Kunal Lunawat
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The success of a fundraising process is entirely dependent on how well an entrepreneur can manage it. At this stage, it is important for founders to be honest, straightforward and recognize the value meetings with venture capitalists and investors can bring beyond just the monetary aspect.
Here are five pointers that founders should consider while pitching to venture capitalists:
Be honest and accurate
Raising a venture round is, in a way, a sales process, but any claims that could call into question a founder’s trustworthiness can result in a negative outcome rather than an investment.
Here are a few select cases of such claims:
- Overstating traction or revenues, which due diligence brought to light.
- Concealing material attributes of the founding team — such as a co-founder’s commitment to the company, which at best was part time.
- Speaking of committed investors who were about to wire money to the company, except they were still at the due diligence stage and eventually decided not to invest.
Investing in early-stage companies is often about making bets on people. As VCs, we cannot overemphasize how important it is that founders are transparent and upfront. It is critical to help establish the initial seeds of trust with a capital partner.
Further, most investors understand that things change — if there are any material shifts during the diligence process, communicating them promptly is an additional signal of maturity and uprightness. This will go a long way during the capital raise and beyond.
Know your BATNA
Founders often enter conversations with venture capitalists with a good handle on their product and the business. However, it’s common for entrepreneurs to falter at the negotiation stage, not knowing what their best alternative to a negotiated agreement (BATNA) is.
We have witnessed founders who mistake initial interest in the venture market for real commitment, and unreasonably hike their valuation, which results in them losing serious investors. We have also seen founders fail to ascribe the value serious VCs bring to the table and consequently hesitate to discount their valuation, only to later realize that the existing cap table lacks firepower.
The best way for founders to uncover their BATNA is to run an efficient process. This requires:
- Clear communication of timelines to all interested parties.
- Transparent exchange of information to assess ongoing intent and ability to participate in the round and meet timelines.
- The ability to capture signals from potential lead investors that indicate whether the round might be over- or undersubscribed, and use that as a fulcrum to assess where the round should be valued.
Answer the questions
Some of the best founder pitches we have encountered are ones where entrepreneurs answer the questions succinctly and analytically.
Right off the bat, this tells us that the founder has a good hold on their business, as being succinct actually requires more work than going off on a tangent and rambling about the business. It also tells us the founder is confident of their numbers and is not shy about discussing them. Importantly, this approach enables us to understand more of the business, as the concise nature helps VCs ask more questions and leave the meeting with a better understanding of the opportunity.
Make it a conversation
As a supplement to the note above, strong founder pitches also seem more like conversations than rabid Q&A rounds. This is useful because the discussion is more dynamic and VCs can opine, which can let founders assess where a VC’s mind is at and steer the discussion accordingly.
An entrepreneur recently asked us a great question: “With everything that we have shared, what do you think are the biggest risks to the business, and how can we solve them?”
Questions such as these bring more energy and substance to the discussion, and allow VCs to share their line of thinking. Plus, both sides gain something from the meeting, which is the underlying basis of productive outcomes and often the sign of a good negotiation.
Show that you are in control
While raising capital, it is common for founders to scramble as they simultaneously manage growth and try to run an efficient process. While it is okay for pitch decks to not be very presentable or the landing pages to be only partially designed (especially for companies in early stages), founders should consider the following:
- Demonstrate confidence and optimism in the product and the business.
- Show certitude in managing ambiguity, which is central to good leadership.
- Smile and retain a sense of humor, because why not?
As the venture landscape becomes more a meritocratic environment where resumes and institutional affiliations matter less, these strategies can make the difference between a successful fundraise and a fruitless meeting.
Craft your pitch deck around ‘that one thing that can really hook an investor’
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