Getting a VC to commit to invest is more complicated (but usually briefer) than a marriage proposal. It requires that investor to make a highly personal commitment, and also recruit the other members of the firm. Every venture capital firm has its own highly individualized and distinctive approval process, which is a fascinating study (if you like studying how groups make decisions).
Starting at the end of the “customer sale” process, the investor (aka the “customer”) must reach some level of conviction to proceed with an investment in the company. There are a number of triggers that get investors over this bar; other offers (highlighting social proof and scarcity); deadlines; “deal diligence momentum”; investor seasonality (some investors will actually advocate for investments in December or at the end of a fund cycle); etc.
What great entrepreneurial fund raisers do is custom tailor the sales cycle to each hot customer prospect to find the triggers to get the investor over the hurdle. The best entrepreneurs get two or more buyers over the hurdle at close to the same time.
So what does this sales/evaluation process checklist look like? Each investor and each firm has a set of investment styles. For any company that they evaluate, they intuitively pull out criteria appropriate for the style that they feel that applies to the company.
To give a concrete example for how consumers do this in a different field, imagine a car buyer making a purchasing decision. He or she will use different criteria for a used car than for a new car. The buyer will also use different criteria for a sports car than for a van. Businesses actually have much more variability than cars, and therefore the specific, usually not vocalized, implicit criteria can be wildly varied.
All that said, we do bucket characteristics of companies into categories. We say things like the following: market opportunity; team; business model; traction and capital intensity. In the process to a close, the entrepreneur has to pull out the material that will best court the prospective buyer. The later the stage of the company, the more consistent the criteria and weighting of it. On the other hand, early stage and seed investment is highly varied.
So now to the pitch. The purpose of the pitch is to launch the sales process. Great fund raisers will use it to screen out who won’t likely get over the finish line, but that’s a long discussion on how to do that well. In any case, the primary function of the first pitch is to get the likely buyers to eagerly want to take another step.
What an investor is trying to answer in first pitch is the following:
- What is the problem?
- Why does the problem matter?
- What is the solution?
- Why should we care?
- Why should we believe that the company can pull off the solution?
- Why should we believe that if the company is successful, it can keep the benefit from the solution?
- How big will the company become on its own?
- How much strategic value will it have?
All but the last two questions come out of that “fundamentals of a startup” framework I use: an enduring business delights customers profitably at scale.
What I personally like to see in a pitch is the following:
- Company name
- What the company generally does or what its mission is
- The problem (or the market opportunity)
- What the company more specifically does
- The company’s clever approach (or traction)
- Competitive positioning
- Team (or have team as #3)
- Amount looking to raise
You can also go through the thought experiment of what the CEOs of Zynga or Facebook or Apple might say. Compelling entrepreneurs have a great narrative and have deep coherency in how they tell their story, and draw inspiration from those who do it best.