What should my pitch deck look like? What do I need to tell the investor? What are the top reasons companies fail to get funding?
Recently, I co-hosted a webinar with my colleague, Carter Freeman, on the topic of startup funding and answered these vital questions, among others. For those interested in watching the webinar titled, “Pitch to Win: Get the Edge in Capital Raising,” please click here or view the video at the bottom of the page.
While we held a Q&A session at the end of the presentation, due to time limitations, we were unable to address all of the valuable, thought-provoking questions raised by the attendees. For those seeking financing for a startup or entrepreneurial venture, below is a selection of questions and answers to help lead you through the funding process.
1. I’m currently developing my business plan and looking for financing. What resources or mentoring opportunities do you recommend?
Most cities have angel investor groups with resources, such as best practices and event-based education that can help new investors learn about the capital raising process. I also suggest networking with successful entrepreneurs. Many want to help others by giving back, so set up an informal meeting and solicit the entrepreneur’s advice and perspective.
2. When is too late to seek VC funding?
VC’s have long-term horizons in order to generate their desired returns. If you have been operating your business and are seeking capital to bridge to an exit in the short-term, you might want to look for other sources of capital. If you have launched your product and are in a rapid acceleration phase, you should have started your capital raise earlier. Even though VC firms will be interested, valuation will most likely suffer if they see you are facing a liquidity crisis. Lastly, if you have managed to build a profitable and growing business and you seek expansion capital to grow your markets, look at traditional business banks to provide debt capital rather than seeking VC money.
3. During the pitch, how should you discuss your competition? For example, should you use specific competitor names or can you use “types” or “categories” of competitors for comparisons?
Be prepared to talk about your competitors in detail. By gathering as much detail as possible, you will earn the respect of potential investors. In particular, be prepared to discuss the competitors by name, their relative strengths and weaknesses, and how your service or product compares to the competition on a feature-by-feature basis. And remember to always discuss your competitors in a positive way. Do not denigrate them as this will signal fear on your part.
4. I think I’ve been overthinking my financial projections for my company. How “accurate” do my financials need to be in terms of projected one-, two- and three-year revenues?
There is nothing worse than a bad set of financial projections, except perhaps a bad business plan. Early stage investors don’t expect projections for startups to be 100 percent accurate, but they do expect a thoughtful and risk-assessed process. You will be judged mostly on your sales forecast, and I recommend a bottoms-up approach. Here, you begin with unit and price assumptions and show the market share that you expect to capture in your total addressable market with the resources you expect to have available via the proposed investment. Never get caught forecasting a market by assuming the total market size and multiplying by your expected market share. I also suggest that you avoid showing an absurdly high profit after three years (they know it never happens and that will impact the credibility of your financial model). As long as you explain the upside to your investor if things go better than expected, it’s OK to discount for risk.
For a comprehensive overview of the startup funding process, including evaluating the investor landscape and key elements of a successful pitch deck, I encourage you to view the webinar below or contact any of our offices for further discussion.
John Brenneman is the Technology Practice Manger for vcfo. While he is based in the Seattle, he supports clients company wide. He can be reached by email at firstname.lastname@example.org.
To download the vcfo resource “Solutions for Early Stage Companies,” click here.