Top 5 Mistakes to Avoid When Pitching VC’s
As a VC, I get pitched to on a daily basis. The spread between the exceptional and the terrible is quite wide, so I decided to offer some guidance to the greater entrepreneurial community. Many founders might find this advice obvious, but you’d be surprised how often these mistakes are made. If you read this before you pitch me, you’ll be a step ahead of the game. Here are the top 5 mistakes to avoid during your next pitch:
1. You asked me to sign an NDA
It is fairly common knowledge today that venture capital firms do not sign NDAs, especially prior to the first pitch. Many have written on this topic, but the main reasons are that it is completely unnecessary and takes too much time. Chrysalix is one of the few firms I know of that will actually sign an NDA, but only once we’ve gone through many months of deep due diligence and only if there is a compelling trade secret that we cannot evaluate without knowing more. By asking me to sign an NDA prematurely, you’re advertising your ignorance. An experienced entrepreneur (or even someone who has done the bare minimum of their homework) would know that this is just not done.
2. You sent me a business plan instead of a pitch deck
While I appreciate the time and effort you put into your business plan, the fact is that I don’t have time to read it. And if you can’t boil down your company’s value proposition in a short slide deck, then you’re lacking a critical skillset necessary to build a successful company. A really polished pitch deck is an absolute pleasure to read and gets me excited about hearing the pitch. It doesn’t have to include all the information, but it should present the fundamentals of the business in simple terms and engaging imagery. Even a sub-par pitch deck is superior to an excellent business plan. At least, it’s evidence that you’ve done this before.
3. You don’t know your market size
Market size is a key metric that all VCs use to calibrate their evaluation of any prospect. If the market size is below a firm’s minimum threshold, then the upside is severely limited even if the company were to “knock it out the park.” Every firm has a different threshold, but a good rule of thumb is $1B as a minimum. In general, bigger markets are better. That said, I also appreciate it when companies filter the total market down to a smaller, earlier target market, also known as a “beachhead" market. The story reads, “There is a huge market that we can address in the long-run, but we are focusing on this smaller market first because we have a key competitive advantage.” This is a compelling strategy, because VCs are always thinking about how their portfolio companies can quickly reach value inflection points and early wins.
4. You tell me the equivalent number of trees your product will effectively “plant"
This one is specific for energy-tech startups. I still receive pitch decks that talk about how their technology can effectively take X cars off the road or plant Y trees. Yes, we all care about the environment, but I need to know how this business is going to make money. By driving superior economics, your technology has the chance to be adopted at a large scale, which will produce the environmental benefits we all hope for. But no customer (in my experience) will be compelled by environmental benefits as a primary value proposition. I also shudder when I hear an entreprenuer say that an existing or new regulation will compel customers to buy your product. Regulations are not always enforced and they change with the whims of the political parties in office. If your business can not stand on its own without regulations or “green" PR, it’s an immediate pass for me.
5. You don’t have a target fund raise date
This is a more subtle preference. Fundraising is a bit like herding cats. It’s extremely difficult and takes an exorbitant amount of time and energy. By telling me that you don’t know when your fundraising round will close, you’re taking the pressure off me. I can focus my energy in more time-sensitive areas, because I don’t feel a sense of urgency. It also signals you don’t really know what you’re doing. A top entrepreneur will always have numerous irons in the fire and will have a target close date. You can always explain away why you moved your date out, but not having one signals inexperience and naivety.