A short pitch may not be good length delivery in cricket, but it sure is in VC world. Today we are going to talk practical things associated with pitching (or is it bowling over) to VCs such as:

• Am I ready to start approaching VCs
• How to identify the right VC for your idea
• How to approach a VC
• What do VCs look for – what’s a desirable format to use for presentations

The process of raising institutional money can be one of the more physically and emotionally draining parts of starting a business. It can drag on for weeks or months, taking away your focus from your business. And even after all this time, the deal still might end up collapsing. So, before you jump into this process, you better have some clarity on the whether you and your idea are both ready for VC money or not. [For those of you new to this series, please read the introductory post here.]

Ready, Steady, Fund….

No VC is going to write you a cheque unless they are confident in your idea and in your abilities to deliver upon the vision (ooh big word!) that you have for your idea. And this does not mean that you just have to be good at spinning a story so that a VC will believe everything you say. Any experienced VC will be able to see through you very quickly.

As an entrepreneur seeking funding, you need to demonstrate that you are clear in your own head about what your idea is about and how you are going to build an economically viable business around it. Only then will you be able to inspire some confidence in the VCs and capture their imagination on the value creating possibilities that potentially exist in your venture.

If all you have done is dreamt of an idea with a friend over a beer and done some market research with your Tau or Chacha, sounds like you might need a lot more work on your idea.

Often first time entrepreneurs in India are unclear in their own heads about what their idea is about. In fact, many are even not able to articulate it in an easily understood manner either. I am told that the situation is much better this time around than it was in the late 1990s and I am confident that it will only get better as the entrepreneurs get more learned about the process.

There are two perspectives on whether you are ready for VC money or not. The first perspective is yours (i.e., the entrepreneur’s) and how you see your status. The adrenaline rush of doing your thing will drive entrepreneurs into believing that they are ready for institutional funding, no matter how premature it might be.

All I can say is that VC funding taken prematurely can be very expensive capital, i.e., you will end up giving up a lot of your company ownership to the VC because many things are unproven about your idea or business model. The VC will expect to be compensated for this risk.

So, thinking about it from the entrepreneur’s perspective, try your best to ensure that you have attempted the following:

• Exhausted all other sources of funding (bootstrapping, loans from parents/relatives, but please stay away from credit card debt – this is not the US, your card limit is unlikely to be high and the types of cards aren’t that innovative to balance transfer endlessly etc.)
• Done some testing of your hypothesis, prototyped your product, or offered an early version of your service – any proof of concept that can demonstrate your idea’s potential and offer evidence to strengthen your business case. This is especially important if you are building a new technology, or have a different business model that has no precedent
• Talked to some knowledgeable people around you on how you can think about funding your business. This could take the form of talking to mentors, other entrepreneurs around you or alumni/friends who work in the investing business to give you some feedback on whether you are ready for VC funding or not
• Done everything that you could have done with a small pool of capital and are now ready for prime time. You have got answers to a lot of questions that existed during the early stages and, equally importantly, by now you have a good understanding of how you will use the money that you are looking for

The second perspective is that of the VC’s (the institutional investor) and how he/she might see your status. VCs will be searching for some or all of the following.

• Have you achieved most of the milestones that you could have reasonably been expected to achieve, on your own time and dime. Now you need money to take your idea to completion and commercialize the prototype
• You have proven the idea, the business model and the early economics, and now need more money to scale the business and execute your business plan
• Is the market ready for your type of product or service, or are you ahead of your time
• Do you have the right team in place for the VC to even begin to get involved
• Do you have some metrics (revenue, customers, product shipped, downloads etc.) that can give some indication that your business is getting traction
• Do you understand the competitive scenario in your industry

VCs will often offer the feedback that you should develop the idea a little more, test a little more, get more customers, maybe get some revenues etc. Sometimes, its just a polite way of saying “No.” At other times, they might be genuinely giving you feedback that will be useful to you in the medium term. They want you to go away and do some more work or get some customers. But to do all this testing and customer acquisition you still need money, so what can you do?

If you have exhausted all your options, you might want to consider the prospect of raising an Angel or Seed Round of funding. Angels and seed investors might be rich individuals or institutions who are partial to or specialize in really early stage type of deals. They could be involved right from when the idea is being born or taking its early form, to when you have done all the research and need some capital to build a prototype or test market your service.

Again, seed capital can be expensive money because in this early stage of your venture the risks associated with your business are still high. Let alone not having revenue, you might not even have a line of sight to revenue. However, because your need for capital might be very modest, you don’t need totally mortgage the company to get this small amount of capital.

An Angel or Seed Round might also be a positive influence in raising a Series A with a VC in the coming months. Many angels and seed investors are well connected within the VC community and they can further add credibility to your case when you are finally ready to start banging on the VC doors.

My suggestion would be that before you jump into the VC funding process, get some critical feedback from people around you who can candidly talk to you about what stage of evolution your business might be in. Remember that if you are stubborn about raising VC funding prematurely, not only could it be a bad economic proposition for you, but you might also just end up being laughed at or not being taken seriously.

Finally, a word on the context in which you might find yourself fund raising. The VC funding market oscillates between the extremes of greed and fear. Sometimes, there will be more money in the market than good sense. Premature and half baked ideas get funded because nobody wants to get left out. All power to you if you can time this really well and convince someone to part with their money.

At other times, the funding market will be so tight that not even great ideas get funded because everyone is overcome with fear and the threat of a nuclear winter. Just too bad if you happen to be raising money at this time.

All in all, if someone is ready to give you money, you better have a good reason why you don’t want to take it. As long as the valuation isn’t totally astronomical (because high valuations can hurt you in future rounds), take the money. You never know when the funding climate might change and you need to hit the road with your bowl in hand.

Looking for a VC, who stands tall, is fair and understands my business. Portfolio should be full of gold medals

Not all VCs look at deals in all sectors and across different stages of a company’s growth. Be careful in choosing who you approach. Don’t waste your time if you know already know that the kundli’s are not compatible.

Sometimes, there are specialist VCs who only look at some sectors. “We do tech, but don’t touch consumer.” Or, “We do stuff where you can touch the assets, but stay away from tech because we don’t understand it.” So, don’t make the mistake of sending your pitch to someone on whom its going to be wasted. We’re in the 21^st now, and it should be easy for you visit the VC’s website to see what type of sectors they look at and what types of companies have they funded in the past. Shortlist your targets accordingly.

Similarly, there are many VCs who might look at early stage companies where they can work closely with the entrepreneur to influence the direction that the venture might take. Other VCs might stay away from the higher risk of early stage ventures, and fund only those companies where the concept risk has been mitigated and the venture now needs large amounts of capital for growth, execution and to achieve scale.
Again, ask around to figure out whether you are targeting the right audience for your stage of growth. Figure out which VC is better suited for your venture’s stage of evolution. And understand how much autonomy are you willing to give up, or how much of supervision are you in need of.

All suitable matches apply here

You can email a VC or call them directly to tell them about your idea and request for a meeting. Many VCs in India are receptive to such cold calls because they are all creating a brand for themselves right now and because they like coming across a flow of ideas irrespective of how these ideas show up (like we said in the last post: good ideas, like death and flatulence, can come at anytime). However, not all VCs like this cold calling approach.

Keep in mind that your typical VC is probably as busy if not busier than you are. Just like you don’t like receiving unsolicited phone calls from pesky insurance sales agents, VCs might not be comfortable receiving an unending daily flood of calls from entrepreneurs selling them yet another world changing idea. The truth is that there are very few truly world changing ideas. VCs have heard this line about as often as they hear or say “good morning.” So, VCs might not take you seriously unless you can demonstrate some kind of social proof or if someone who they find credible tells them that your idea is indeed world changing.

As a preferable alternative, try approaching a VC through a referral. This could be someone who the VC knows such as an investor in their fund, a classmate, former colleague, a portfolio company, another VC. Such a referral will most likely position you a little differently and make you stand out from the 100s of other unsolicited messages VCs get. You’ve just created some social proof by increasing your credibility in the eyes of the VC by going through someone who the VC knows, respects or has worked with before. Because this intermediary’s own credibility is on the line, they will not refer you to the VC unless they really find merit in what you are doing and a potential fit between the two parties.

If someone is helpful enough to make the referral/introduction, have the courtesy of thanking them and keeping them informed of your progress. It can only help you. And equally importantly, do follow up immediately with the VC. Don’t lose momentum. It will reflect poorly on you if it takes you three weeks since the referral was made to contact the VC.

A short pitch = good length delivery

Like we said above, VCs are busy people. Their in-boxes are highly popular. They have lots to read. So don’t waste their time – when you are drafting a presentation for a VC get to the point quickly. What’s your venture’s big story and why is this a huge opportunity. Address all the issues that VCs typically like to know about.

While styles might differ, generally speaking your VC pitch should include the following:

• Introduction: This is where you can give the headline about the idea: what do you do, who for, which existing business are you like, what’s your revenue model, what you current progress has been so far
• Team: Who are the people behind this venture, what qualifications/experiences do they have. Some like to see this section right upfront because at an early stage this business is about the people. So satisfy this curiosity right upfront
• Problem / Solution: What’s the problem and what’s your solution to it
• Market size: How big is this problem, how many people need a solution. What is this market growing at, how big is the opportunity
• Competition: Who is currently addressing this market – what’s missing, why are existing offerings inadequate. How will you compete and win – what will get you ahead of the pack
• Economics: What do the numbers for your business look like and what are the resulting economics. How will you make money, some projections for at least the next 12 months and if you can credibly estimate up to 24 months share that. Good time to also talk of past performance if your business has already have gained traction
• Risks: What can go wrong – technology, execution, regulatory, people risks. How can you think about mitigating for some of these risks
• Capital needed and use: How much money are you looking for and what will you use it for. What milestones will you be able to meet and over what period of time

If you really want a VC to remain engaged during your interaction with them, here’s a few tips on formatting and presenting.

• Keep it short – Like this. No more than 20 slides
• Use few and short bullet points – Like this
• Use simple English and simple images/graphs – your intention is to communicate, not to confuse. If you can’t articulate your idea in a simple manner in a bullet point or two, you probably have not understood the idea yourself
• Use an appendix – if you must add to your 20 slides, then send all the back-up stuff to the appendix. It does not distract from the flow of the main presentation, but is there in case you need it
• Ask the VC how they would like to use the time allotted to you: if they have gone through the presentation already, they might want to get to questions straight away
• Who gets to talk: If there’s 2-3 of you in the team, which one of you is going to talk and on which topics. Who is going to answer the questions. Don’t contradict each other or talk over each other, you’ll look like little kids. Its no shame in having a signal or two figured out among the team members on how communication will occur
• Rehearse: Whether you are shy of presenting or not, you will improve and gain more confidence if you practice your pitch
• Test your equipment: Get to the venue ahead of time and test whether the equipment (like projector etc.) you are using works or not. Have a back up of your presentation on a USB drive, in case your battery were to die on you
• Distribute hard copies: Don’t expect VCs to come with a copy of your presentation handy. They might want to jump around and not follow your pace on the overhead projector. Give them hard copies, otherwise they will only get impatient. Plus, they can use it to take notes

If you do get the opportunity to present in person, you will probably have a discussion that can range from being free flowing to being all over the place. Use the slide presentation as your prop and activate when needed. Its more than likely that VCs will be rapidly throwing questions your way. The face-to-face meeting can give you a chance to talk about a lot of the details, if the VC is interested, on items that you were not able to include in the presentation. But, again use your air time judiciously. Don’t waffle and go off topic. Directly address the questions being raised.

Here’s a list of the pet peeves that Indian VCs have regarding presentations and pitches from desi entrepreneurs.

• Team: Not enough talk about the team, its motivations, how much can you adapt your roles, your weaknesses, gaps in the team, roles to be played by different members
• Competition: For some reason very few people feel secure enough to discuss competition. Don’t dismiss competitive threats, but rather show some genuine analysis or thoughtfulness around how you will win. Not only does it show analytical rigour, but it also shows strength and confidence if you can candidly analyze your competition and how you stand up to what’s out there
• Too much of macro data: Given the context today, you don’t have to brief someone about India, the macro conditions, history and so on. Spend less time on this, and more on what are the 1-2 things that you will focus on that will give you a sustainable ability to compete successfully in your chosen market
• Listening skills: Too much of sell, sell, sell mode. Of course you must sell, that is why you are pitching. But, every once in a while take a deep breath and listen to what the VC is saying rather than just keep talking. And take some notes on what they are asking you. This can help you be better prepared for your future meetings
• Soliciting feedback: VCs evaluate ideas for a living. They meet many different entrepreneurs regularly. They have a perspective on what’s going on. They study trends and pre-empt them. Use this opportunity to get feedback on your idea, improvements you can make to your business model and references to experts you can talk to. Again, it will be a sign of strength if you do this. Take whatever they are saying as constructive feedback. Take advantage of a VC having spent sometime with you to pick their brain

In the next few days we will talk about how much money to raise, valuation, terms sheets etc. If any readers or VCs have some good formats for presentations that they would like to recommend, do your good deed for the day and share with all of us. Until then, stay away from wide balls and just use short pitch deliveries. You’ll be much safer.

If you have any questions or comments please email them to startup@iTrust.in. I would like to thank (in alphabetical order) Alok Mittal of Canaan Partners, Kanwaljit Singh of Helion Venture Partners and Suvir Sujan of Nexus India Capital for sharing their respective experience with Indian entrepreneurs approaching and presenting to their respective firms.

The author is a co-founder of a financial services start-up, www.iTrust.in.

Tags: Entrepreneurship in India