Platt Perspective on Business and Technology

Creating a clear and compelling focus when reaching out for venture capital funding support

Posted in startups by Timothy Platt on May 19, 2019

I have written a number of times in this blog, about venture capital funding as a means of jumpstarting a new business as it seeks to take off. And I have written here in at least general terms and about their overall average success rates from when they make their investment decisions. I have also written about the due diligence business planning and execution requirements that these investors require be met by the founders and owners of any business that they would invest in, as they seek to improve their changes of both preserving their investment capital in them and their chances of gaining significant profits from them. To take that detail out of the abstract, I repeat here that it is not uncommon for venture capital backers to insist on having a say as to who will carry chief financial officer responsibilities in a new venture, and particularly if that is not a strong suit for any of the founder entrepreneurs they are meeting with.

To repeat a significant detail here that goes a long way to explain both the prudence and the level of direct involvement that these investors show when selecting the new businesses that they would invest in, on average if a careful prudent venture capital firm invests in ten businesses that have met their basic selection criteria, then they can expect that:

• 4 of those ventures will have failed within their first five years,
• 3 will still be in operation but just be breaking even financially as based upon their actual revenue streams (thereby discounting business ventures that are being propped up from outside monies such as life savings from a founder),
• 2 will have reached at least a modest though reliable level of profitability, and
• 1 will have proven itself to be dramatically successful and profitable.

The problem is that it can be effectively impossible up-front to tell in advance which that one break-away success will be, or even which of these investment opportunities will ultimately fail. Standard and routine does not generally lead to break-away success and massive profits, even if it is more likely to actually succeed at least at more modest return on investment levels. It is successful businesses that are built around New and disruptively New, that if they work out are more likely to do so BIG. And this adds both greater uncertainty and greater risk into these investment decisions.

My goal for this posting is to in effect question, or at least expand upon the vision and understanding of venture capitalists and their business practices that I have just offered here. The 4:3:2:1 success model that I just repeated here is so often repeated that anyone reading this has probably read or heard it many times before, just to cite one of my above-written details. The above tells only part of a larger and more complex story and the better know of it at that.

My goal here is to at least briefly discuss in at least some more detail how venture capitalists actually make their invest or not decisions. And while that begins with a paperwork review of documents and document types that they request that a new venture’s founders provide, a key part of it also takes place when they actually meet with them: when the founders and owners of potential investment businesses get sit in a room or video conference with potential venture capital backers, giving both sides to these potential negotiated agreements a better understanding of who they might be working with from this, and how they think and act.

Carefully crafted written documentations are very helpful and informative, but they do not and cannot tell the whole story as they can be carefully drafted, and with third party expert assistance to insure that they effectively touch on all of the issues that investors would want to know about and see. They can be, in significant measure, the product of outside professional help.

People looking for new job opportunities and who do not have ongoing experience crafting effective resumes and cover letters on their own, or who do not see themselves as writing as effectively as they would want for this, hire the services of professional resume writers to help them tell their stories more effectively. Entrepreneurs who do not have experience writing business plans and who want to cover all of the bases for that more effectively, hire the services of professionals who make a practice of developing effective business plans. And when they want to favorably impress potential investors, and ones who would invest a significant stake in the businesses that they would pursue, they hire people who know from ongoing experience and practice, how to more effectively pitch a business too. So even if these documents are fundamentally accurate as to detail included in them, they might not actually say as much about the people who would set up and run this new business venture, as a potential investor in them would need to see.

The type of professional assistance that I just made note of above can and does include practice session face-to face-marketing pitches where coach consultants play the role of potential venture capital investors, and their clients practice presenting their new businesses and business ideas as viable and attractive investment opportunities. These exercises are generally carried out face-to-face and recorded, sight and sound so the entrepreneurs paying for this service can see exactly what they said and how, body language and wardrobe decisions and all. And this type of help can make a very positive difference, and certainly where that means these professionals helping their clients to be more comfortable and communicative. But either way: helping with the written documentation or with face-to-face live presentations, the people seeking support here have to have a genuine message to share, and a compelling one. And direct and preferably face-to-face meetings can be the best way to actually learn something about the people on the other side of the table.

I have read quite a few folders of supportive documents, and have sat in on venture capital pitch sessions. I was actually involved in initially setting up a business that helps individual venture capitalists and entrepreneurs seeking their support to meet each other, where investment seeking pitches are a key part of that. And more than that, I have had opportunities to discuss a fair number of the presentations that have taken place in these sessions, and with both the entrepreneur presenters who had just given their pitches, and with venture capitalists who were being pitched to. And I have seen from this, something of what does and does not work there.

My goal for this posting is to at least briefly outline some of the take-away lessons that I have learned from this experience, focusing on what the entrepreneurs in question need to bring to the table themselves – that they cannot buy from the hired services of a professional guide or coach or writer here.

I begin with the obvious points here, that I would express as a series of generally stated, orienting questions:

• What is your core driving business goal that would set your business apart from your competition, and that would most arguable generate a profitable income?
• And what supporting facts, that you can present as objective data and not just subjective opinion, could you briefly, succinctly and effectively offer that would justify and support your answer to the first of these questions?

The bulk of this can be and should be outlined and in sufficient detail in the written documentation that you would share with a potential venture capital backer, just to get your foot in the door with them. But you have to be able to effectively share the same basic message on your feet in a face-to-face meeting too.

You have to come up with the core lines of persuasive argument and supportive fact that would go into answering those questions, though professional help in better organizing and presenting your answers there can prove invaluable, and particularly for entrepreneurs who are more introverted and less comfortable with public speaking. But the single most important point that you can bring to this type of a presentation is a clear demonstration of your commitment to and enthusiasm for this new venture of yours. You want to be able to present yourself as being willing to walk through walls if need be, in order to succeed.

If two entrepreneurs offer factually similarly compelling pitches, as far as their business plans and financials details are concerned, but one of them presents with significantly more can-and-must-do enthusiasm, they are most likely going to get a positive response if either is, and the funding support that would follow that.

You need to convey a strong sense of enthusiasm and commitment, but one that is grounded in reality. And this means that you need to really listen, and both to succeed in understanding any concerns raised from across the table, and for when you respond to them. And you need to be able to present yourself as someone these investors can work with. Once again, this means listening. It also means knowing when and how to question a point made without coming across as simply arguing against it.

• As a vitally important point there, if you find that a potential investor is asking you questions that do not connect with what you are trying to say, or if they come across as making assumptions that you do not see as valid, always assume it was because you were not clear in what you said. Always assume that you might have left key details unsaid and assumed, that others not already involved in your planning could not know of.
• So be ready to ask clarifying questions to come into a more shared understanding of what you seek to say and of what you actually say; never take a confrontational approach or an argumentative one there; always seek to discuss these sticking point issues as if you and the people you were meeting with were on the same side of the table and simply trying to better understand each other while seeking a shared overall goal.

Any new business is certain to face unexpecteds and unplanned-fors. Venture capitalists look for entrepreneurs who will not quit in the face of adversity and who listen, and who will take and heed their advice as they seek to help course-correct for that. And effective venture capitalists do that: they actively seek to help with experience-based advice and guidance, in order to safeguard their investments if nothing else.

But the single most important point that I can raise here is that you never forget for a second, or seem to lose track of who you are pitching too. This means bringing everything that you say and all of how you say it into as clear and tight a focus as you can, for the people you are meeting with. These are busy people with multiple possible directions that they could invest their funds in. And if they have questions about who you are or what you would do or how, that is a real problem.

Think like a venture capitalist. They want to tilt the odds if at all possible to investing in fewer ventures that fail and more that become very profitably successful. So pitch for the likelihood of business stability and success in what you would build, and for how your venture would generate a genuine profitably that can give the people who invest in your venture, the returns on their investments that they want and expect. (Market analyses and related documentation and the details that you can succinctly share from them in a verbal pitch are going to vital here, but so will be your explanation as to how your venture would realize the value potential that this type of analysis would indicate. Think and plan your verbal pitches with your written documentation in mind, but with a goal of smoothly, effectively presenting their key details in more conversational form.)

But more than that, think like the specific venture capitalists who you are meeting with. Look them up, and their venture capital business online and really research them. What is a potential backer’s professional background like and where else have they worked? What industries have they worked in and how does their experience connect with or resonate with what you seek to do? Study them individually, just as they will background-research you. Are they an entrepreneur themselves, and if so, what types of businesses have they build and to what effect? What do they do professionally and to the extent that you can find out, what were or are their corporate cultures like that they have shaped, or preferentially worked in?

Can you find anything online or in print that they have written, professionally or more avocationally? What does this say about them? How do they express themselves there? Are there key words that your background research would suggest they would positively respond to? Are there key ideas or approaches that they favor that you might find of benefit in your venture too? Are there approaches that might be expected to turn them off? Apply this background research-grounded approach to any letters or other written documentation that they send you, as you read it and learn more about them in the process. And listen to what they say when and as you get to meet with them in person in the same way, and certainly when meeting with them to give your pitch for funding support from them. Listen to what they say and how they say it starting from your first introductory verbal exchanges and from before you actually get to stand in front of them to give your pitch.

And bring graphics and supportive information that you can share with the people you are giving your pitch to, that would support and enhance your message. This means keeping your sight and sound supports lean and focused; extraneous or ineffective content there can and will hurt you. And find out how long you will have to make your pitch and never run over that time limit, at least on your own initiative. Practice for timing as well as for content and be prepared to expand on the key points that you would make if asked to do so.

Going back to the points that I made about researching the people you would give these pitches to, that can be vital if you are to know what they would see as your key points, as they are the issues that they would ask for more about if anything. Here, “key points” are largely in the eye of the beholder.

I have covered a fairly significant amount of ground in this brief note; I have just scratched the surface of a complex and varied topic. So I will end this note with just one final organizing thought. Practice this. If possible start by pitching to potential angel investors with their perhaps tighter focus on the value of your business venture’s mission and vision statement, but who can take a more relaxed approach to your business fundamentals than a venture capitalist would. Take this meetings and these investment opportunities seriously in their own right, but use them as learning curve opportunities too.

Think of this as a funding support pitch counterpart, to practicing your job application interviewing skills in test runs with businesses and for jobs that you might not see as your top choices. And learn as much as you can from every try, practice or real, until you find and connect with the right venture capitalist who would be a good fit for you and your venture and who you would be a good fit for too.

You can find this and related material at my Startups and Early Stage Businesses directory and at its Page 2 continuation.

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