How to pitch your startup to get venture capital in 2021? – Part 1
Out of thousands of startups that try to raise funding every year, probably less than 1% get venture capital funding.
The primary reason is that VCs have a limited amount of money and time to invest. So, when you are pitching to investors you are not just pitching your company, you are competing against thousands of other startups who are trying as well. Keep in mind that while choices are unlimited, a VC’s time, capital, and energy are finite.
According to Paul Graham, founder of the famous incubator Y Combinator,
“Raising money is the second hardest part of starting a startup. The hardest part is making something people want….But the second biggest cause of death is probably the difficulty of raising money. Fundraising is brutal.”
This post is solely dedicated to ‘pitching’. However, even the best pitch doesn’t make a business. So, if you’ve identified a problem, created a solution for it, and built the framework for a business, continue reading.
If you are a startup founder planning to raise money from venture capitalists, take our ‘is your startup fundable‘ assessment to find out if you can raise venture capital.
Before diving into the formula, there are some ground rules that people without marketing or communication skills must learn. Here are some things to keep in mind:
What’s in it for the audience?
Pitches aren’t about you or your startup.
The objective of your pitch is to communicate what’s in it for your audience. Investors are interested in financial opportunities that present considerable risk and very high returns.
Value is not inherent, it must be expressed. Therefore, frame your pitch to communicate your startup as an investment opportunity with low risk and high return.
Clarity
A lot of entrepreneurs, unclear on how to communicate value, share everything about their startup, and fail to communicate anything.
Entrepreneurs know their company better than anyone else. This gives them a false impression that they can walk into the pitch meeting and provide all the information they know so that the investor can make a decision.
The problem is that investors don’t need a lot of information; they only need the right amount of information to understand whether it’s a good investment opportunity or not. If an entrepreneur unloads too much information, the important details get lost.
According to Reid Hoffman, co-founder of Linkedin, “If I can’t get to an investment statement that’s statable in … 3-7 bullets, usually, I won’t invest.” He further says that a good pitch can communicate value in 2-3 minutes.
When you pitch short and sweet, investors connect to the information they need to determine whether you’re investment-worthy. A good tactic to do that is to use a pyramid elevator pitch to highlight the most important points first and then move on to the less important ones.
You and your team
Your team is the strongest determinant of startup success, not the product. Investors recognize this, and when you pitch they analyze your knowledge, your skills, and your vision.
Note that investors don’t just listen to your words, they try to understand how you think. Most investors view your team as the strongest determinant of startup success, not the product. Investors recognize this, and when you pitch they analyze your knowledge, your skills, and your vision.
You must remember that for investors your pitch is a chance for them to eliminate your startup as soon as possible so that they can move on to the next pitch.
Often when you pitch to investors, you’ll hear things like “More traction is required” or “too early for us”, these words, in reality, is code for “you haven’t convinced me this is a good investment.”
Your pitch exists to persuade investors to believe in your business, with or without traction. It takes time and practice to craft a convincing pitch, but when you learn how to pitch well, you will significantly enhance your chance to win funding.
Elements of a startup pitch
Now, let’s cover the elements of a good pitch.
You begin with the Problem, or the need you’re addressing. Then you proceed to the Solution, your product or service that fulfills the need. The Market is the target customers to whom you will offer your solution. Finally, Business is all about the ways you’re going to capture that market.
We are biologically programmed for problem-solution thinking. To help investors understand your product, start with the problem. Once, you have been able to explain the problem, move on to your solution.
However, the solution is not where you stop. Your solution benefits people with the problem, but it does not benefit investors. Solutions are built to take over markets. Markets help investors realize gains from their investments. Therefore, the market is a critical point for investors. After you introduce the market, you must show how you intend to capture that market with your business plan.
In the next part, we will cover these 4 elements, problem-solution-market-business in detail.
