For any cash-strapped tech startup, landing investment is paramount to the success of the organization. According to CB Insights, 29 percent of startups fail due to insufficient funds. Fail to receive this mission-critical financing and your business will likely fail. And when you do finally get in front of an investor, entrepreneurs are typically competing against an untold number of founders with the same goal in mind.
With so much riding on the pitch, startups need to be ready to swing for the fences. Stay ahead of the competition and make the most of your VC pitch by preparing succinct answers to these five questions.
Questions Startups Must Answer Before Every Pitch
1. Is This VC Right for My Tech Startup?
When seeking funding for your tech startup, you need to target the right VCs. You want to pitch investors that have experience working with tech startups. In addition, VCs should understand your industry. Ideally, they will have already invested in startups within your industry. However, VCs typically won't invest in a direct competitor to a current portfolio company. Why? In order to service their portfolio companies to the fullest, VCs will stay away from any startup that creates a conflict of interest.
For instance, if you're in Silicon Valley and have a social sharing app, it might be a good idea to look into which VCs have invested in social. What's their track record of success? How will their investment help your organization achieve its goals and objectives? Do they understand the unique needs of your startup? With limited time available for research, focus on learning how the investor relates to your company, product, or service, and how your startup fits their expertise.
With this information, tailor your pitch to individual VCs. In your pitch, include:
- An outline of the problem your tech startup solves
- The solution to the problem (your company and product or service)
- Market size + potential
- Your go-to-market strategy
- Your company’s advantage
- Current (or future) competition
- Your current status, including funds raised to date, revenue, number of employees, number of customers, etc.
- How much funding you need and why
- Why this particular VC should provide funding
Building a solid architecture and targeted approach keeps the investor engaged and shows them that you put in the hard work, time, and resources to captivate them.
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2. How Can I Demonstrate ROI Potential?
VCs often ask questions regarding return on investment. They want to know how you plan to make money in the near future, as well as how you plan to transform your tech startup into a long-term sustainable business.
Prior to your pitch, create a spreadsheet with expenses and revenue projected for at least three years. Projections for the first 18 months should be carefully thought out and highly detailed. The remaining projections can be a high-level extrapolation of metrics and future evolutions and expansions of the go-to market strategy. These projections must prove your startup can generate high revenue within five to ten years, the standard expected return time.
3. Why Should This VC Invest in This Startup?
As a tech startup founder, you know your product or service is worthwhile. To secure funding from investors, however, you have to be able to communicate your startup’s value.
For angel investors, you can show your company’s worth by demonstrating how your product or service will better the world. While you can certainly mention the good your company does to VCs, you shouldn’t expect that alone to persuade them to invest. Instead, prove your company’s worth by discussing its advantages. What features make your product unique? How does your company’s approach to problem solving create ideal solutions that solve real-world challenges? How is your startup revolutionizing existing markets and what can the investor gain by being a part of that disruption?
It's important to know that top VCs look for opportunities that will 10X their investment. Ideally, the investor will see massive potential in your industry. However, when the market opportunity just isn't there, consider giving the investor a few key metrics that showcase your industry's anticipated growth rate. What will the market size look like in the next five to eight years? If you can't deliver a 10X return now, when?
4. How Do I Highlight Our Team Strengths?
“As a former investor, I always looked for strong founding teams,” notes Adam Enbar, founder and CEO of the startup Flatiron School. “All a startup is is a collection of people. Having the right people on our team, especially early on, is the single biggest determinant of your success.”
Recognize that some early VCs might provide funding primarily because they believe in the team, so be prepared to share details. Offer information about each team member, including how their strengths and past experiences make them the best person for their current role. Also discuss how you know each person, especially if you worked together at another successful tech startup. Explain why your team is most likely to succeed in this venture by highlighting milestones and giving examples of how the team overcame problems.
5. What Is Our Funding Goal?
Some entrepreneurs do not specify how much money they would like from a particular VC during a pitch. Others ask investors to contribute as much as they want. Both approaches could result in failure to secure investment. The amount of money you need from investors will depend on many factors, including how much money you have already raised and how much money you need to achieve your next critical milestone. You should also consider a VC’s terms, as large amounts of money sometimes require surrendering more control of your company, which might not be ideal for your startup.
Raising Money for Your Tech Startup
Few tech founders enjoy fundraising. It's tedious and time-consuming, and many VC pitches end in rejection. Answering these five questions prior to any pitch will increase your chances of succeeding.
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