Mastering the Art of the VC Pitch: How to Secure Funding for Your Startup

central question for many startups is: How do I get financing for my venture? In other words, how do I talk to venture capitalists? This is a very difficult question to answer because it is as much art as science. While there are certain logical things that all venture capitalists will want to know, how one goes about delivering the answers to anticipated questions is not immediately self-evident. 

Some data points must be prioritized over others and things must be presented in a certain way which may differ depending upon a variety of factors. Simply getting a meeting with venture capitalists who are flooded with thousands of proposals is a challenge in and of itself. 

Venture capitalists notoriously have very little time and are highly selective with which startups that they decide to interview. As an entrepreneur, you want to make the most of the rare opportunity to meet with a venture capitalist. Due to the profound opportunity cost of a venture capitalist’s time, it is not a good idea to waste it. 

As is the case with all finance professionals, time is money. Talking to venture capitalists is known in the venture capital world as “pitching” them. How does one master the art of the venture capital pitch?

The Initial Pitch Meeting

The venture capital pitch meeting is a critical part of the early phase of a startup attempting to secure venture capital funding. It occurs after a startup has been introduced (by submitting a business plan, being referred through a network, etc.) to a venture capital for review by that firm’s personnel and it has been decided that the startup is worthy of further consideration. 

Very few (usually about 20 to 25% of a thousand introductions and often less depending upon the venture capital firm) make it to the pitch stage, so while the ability to secure a pitch meeting is a great sign, it is also crucial since only a small percentage of those invited to make a pitch will actually obtain venture capital funding. The stakes are enormous. 

Success in the pitch meeting is not just a function of what the entrepreneur does at the meeting. Rather the foundation for that success is laid long before that. Startups that want to maximize their chances of success at a pitch meeting need to consider having a strong business plan and firm imbued with critical elements that the venture capitalists’ initial enthusiasm for the idea or technology will initially lead them to overlook but will come into play later when the final decision as to whether or not to fund it is made. Smart entrepreneurs view the entire process as interconnected and not just separate phases. Every aspect of the venture capital funding process builds upon but remains connected to the other phases so it is important to lay a strong foundation when seeking funding.

The most important element of getting the opportunity to pitch to a venture capital firm is being a part of the professional network of that firm. This is evident as being a part of the professional network of a venture capital firm, typically accounts for 31% of the deal flow:

This is not unexpected given the hyperlocal nature of most venture capital firms. Most are located in entrepreneurial hubs such as Silicon Valley near major research universities like Stanford and Harvard where the underlying technological innovation that the startup is trying to commercialize is typically done. 

The venture capital firm usually has close contacts to the professors and labs and student organizations at these universities which are a major source of critical referrals for deals and insights about how science and technology are evolving. Due to this reality, what are known as warm introductions—connecting with a venture capital investor via a third party who knows both the entrepreneur and the investor—are the life’s blood of the venture capital industry. 

The ability of a founder to obtain a warm introduction is regarded as the first test of the entrepreneur’s capacity to sell their idea not just to potential investors but also to elite prospective employees and future customers. If you can’t get the support of someone who is not going to supply you with financial capital then why should I give you money? The best warm introductions are from someone who knows you well—in the early phases, the primary concern of the venture capitalist is the people who will be executing on the idea since everything else is uncertain—but also has ties to the venture capitalist. 

For example, a warm referral from an entrepreneur who is or has been a part of the venture capitalist’s portfolio is a strong choice as this person has already been through the process and understands what that firm will be looking for.

Another essential aspect of landing a pitch meeting is to regularly attend industry events and make presentations therein so as to be viewed as a thought leader. The same goes for venture capital mixers that include entrepreneurship-oriented individuals in your circle whether it be at university or in your industry. 

Many universities are becoming increasingly active in promoting entrepreneurship on campus and try to maintain ties between alums who are willing to act as angel investors or are active venture capitalists and their students/recent graduates who are seeking to build companies. Participating in university entrepreneurship competitions are a great way to establish ties with local venture capitalists as even if one does not win, it is possible to attract the attention of a venture capitalist or potential investor who is intrigued by an idea and can help to take it in a new direction by providing contacts, capital or both.

While venture capital is a local business, the Internet has provided an opportunity for both venture capitalists and entrepreneurs to broaden their reach. Many venture capitalists regularly publish on social media and have podcasts and YouTube channels. The purpose of such tools is not just to advertise themselves as thought leaders but the interactive nature of social media allows them to use it as a way to source deals. 

Entrepreneurs can do the same. They can sell themselves and their expertise which will make it appealing to learn more about the entrepreneurial endeavors that they advertise on social media. A particularly powerful social media tool is LinkedIn due to the fact that it can help one to understand the institutional and professional affiliations that an entrepreneur may share with a venture capital. 

If one learns that a venture capitalist is also a graduate of Stanford University and one searches through that individual’s connections, it may be possible to leverage the alumni network to arrange a warm introduction. Just one bit of information about a commonality that one has with a potential investor can make all the difference in arranging a successful contact for what could prove to be a fruitful pitch.

Aside from finding investors with shared affiliations, it is important to identify shared interests. This will help the entrepreneurs to build a target list of the best venture capitalists for their startup. Not every venture capital investor is for every firm. They each have different goals and objectives. Each has certain industry preferences, stage of development preferences, funding ranges, and equity requirements. 

To qualify for a pitch meeting, the startup must be introspective and demonstrate a sufficient understanding of its goals and especially vision, funding needs over a year to two years minimum, and the non-financial needs of the startup. This last part can be challenging because the startup wants to present itself as ready to be funded but it must also have the humility to acknowledge what its warts are and where it needs help. 

The best venture capitalists will value firms that do not oversell themselves but acknowledge that they are seeking more than just money to help build a strong business. It is almost impossible to get a pitch meeting if one does not tailor your introduction with an understanding of the specifics of what that venture capital firm is designed to invest in. 

Therefore, researching the venture capital firm, particularly in terms of gathering tacit knowledge from entrepreneurs who have worked with them is essential. In the process of doing so, the entrepreneur may discover that it is not worth investing time and energy in trying to arrange a pitch meeting a particular venture capitalist because their interests and yours may not be aligned or one learns something that gives one pause. The obligation to conduct due diligence is as much an imperative for the entrepreneur as the venture capitalist and the best time to do that is before one even has a pitch meeting with the firm.

Another important tactic with regards to obtaining a pitch meeting is to target new investors at a venture capital firm. The mantra that venture capital is a people business is true not just in terms of how venture capitalists evaluate startups but also in terms of how entrepreneurs should evaluate investors. 

New investors at a firm are likely to be focused on building their portfolio and open to be bolder as they try to prove themselves in the organization. They are also much more likely to take more meetings from startups who do not have strong connections to the firm via a warm referral. This is why it is so important to use LinkedIn and examine the dates of hire for new employees at venture firms that one is interested in working with. 

How to Prep for the Pitch Meeting

If a startup becomes one of the few that are invited to make a pitch, the next course of action is how does one prepare for that meeting. There are some things that need to be done well before approaching a venture capitalist. It is important to understand the venture capital industry. Far too many startups are so excited about the prospect of receiving venture capital that they never stop to consider if it is the right decision for their firm. 

It is important to exhaust or at least consider other alternatives such as funding from friends and family, crowdfunding and the like. Each of these have their plusses and minuses but they should at least be considered. Before the pitch meeting, startups need to have a concrete understanding of certain realities intrinsic to the venture capital industry:

• The fund managers make their money in two ways: One is a management fee that is typically around 2 percent of the size of the fund. The other is by taking a percentage of the returns. This is called carry and is usually set at about 20 percent. The managers don't receive the carry until the investors receive their original money back.
• The startup will have to sacrifice equity in exchange for financing.
• Venture capitalists require an exit or liquidity opportunity such as an initial public offering or acquisition.
• The startup must be willing to cede a degree of decision-making authority to the venture capitalists
• Venture capitalists are most interested in high growth opportunities to cover for the majority of investments in their portfolio that will fail.

As a consequence, if the entrepreneurs are unwilling to share decision making; want to grow at a slow pace; do not wish to sacrifice equity; and are reluctant to consider selling the firm, they should not entertain venture capital as your interests and those of the venture capitalists will not be aligned. Likewise, part of understanding the industry is understanding the language. 

There are buzzwords intrinsic to the industry such as “term sheet,” and “total addressable market,” as well as “key performance indicator” (KPI) that the entrepreneurs should have a thorough understanding of and be prepared to discuss. Of particular importance is to understand the value of timing to venture capital investors. 

VCs want to invest when there is room for considerable upside so as to reap the highest return on their investment. As a consequence, the average age of a startup receiving funding is about 4 years but the odds of receiving financing after 8 years are practically nil. Some venture capitalists will invest earlier but most Series A investments are at 4 years. 

However, one of the most important terms is the “cap or capitalization table.” This is a table that identifies the owners of the company, how much they own and what kinds of share they own including options, unvested rights, etc. Every venture capitalist that one pitches to is going to want to know this information so that they will understand their potential return on investment and how much more equity they can potentially gain access to in the event of the company’s success. Very seldom does a startup receive venture capital investment from just one venture capital firm. Part of the reason that startups must make many pitches is that they will have to acquire multiple venture capital investors since it is too risky to invest alone.

An important part of the pitch meeting preparation process is to be able to communicate not what your business does but what it aspires to be. It is important to have a vision. For example, while Google is a search engine that makes money through the sale of online ads, its mission and vision are to organize the world’s information. 

That google has become a verb for doing exactly that is proof of how deeply embedded it has become in our lives and of its success in realizing that vision. This is what venture capitalists are looking for. They want to fund companies whose impact will become so ubiquitous that they fundamentally change how we work, live and play. 

This is how generational wealth is made. It is imperative that the founders have carefully thought through what their vision is for the startup and how they think it will change the world. This is more than blind idealism; it is what the best venture capitalists will want to know in the pitch meeting. 

If you can ignite their passion by just talking about your vision for the future, you can dramatically advance your prospects of obtaining venture capital financing. According to venture capitalist Lolita Taub: “When founders pitch to me, I’m captivated by their ability to clearly identify the market they’re targeting, articulate the problem they’re solving, and highlight their unique edge in solving it…Timing is crucial, too…If founders can demonstrate that their solution aligns with current market trends, it catches my attention.”

A vision is abstract but necessary. Something more concrete but also necessary is to have the right organizational structures in place for the startup. It is usually recommended that startups be organized as C corporations in Delaware. C corporations are unrestricted in terms of the number and types of investors while Delaware has very favorable laws and taxes for corporations which is why so many US corporations incorporate there. 

Even if you primarily do business outside of Delaware it is possible to be incorporated there. Furthermore, it is important to protect as much of the startup’s intellectual property as possible either through patent legislation or trade secret law. A key aspect of a good pitch is demonstrating not just that one has a great idea but also that one has “moats” to protect it against adversaries who will move to copy that innovation unless it is defended by intellectual property legislation. Ideally, this should all be done or in process before the pitch meeting.

Oftentimes a critical advantage in preparing for a pitch meeting is to develop an Advisory Board. These are skilled professionals and academics who are thought leaders and experts in your field. They can be called upon to provide strategic advice about how to navigate an industry and/or technical advice about how to incorporate technological innovations so as to rapidly advance in fast moving technology markets. Most importantly, they provide a comforting signal of adult supervision to the potential investors to whom one is pitching, particularly if the entrepreneurs are young recent graduates. 

Advisory Boards are not unusual if an idea was incubated at a university lab and the former student wants to continue to remain involved with his or her professor while providing the latter with the opportunity to reap some financial rewards from an idea that was initially developed while working with them. 

However, in situations in which an entrepreneur is pitching to a corporate venture capitalist, having an Advisory Board is likely less of a priority as part of the growing appeal of corporate venture capital firms is that they have deep industry and technical knowledge to help the entrepreneur commercialize their innovation. Still, the corporate venture capitalist may welcome the opportunity to collaborate with other leading technologists in their field through the mechanism of an Advisory Board.

How to Make Your Pitch

There are certain key elements of a strong pitch deck:

• It should be concise and clear: 12 to 15 slides
• Cover slide with company and contact information
• Provide a clear explanation of the problem your startup’s product or service will solve
• Articulate the vision and value proposition in one slide
• The size of the market, potential competitors and market dynamics (i.e. success drivers)
• Why this startup with its leaders and personnel are uniquely capable of addressing this problem and competing in this market
• Show the minimum viable product—a video or in-person demonstration can be key
• Articulate key traction points such as users acquired, revenue, partnerships, other investors, growth rate, etc.
• Intellectual property information
• Credible numbers regarding projections, anticipated expenses, desired investments, etc.
• A clear ask in terms of dollars and valuation

The idea is to craft a narrative and tell a story but it is a short, concise and impactful one. As the saying goes, the hardest thing to do is to take something complex and simplify it but that is the art of the pitch deck. Karin Klein, a founding partner at Bloomberg Beta, the venture capital arm of Bloomberg LP says: “Your VC pitch deck should open with something relatable about why you're passionate about the opportunity, or why others should be…Take the time to distill the essence and impact of what you're proposing into a tight message…Simplicity is helpful and shows a clarity of vision and the ability to sell.” 

These points are echoed by entrepreneur and angel investor Ariel Poler:  "I want a deck that right off the bat, on the first slide, tells me what this company is about…That starts with a good impression. From then on, I know what I am looking for. I know the context." 

The pitch should be delivered by the member of the team who is the most personable and enjoys communicating the most. This may not be the founders. They should be available to answer questions as needed and especially after the pitch presentation but what is most important is that the pitch be delivered well. 

The choice of who to deliver the pitch is itself an executive decision and a sign of leadership capacity. According to venture capitalist Arvind Gupta of the Mayfield Fund, the best pitches are those in which: “The founder demonstrates mission-to-market thinking by showing how the business they are building simultaneously solves an enormous problem for society and generates high-margin revenues. They have energy and a deep passion for the problem they are solving. Finally, they are not married to their technological solution, but rather, solving the problem of their customers.”

At the pitch meeting, physical copies of the most up-to-date version of the business plan should be distributed with a one-to-two-page executive summary. This document should have the most detailed version of your financial plan and specifically how you plan to use the investor’s money and provide a return on their investment. What should not be distributed is a non-disclosure agreement as most venture capitalists will refuse to sign one since they hear to many similar business pitches. Besides, if the entrepreneur does not trust the venture capitalist, then they should not be pitching to them anyway.

There are a number of other things that should not be done in a pitch meeting. One should not be vague when discussing money as that is a major red flag. One should be honest and explicit as that demonstrates candor and that one has engaged in serious thought about what is required financially to build a business. 

Being vague will inspire distrust and that is a poor foundation for a relationship with a venture capitalist who will have equity in an entrepreneur’s firm. In addition, one should not ignore the weaknesses of the startup but rather be open about them as the venture capitalist may be able to either help or refer one to another venture capitalist who has the resources required to better support the startup. 

Another red flag is to overstate one’s competitive advantages or understate those of other incumbents or new entrants into a market. Venture capitalists are in the business of studying entire industries so they typically have a deep understanding of what is going on. It is important to not ignore challenges and challengers but to be open about them so that effective strategies for overcoming them can be developed. 

Finally, it is a major mistake to not understand the most important KPIs for the industry that one is seeking to compete. That understanding does not have to be comprehensive but failure to understand the salient metrics of success for the industry that one is seeking to compete in is a sign that one does not truly know how to compete in that sector. This will turn off most venture capitalists as it calls into question the intelligence, insight and capacity to execute of the leadership team.

Most pitches will fail for one reason or another as so few firms receive venture capital funding but every pitch is a learning opportunity that can help to increase a startup’s chances of success. It is important for the pitch meeting to be an interactive learning opportunity in which the entrepreneurs ask the potential investors to ask questions of them so that they can iteratively refine their business with intelligent feedback from experienced industry professionals. As a consequence, it is always a good idea to take a pitch meeting from a venture capital firm that one may not even be enthusiastic about so as to practice making a pitch and have the opportunity to be vetted by a group of venture capitalists which is always useful in and of itself. However, for those venture capital firms that an entrepreneur is actively interested in, one should ask questions like: “What type of relationship do you typically like to have with the startups you finance? and “What are your investment goals for this year?” as well as “Aside from financing, how do you support the entrepreneurs in your portfolio?”

A pitch meeting is a chance to obtain other resources besides financing. It is likely that one will not advance to the next phase in the process but there are still other things that the venture capitalists can provide for the entrepreneurs that it does not finance. There may be other venture capital firms that they could introduce you to. 

The venture firm could have a startup in its portfolio that is getting ready to close down but has personnel or a complementary technology that could add value to your startup. They could know suppliers who can help you with an operational challenge. There are so many other things—often unexpected—that can emerge from a venture capital pitch meeting. The key is for the entrepreneurs to be open to embracing them.

Pitching to venture capitalists is part of the very human aspect of this highly interpersonal profession. Despite all of the time that venture capitalists spend analyzing technological trends and crunching numbers, at the end of the day their most critical decisions are human ones. Pitch meetings where one comes face to face with the entrepreneurs that are seeking venture capitalist support are the initial point of contact that can make or break the relationship between a venture capitalist and a startup. 

Even under the best of circumstances, the chances of getting funded from a pitch meeting are slim which is why the best entrepreneurs use pitch meetings as learning opportunities to hone their presentation skills and incorporate advice from experienced professionals. The more pitches you make, the better you will get at it and the more you will learn. Not every venture capitalist is the best financier for every startup so the failure to obtain financing will not always be a bad thing. What will be positive is the opportunity to learn, grow, and develop as an entrepreneur—that is the most enduring benefit of the pitch meeting.

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