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Giving VCs a Winning Pitch

By Allen Morgan Entrepreneurs are always hungry for advice about how to approach venture capitalists for funding. After more than 25 years in the business -- both as a lawyer who represented entrepreneurs seeking VC funding as well as a VC evaluating pitches -- I've distilled my best advice into what I call the "10 Commandments for Entrepreneurs." The 10 rules that follow are about how to make a pitch, not about what business idea you should pitch.

1. Target Your Pitch

Whenever you're approaching a VC firm for funding, it's best to connect with the partner who has the closest investment interest to the space your startup is going after. No matter how hard you try as a partner in a VC firm, it's difficult to be as interested in a deal passed along to you by another partner as you are in one that comes through your network.

2. Be On Time -- or Better Yet, Be Early

This really seems like something your mother would have told you. But here's why you always want to be on time or early to a meeting with a VC. Arriving early at the VC's office avoids two main problems:

Believe it or not, the presentation technology provided by the VC doesn't always work (shocking!). If this happens you want to have plenty of time to fix the situation.

VCs often overbook themselves and will have a "hard stop" at the end of your presentation, meaning that no matter what, they've got to leave at the appointed hour. So if you aren't ready to go as soon as the VC walks in the room, you run the risk of give a hurried, pressured presentation -- which isn't the way to show your best stuff.

3. Tease, Don't Overwhelm

The goal of your first meeting with a VC isn't to get a funding commitment. The goal is to get a second meeting, which will hopefully lead to additional meetings and a funding commitment.

So in that first meeting, don't try to cram in six or seven meetings' worth of information. Pique their curiosity, don't abuse their attention span. Your takeaway message in the initial meeting should be: "I've got a very cool business idea that you should want to know more about."

4. Know Your Audience

Typically, your initial meeting with a VC firm will have one to three people in attendance. In addition to the VC you initially contacted, you may present to other colleagues, including venture partners, associates, entrepreneurs-in-residence, and possibly an outside "domain expert."

Try to find out in advance who will be in your meeting and spend some time learning about them on the VC's Web site or through an Internet search. Then, at the beginning of the meeting, take a minute or two to ask some opening questions to find out the background of the people in the room and how it relates to your idea.

5. Get to the Point -- Fast!

Having been on both sides of the table over the past 25 years, I can tell you that failure to heed this bit of advice is one of the leading causes of short, unproductive meetings between entrepreneurs and VCs. Because VCs sit through presentations -- lots of them -- for a living, it's easy for them to lose interest if a presentation doesn't get to the point quickly.

By the second or third slide, the VC should know what "it" is that your company is going to do. "It" usually boils down to this: What problem is your startup solving?

6. Pour New Wine in Old Bottles

To make sure you're understood, use established terms and "old ideas" to present your new concepts. One way to describe your company or technology quickly and cogently is to use an analogy. Or you could contrast it with other businesses or products already out there.

Sometimes it's a product or service that you want to replace, compete with, complement, or relate to in some direct way. Other times, it's useful to draw an analogy from an unrelated market. For instance, you might describe your idea as "TiVo for the Web," "podcasting for cell phones," or "eBay meets CNN."

7. Limit Yourself to the Baker's Dozen

One of the most common questions I'm asked is: "What's the maximum number of slides we should prepare for a VC pitch?" My answer: "A baker's dozen, or fewer."

Assuming you've only got an hour (at most), that gives you no more than five minutes per slide to make your case. Your slides should include these three "mandatory" pieces of information: the team, the competition, and the financial projections. So, you really have about 10 slides to tell your story. Remember: Simplicity is a virtue when pitching a VC.

8. Know What You Don't Know -- and Admit It

If you knew all the answers to the hard questions about your startup, you would be on your IPO roadshow, not meeting with VCs.

VCs don't expect entrepreneurs to know everything, but they do expect entrepreneurs to know what they don't know and to be upfront about it. Here's some really important advice to follow when you get a question and you don't know the answer: a) admit (with confidence) that you don't know; b) make a note of the question; c) after the meeting, quickly find out the answer; and d) follow up with the VC who asked the question.

Do not -- repeat, do not -- fake your way through an evasive, oblique, or indirect attempt at an answer. This moment is part of an unspoken "character test" that tells the VC whether he or she can trust you and, therefore, is comfortable investing in you.

9. Be Like Goldilocks

Any VC who doesn't grill you on the competition fails the VC IQ test. So you've got to be prepared to answer that question. Competition is a "Goldilocks" phenomenon. You don't want too much (no surprise), and you don't want too little -- you want it just right.

The reasons why you don't want too much competition are fairly straightforward. But why wouldn't you want a market in which there isn't any competition? Because VCs know that it's rare for a startup to have a truly unique and original business idea for which there is no competition.

Given this, if a startup asserts that they don't have competitors, they hurt their case. Either the VC won't believe them and will think they simply haven't done enough competitive due diligence (and therefore aren't worth backing), or the VC will believe them and conclude that if there aren't any competitors, it must not be that large or interesting a market.

10. Control the Meeting

Questions from VCs usually come from either "good" and "other" motivations. "Good" motivations include the following:

Finding out if you know your market, technology, competitive dynamics, and risks well enough for the VC to invest money in you

Finding out how well you handle stress

Gaining information that will enable the VC to decide whether to continue considering the investment opportunity.

You should be fully prepared to answer as many of these questions as possible.

"Other" motivations vary, but here's one common example: You will, on occasion, run into someone in a VC meeting who seems dead-set on pursuing a line of questioning designed to show how much the questioner knows.

No matter what the "other" motivation is, these types of questions all share the same attribute: They're distractions you need to deal with to get through your presentation. How do you do this? Here are some tips:

Make sure you understand the question and determine if it falls into the "good" or "other" category

When someone asks you a question, a little timer should go off in your head. If you're spending a disproportionate amount of your allotted time on a particular point or line of questioning, you should try to politely but firmly move on, usually suggesting that you will be happy to follow up after the meeting to satisfy the questioners' concern.

Good luck getting that meeting (and your funding). Entrepreneurs make the world go round. Without them, VCs would have to get honest jobs! Morgan is a managing director of Mayfield Fund

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