May 01, 2007

The FOCUS approach to pitching VCs

I’ve received several questions from entrepreneurs wanting to know how they should pitch to VCs and what they should be prepared for. While there obviously are no magic bullets and no guarantees or even any apparent rationality (at times!) underpinning certain investment decisions it is important to realise that VCs have short attention spans. They are only interested in knowing the following:

- Who are you?
- What is the problem you are solving/What is the opportunity you are addressing?
- Why will you knock the socks of the competition?
- How will you knock these socks off i.e. the business model?
- How will you make money?

Rule 1: Don’t have a 50 page presentation with a 100 page business plan with fancy binding. In short, the presenters became road kill due to the unwarranted overkill of the presentation.

Don't quote abstract numbers and statistics. The VC has access to the same market research reports (e.g. "The market will be at least $25 billion by 2009, with a CAGR of 100%") that you have. The VC also doesn't believe any of these market research numbers.

It is worthwhile to keep "FOCUS" in mind while making investor pitches. Its actually an acronym (that I just coined, as I thought it captured and conveyed the different elements of the presentation I wanted to convey), namely:

- FOCUS
- OWNERS
- CRISPNESS
- UNIQUENESS
- SIMPLICITY

FOCUS: It is critical to be able to get to the meat of the subject in a precise, clear manner. Don't beat around the bush. Don't get lost in abstractions. What exactly are you going to be doing/solving? Who is the customer? (e.g. Bad Answer: All companies. Good Answer: Companies with revenues between $100m and $1 billion with discrete manufacturing). What is the business model? How will money be made? How exactly will sales happen? How will employees be hired ? What are you seeking from the VC?

OWNERS: Ensure that the background of the management team (and key employee profiles) is adequately described and detailed. Explain how the experiences and backgrounds of the management team add value to the venture. Often times, this section is glossed over. One of the main drivers of investment in a venture is the quality of the team at the helm.

CRISPNESS: Deliver the presentation in a clear confident voice, determine what key points are to be made and make them, don't belabor points, don't keep reading from the slide, ensure that there are no more than 4 bullet points per slide. Don't confuse/bore the VC by unnecessary digressions and pontification. Solving world peace and world hunger is not what they’re listening to you for. It’s usually a very good idea to ask how much time is available. Plan your pitch accordingly. Don't lose your rhythm if a few slides have to be skipped or the order of slides is changed. Practise.

UNIQUENESS: Ensure that the uniqueness of your offering, your business model, the team composition, etc is highlighted. Why should a customer choose your company over the other 500 companies? Why will you beat competition?

SIMPLICITY: Keep the presentation simple. Don't have 5 slides with data from 10 research companies showing how huge the market is! Does it really matter if the market is $25 billion instead of $15 billion? If you cannot be a $100m company if the market is $15 billion, how likely is it that you will make it if the market were $25 billion?! The VC is interested in knowing how you will be a $100m company, not how large the market is. Show in 1 or 2 slides how you will get to be one.

Most importantly, don't use jargon and buzzwords. Lack of clarity and understanding of the business is hard to shroud in buzzword compliant terminology.

Plan on making the pitch inside a maximum of 40 minutes and less than 20 slides. If required, the VC will ask for details.

Albert Einstein was once asked to explain his Theory of Relativity in simple lay man terms. He said: "If you are sitting on a dirty street corner with a very attractive and desirable person, an hour passes in what seems to be a minute. On the other hand, if you are sitting in a beautiful park, on a lovely bench with an undesirable and unattractive person, a minute spent seems like an hour. The Theory explains this."

The most complex things can be explained in simple, clear, short, everyday language. But only if there's enormous clarity in the mind. Can you explain your business in the same simple terms?

What do you think?

Sanjay Anandaram is a passionate advocate of entrepreneurship in India; He brings close to two decades of experience as an entrepreneur, corporate executive, venture investor, faculty member, advisor and mentor. He’s involved with Nasscom, TiE, IIM-Bangalore, and INSEAD business school in driving entrepreneurship. He can be reached at sanjay@jumpstartup.net. The views expressed here are his own.