VC Presentations That Work
The Role of the Venture Capitalist
Venture Capitalists are in business to manage and invest a venture fund, a pool of money that the VC firm raised from its investors. The fund is used to invest in emerging companies, with an eye to achieve 5-10x returns over several years.
VC's are always on the lookout for new technology and market areas that can be the basis for new companies. They then look for investment opportunities in that area, emerging companies with the potential for high returns and acceptable risk. The exact amount of the required return varies from one VC fund to the next, as does the tolerance for risk. VC's investing in early stage companies are willing to assume more risk, in order to achieve greater returns over longer periods of time. Later stage VC's want reduced risk, and are willing to accept lower returns in a shorter period of time.
All companies have risk. Your goal is not to convince the VC that there is no risk. Rather, your goal is to convince the VC that you understand the risk, and are capable of minimizing the risk to the greatest extent possible. Risks fall into 3 main areas: technology risk, market risk and execution risk.
To minimize technology risk, the investor needs to believe that your engineering team has the experience to execute development of a new product at the leading edge of the technology curve. To minimize market risk the investor needs to believe that you have quantified the market risk through detailed customer research, and to the degree possible understand and have a plan to achieve market success for your company. To minimize execution risk the investor needs to see that the management team is strong enough to address the critical issues that come up, and keep the organization energized and focused on achieving the company's critical milestones.
In presenting to a venture capitalist, you need to demonstrate that your company has an opportunity/risk profile that is appropriate for that investor.
What You Must Communicate
Imagine presenting your company to a top tier VC, only to have them say after the presentation, I understand what you are saying, but I don't understand what you do, I don?t see how you are different, and for the life of me I don't see why I should care. It is easier than you might think to end up in this situation.
Before we go into the specifics of structuring a VC presentation, let's examine what an investor needs to take away from the presentation. Understand going in that this can be an extremely difficult thing to do well, often requiring iteration after iteration before your message comes out crisp and clear.
Who are you?
The investor needs to get a sense of where you fit in the grand scheme of things, where your people are coming from, and why you would be a good investment. VC's don?t fund business plans, they fund strong management teams that they believe have the vision and can execute the plan. Venture funded startups face many challenges on the road to success. The investor knows this. For that reason they must believe that the team has the ?right stuff?, and can rise to address unforeseen challenges.
What do you do?
The VC doesn't want to play 21 questions to determine what you do. Drop the marketing hype and be direct. Be clear about what problem you solve, which generally relates to addressing a specific need of the market that has not previously been addressed. If you have to resort to a complex justification of what problem you solve, your business is a non-starter, and the better VC's will see right through it. Also accept the fact that many investors do not know your space in detail. Some companies try to solve this problem by providing the VC with a massive amount of information on the space. This is unnecessary at this stage in the discussion, and detracts from achieving your primary objective, which is to get the VC to take the discussion to the next level, where you can provide all the gory detail.
Also realize that the VC will call on outside experts to perform due diligence when the time is right. Unless they specifically request more information, don?t waste their time providing it at this point in the discussion.
Why are you different?
This is the toughest question you need to address. Not only do you need to identify a critical market need, you also must be the best equipped to address that need. You are probably not the first company to identify this market opportunity, nor do you know all the other companies that have crossed this VC's path with the same idea.
Before investing, the VC needs to know what you bring to the table that the other companies don?t, many of whom you won?t even be aware of. If the VC has already funded a company addressing the same need in your space, the chances of your receiving funding from that VC are slim to none. You are wasting your time trying, and potentially providing information that the VC's other portfolio company can use to their advantage.
If you are competing with other companies for the same market opportunity, you must differentiate yourself by providing a better risk profile. That means having better technology (with intellectual property protection), better access to customers through strategic partnerships and alliances, and a stronger management team, knowledgeable in the space.
Why should I care?
Why should the investor care? Because you are going to make them successful by generating high returns on their investment, and by providing them with recognition for their successful investment in your company.
Each VC firm has a target business profile based on size of investment and desired return. The mistake many companies make is to obscure the specifics of the opportunity, attempting to convince the investor that the opportunity fits their profile. This is a waste of the company's time, and a waste of the VC's time. VC's also want to invest in the winner, not the runner up. The added prestige gained by investing in winners helps the VC raise future venture funds.
If the VC has a $500M fund, and enough people to manage 10 portfolio companies, their sweet spot is a $50M investment. Another fund may have $100M targeted at 10 companies, in which case the target investment is $10M/company. Since the investor needs a 5-10x return on their investment, that means an exit worth $500M to the first VC, or $100M for the second. It is critical that you understand what the fundamentals of your business will actually achieve, and target VC's with the right investment profile. Make sure your presentation is clear on your funding objectives, and your expected return based on fundamental analysis of the market segments you will penetrate.
Structure of the Presentation
The investor presentation tells the story of your company, and at the same time provides the investor with a sense of the personality of the management team. Where you share the stage with other companies in an investment forum, you need to make sure that your company stands out through both the story you tell, and the personality you project.
In some cases your may need to use a standard template. If a standard template is not required, and your company already has a defined corporate identity, use that where permitted. Some companies adopt the minimalist approach to the presentation format, using basic text slides with limited colors. In rare cases this may work. If you decide to use this approach, make sure you are not projecting an image that your company is immature and your plan is not well thought out.
The presentation should not be too long for the allotted time. A 10 minute presentation, requires at most 8 slides excluding the title slide.
Here is one possible outline for your presentation.
· Slide 1: Title slide.
· Slide 2: Introductory Slide
Tell the audience what you are going to tell them in the presentation, from a high level industry/sector investment opportunity perspective. Try to do this in 30 seconds or less.
· Slide 3: Customer Need
Elaborate on what market sector you are in, and specifically what problem your product will solve.
· Slide 4: Market Potential to Fill Need
Explain the top level market potential for your product, in the segmentation provided by standard industry market research reports. Then explain from the bottom up how your revenue will be built by sales to some number of customers at some price.
· Slide 5: Product/Solution to Address Opportunity
Here is where you describe your product at a high level, emphasizing your unique technology.
· Slide 6: Competitive Uniqueness
Demonstrate your competitive understanding of the market by explaining why the existing players aren?t going to do the same thing, and put you out of business.
· Slide 7: Management Team
Here is where you assure the investor that you have the best management team in the industry to carry out your mission.
· Slide 8: Funding Goals
What is your funding history? How much are you raising now, at what valuation (pre or post funding), and for what purpose. When will you need more money, tied to what milestones?
· Slide 9: Summary
Restate your summary from your introductory slide, emphasizing the uniqueness of your opportunity, and major strengths.
For a longer one on one presentation, target 20 minutes of presentation with 10 minutes of question, answer and discussion. Try to use the same 10-minute presentation as the framework, but bring in other people as necessary to elaborate on their respective areas. Have additional backup slides to showcase the organization structure, staffing plans and current capital structure, as well as current advisors to the company.
Delivering Your Presentation
Now that you have completed the presentation that tells the story of your company, and the opportunity that you present, you have the perfect tool to present at venture conferences, and guide you through your initial investor discussions. The next step is to quit using the slides as a presentation tool, and use them only for visual backup to your story.
Once you are comfortable telling the story using the presentation, you will find that you can tell the same story without the slides. This enables you to present the information in a variety of informal settings either in face to face meetings, or informal hallway conversations. If you use the slides during these discussions, use them for graphic backup to illustrate your key points. Do not use them as a prompt for what you are going to say next.
Your response to questions is as important as what you say in your presentation, possibly more so because the questions indicate an active interest on the part of your listener. Always generate a list of questions, and prepare your answers in advance of the presentation. Make sure that everyone on your team involved in the presentation does the same thing. Also discuss in advance who will address which specific issues should they come up.
Also capture the presentation in a short (1-2 page) executive summary of your business opportunity. This document enables a potential investor to quickly qualify your company as an appropriate fit for their fund, leading to a meeting in person. It provides a useful leave behind for hallway conversations as well.
Venture capitalists are nervous optimists. They believe that companies continue to be formed that will provide them with the high returns that their funds require. At the same time there are a multitude of reasons why companies fail to achieve results. In a nutshell, a VC needs to see the vision for the business, believe in the space, agree that the company fits their funding profile, and believe in the management team. Achieve all that and you stand the best chance of achieving your funding needs, as well as achieving your own goals for the company.
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