Startups: What VCs look for

Venture capitalists and entrepreneurs often don’t see eye-to-eye, and in South Africa in particular, there seems to be a very real gap in meeting the needs and expectations of both parties.

While we know the path of the entrepreneur can be a frightfully fun but rocky one, at some stage venture capital becomes a real option to consider, and when you get to that stage, make sure you know exactly what we are looking for.

As funders, we really look for four basic things and your pitch must answer the following:

1. What is the burning need you are taking away? Is it a widespread problem and thus a big market?

2. What is your solution or product? What are the competing solutions, your differentiators and the barriers to entry for a new competitor?

3. How does it make money? You need to know this upfront, what is your realistic plan to monetise?

While you present these 3 points, we are evaluating the 4th aspect which ties all 3 together and is the key to the success or failure of the proposed business:

4. The entrepreneur. Do you have a realistic actionable plan, and who is the team that will assist you to implement it?

What you need to do to greatly improve your chances of success:

• Get an introduction – a recommendation from a businessman the funder knows gets the needed attention and improves your chances of making it through the first round of discussions.
Check the funder’s criteria (usually on their website) – make sure your are pitching something that the funder is looking for.
Make sure your demo works – getting this wrong wastes time and puts you on the back foot.
Talk of your past successes – especially how you made money for your previous shareholders.
Keep to a few slides – there will be questions and interruptions; you need to get your concept across in minimal slides.
Have an actionable business plan.
Be real – be honest and straightforward.
Identify the risks – don’t ignore or brush aside the risks; clearly identify each major risk and how you plan to deal with them.
Know your industry metrics.
Focus – don’t try to sell a hundred solutions, what is your core solution/product?

Avoid these common pitfalls

“These projections are conservative”.
This statement is meaningless – projections are always estimates. Rather give specific steps of how you wish to achieve specific targets.

“A ‘Famous Expert/Big Consultancy’ says the market will be worth $50bn in 2 years”.
Also a meaningless statement.

“All we have to do is get 2% of the market”.
Rather show specific steps to reach specific target customers.

“No one else is doing what we are doing”.
This is a problem if it is true (there may be no market) and a problem if it isn’t (you are demonstrating naivety with regard to defining competition)

“The giant is too big or slow to be a threat”.
Never write-off the existing dominant player.

“It will take them years to copy”.
Once you’ve proved it can be done, copying it is far easier than you think.

“Several VC firms are interested”.
Markets are too small to try this ploy. Negotiate honestly.

Never take advice without testing it.
Never argue – it’s pointless.
Avoid jargon – you risk losing your audience.

Finally, remember the following:

While a strong business model is essential

The key element is you

Be passionate and enthusiastic, and make us believe you can deliver on your plan.