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Effectively pitching a business idea to a VC, it seems, comes down to a few simple rules. Several of these rules begin with the word "Don't."
Don't get defensive. Don't lecture. Don't quote Forrester. If granted a meeting with a VC, come in prepared for any question, but don't offer everything you know at the outset. Don't throw in the kitchen sink.
A lot of the advice dispensed at a panel discussion on the art of the pitch was, admittedly for the four panelists who participated — all of whom are practicing venture capitalists — occasionally somewhat contradictory.
"Tell me your story," coached one panelist. "Don't tell me the entire story that starts, 'In the beginning, ...'"
"Know thyself," added panelist Sunil Dhaliwal, an associate at Battery Ventures. "Knowing where you need improvement, what you're capable of doing, puts you on a very credible path. It lets the VC person know that you're someone they can work with, that you're willing to take direction."
All the panelists hold decision-making positions at venture capital firms. Led by moderator G. Felda Hardymon (HBS MBA '79), a general partner at Bessemer Venture Partners as well as senior lecturer at HBS, they described some of the successes, as well as failures, they have witnessed. While there are plenty of tangibles they said they look for when evaluating a team and its attendant business plan — such as financials that add up correctly — there also are a number of softer factors that distinguish winners from losers. These factors are harder to pin down.
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| It's a repeat business in a big way, more than you would ever believe. | |
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| Venu Shamapant, of Austin Ventures |
Roll of the dice
For panelist Sean McDevitt (HBS MBA '96), of Alterity Partners, a firm focused on technology that helps entrepreneurs find funding, a winning management team is one that contains someone who is a "visionary."
"The idea has to be of a technology that is truly new," McDevitt said. "It has to be a need-to-have technology, not a nice-to-have technology. And, we like to see a team that is truly hungry. If you've got your day job and you're doing this on the side, generally we don't want to talk with you.
"We want someone who has put some skin in the game," he continued, "who has funded it up to a certain point, who's gone out without customers; and then at that point, when we're sure that you're polished up, we'll take you to one of these big venture capital firms."
As for getting an audience in the first place, noted Austin Ventures' Venu Shamapant (HBS MBA '96), it's a bonus if entrepreneurs come in via a personal introduction. This tactic was enthusiastically endorsed by the other panelists, as well. "You're probably not going to get a lot of personal attention unless you come through a source that we know of," Shamapant acknowledged.
The introduction, he added, should be arranged through someone at a law or accounting firm, or through someone at another prominent business-services firm who is in a position to vouch for the entrepreneur and his or her scheme.
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But name-dropping and personal references may backfire if not applied judiciously, too. According to panelist Margo Doyle (HBS MBA '00), of Kodiak Venture Partners, it does no good for entrepreneurs to try to start a bidding war by asserting that another VC firm is hot for the idea. "We try to stay very disciplined," Doyle said of her company. "We need to see that the entrepreneur wants to work with us."
"You need to have flexibility, and intellectual honesty about the validity of your idea," Shamapant told aspiring entrepreneurs in the HBS audience. "A lot of people come in and, despite the absolute reality that there are challenges to their concept that they might not have thought about, they tend to get really defensive. It's okay to say, 'That's a question we don't know how to answer, and that's part of what we'll figure out in the first round of funding.'"
"Maybe it's not a well-kept secret about the venture capital business, that it's a repeat business in a big way," said Shamapant. "More than you would ever believe. Relationships, especially with someone who has made money for the firm before, or who has actually executed on a concept, obviously carry a tremendous impact on our decision.
"You look for the intangibles in a negotiation with an entrepreneur. If someone is not willing to take a risk — either fighting over half a point ownership, or fighting about his employment agreement, getting it accelerated to three months versus six months, for example — it shows you that something about this guy says he might jump out of it. That's really what we're looking for — the intangible. It's more important that they'll stick with the business on a down curve as well as an up curve, rather than just try to get it off the ground."
The business plan
Asked by moderator Hardymon about the last time they actually read a business plan cover to cover, most panelists acknowledged that they hadn't done that in a while. "I read the first paragraph, and flip to the page about the management team," stated McDevitt.
"When I flip to the management team," added Dhaliwal, "what matters is whether they've got the right amount of experience to get this company to grow to Point A."
In the end, it seems the goal is to project self-confidence, yet flexibility; to know the marketspace inside and out, yet accept the potential for blind spots; to prepare a thorough business plan, yet know that it's possible no one will read it.
One last thing: In soliciting help and guidance from experienced professionals who are in a position to boost your business idea, "Don't be afraid to aim high," said Dhaliwal. "Successful people like to help entrepreneurs."
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