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The Elevator Pitch: Reeling in Venture Capital Financing

Ventures and Intellectual Property Group Letter

Third Quarter 2004

Authors: Donna L. Brooks

Your business needs funding, and, after considerable research, you’ve decided that venture capital financing is the way to go. So now it’s time to make the pitch. You never know when you’ll get the opportunity to talk with a venture capitalist. It may be at a cocktail party, a networking reception, a trade show, the VC’s office, and, yes, even in an elevator.

How do you get a VC’s attention (especially when you have limited time)?

Remember the old adage "you never get a second chance to make a first impression." Therefore, you should always be prepared.

  • Be enthusiastic. If you’re not excited about your business, you can’t expect others to be.

  • Know your business. VCs want to see that you have command of your business and a vision for its success.

  • Get to the point. Like everyone, VCs are busy folks. So don’t go off on tangents.

  • Have a business plan. You may only have a limited opportunity to speak with a VC, but you should always be in a position to follow up with a written business plan.

Making the Pitch

There are a number of topics that you should address in making a presentation to VCs. How in depth you can get will depend on how much time they have to listen. You may only have a chance for a sentence or two on each topic or you may have a chance to wax eloquent for a longer time. Be ready to do both and adjust on the fly if need be so that you at least communicate your most salient points.

Company’s Business

Make sure to introduce yourself and state the company’s name. Explain what your company does in a sentence or two, avoiding jargon and tech talk. You would be surprised how many companies give long presentations and when they’re done, you have no idea what they do.

Problem/Need

You should explain what problem or need your company’s products or services address. If something’s just a "neat idea" but there’s no real problem to fix, funding is unlikely.

Industry/Market

You need to put your company’s business in context. What industry is your company in? What is the size of the market that your company’s products or services address? What’s your market share now and projected into the future? Size matters, and the bigger the better.

Barriers to Entry

Investors will want to know why you are uniquely suited to capitalize on this business opportunity. Do you have a superior intellectual property position? Do you have unparalleled management experience? Have you established key strategic alliances which will allow fast and deep market penetration? If you can get there first and keep others out, especially as you get established, your business is more likely to get funded.

Accomplishments/Milestones

Let's face it; start-up money can be hard to come by so the more accomplishments you can boast, the more likely you'll get the attention of the VCs. Prior funding (equity or debt) is always a plus, showing that others have already taken a chance on you. Having your management positions filled is also key. The farther down the continuum you are - alpha or beta testing, commercial sales, break even, profitability - the more likely funding will be.

Financials

You can’t forget the numbers. All investors want to know your historical financials and will want to see at least five years of projections and the assumptions underlying the projections. Be realistic. Exponential revenue ramp up in a short period of time with an IPO in a year from start-up is pretty unlikely.

Competition

It’s rare to have no competitors. Know and monitor your competitors. Be prepared to discuss their strengths and weaknesses and how you compare to them.

Management Team

Over and over you will hear that VCs invest in management as much as the company itself. Identifying the key players and their business experience and technical, operational and financial expertise is key. Successful serial entrepreneurs on the team can be a major plus.

Capital Needs/Uses

You’re looking for money. So how much do you need? What are you planning to use the money for? You may need funds for research & development, marketing, commercialization, rounding out the management team, distribution/ sales force, manufacturing, and/or growth and acquisitions.

Exit Strategies

VCs are making an investment and within some time frame will want to cash out. Typical "outs" are an initial public offering, acquisition or refinancing. The IPO market has been dismal but is showing signs of improvement. Be realistic in assessing the likely exit and the time frame in which it can be accomplished.

Presentation

Now you know what to cover. Then the trick becomes how to cover it. Practice, practice, practice. Be energetic with a confident speaking tone. If the forum permits it, have a slide presentation, making sure the slides aren’t too busy. Leave time for Q & A. Bottom line: Don’t wear out your welcome. Stay within your allotted time frame and be ready to follow up with your business plan. With the right bait and tackle, you should be reeling in the financing. Good luck.

Donna Brooks is a partner in the Business and Finance practice.

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