www.njtc.org • April 2006 • Vol. 10 Issue 3 • $3.50
to Raising Venture Capital
By Joseph Gitto
Raising capital for your business can be one of the most exciting, Setting Expectations for the Meeting
frustrating, interesting and intimidating events that you will lead You have cleared the first hurdle, you have an appointment. The
your organization through. implicit assumption in this article is that your Executive Summary,
Finding a match with an investor who likes your space, shares no longer than a couple of pages, was clear, concise and compel-
your vision, gets your story, is willing to commit money and stand ling and offered you the opportunity to meet with a representative
by your business as you start to execute your plan can seem like of the VC firm to get this meeting. It is important that you are clear
finding the proverbial needle in the haystack. about both parties’ motives (yours and the VC partnership’s) for this
While raising capital is more art than science, there are some meeting.
tried and true steps you can take to increase your odds of success- You are there to raise money. Your motive for the presentation is
fully landing an intelligent investment. The following is an outline of to convince the partnership that investing in your opportunity offers
how to approach your capital raising experience. them the best potential return among the many alternative oppor-
tunities they are considering. Your time in front of the partnership
Identifying Your Target VC Audience is not your opportunity to “wow” them with your technology or
A lot of your success in securing an investment will depend on product or service. In reality not everyone in the partnership is going
how much homework you are willing to do upfront. Not all Venture to be equally technically savvy or interested in the details of your
Capitalists (VCs) invest in every space and stage of a business evo- particular offering.
lution. Culling the list to a meaningful, manageable group from the The partnership’s motives at this meeting are substantially eco-
thousands of firms can be performed at your desk over the Internet. nomic. Your technology/product/service has been vetted by your
Step one is to determine which VCs typically invest in your indus- assigned partner. Your assigned partner is the “deal sponsor.” You
try. Visit each of their websites. Most are very clear about their will work with this investment professional to best prepare and
investment preferences. This will enable you to isolate VC firms that understand how to structure your presentation for optimal impact.
invest in your stage of development. When listening to you and your management team, the partner-
Once you have created this select and manageable list, your ship will be thinking:
homework begins in earnest. Scour their websites, read up on their • People, people, people -- What’s their track record in similar his-
partners, their current portfolio companies and investment success torical situations?
stories. Learn their preferences. Look for common threads to people • What’s unique about this opportunity? Is it sustainable, scalable
in your Rolodex. At the end of the day, a personal introduction to and defensible with an infusion of capital to accelerate further
a VC firm will gain you more traction than an unsolicited business product development and sales/marketing?
plan that shows up in the mail.
continued on back
to Raising Venture Capital
continued from front
• Can an investment in this company potentially yield them a 10- Customer Validation: Depending on the stage of evolution your
fold return? company is in, the expectations will vary. Even at the seed stage,
• How long will they have to stay invested to realize their return? you must demonstrate a significant customer who would be willing
• How much investment is really required to realize a liquidating to beta your product and place an order after establishing proof of
• What is the most likely exit strategy? Milestones: Present a very clear chronology of what the team has
• Can this management team execute? accomplished since inception and lay out the milestones the team
plans to achieve over the next 12 to 24 months.
Presentation Fundamentals Financials: Present a single financial slide that shows the key
A typical presentation will last one to two hours. You should plan on financial metrics of the business for the next 36 months. Be prepared
presenting for 30 to 45 minutes and leave plenty of time for ques- to submit your full financial model with assumptions post the meet-
tions and answers. You need to be very clear about the two or three ing. Be prepared to describe the business model and revenue struc-
messages you want the partnership to take away from this discus- ture in detail.
sion. You should then hammer these points home. Remember the The Team: Talk about your team. Be certain to give team members
old presentation adage: “Tell them what you are going to tell them, who attend a substantive opportunity to speak. Be honest about the
tell them, then tell them what you told them.” The goal is getting holes in your team and how you plan to address them in the short
to the next level and starting discussions on a term sheet and due run and long run. Talk about the team’s individual and collective suc-
diligence. cesses. This is one opportunity to prove why this team will succeed.
Before we focus on content, a couple of concrete rules that should It’s important for an investor to get a sense of the culture, drive,
be factored into building a winning presentation: maturity, passion and motivation of the management team.
• You will keep them or lose them in the first two minutes. Finally, let the potential investor know why your company is a
• Your presentation should be a minimum of 12 slides and a maxi- winning investment.
mum of 16 slides. This is your jury summation -- your opportunity to really hammer
• Spend no more than two minutes per slide. home those key takeaways. Reiterate the problem you are solving,
the marketplace opportunities, customer interaction/traction and why
Building a Winning Presentation – Content this team will succeed. Discuss that the team has invested hard dol-
“You will keep them or lose them in the first two minutes.” lars in this venture. The more skin you have in the game, the more
This is a very powerful statement. VCs are very busy and sit attractive you are to investors.
through many presentations. You do not have the luxury of time to
set the stage. They must understand the problem you are solving Post Presentation
with your product or service and see the opportunity within the first Call your assigned partner after the meeting. Follow up is important.
two minutes. Get as much feedback as possible. Every presentation is a learning
Additionally, at a high level, you should be prepared to discuss the experience. Hopefully, you’re on your way to a term sheet, but even a
following in this meeting: key drivers of the product, the technology, successful presentation can yield new lessons.
the window of advantage and IP protection. Make sure your house is in order. The due diligence process is
Some other things to think about: opportunity, competition, cus- lengthy and detailed. Make sure you deliver what you commit to
tomers, milestones and your team. when you commit to deliver. A VC is measuring you from the first
The size of the opportunity – what is your market? Total conversation and every interaction thereafter. They are analyzing
Addressable Market (TAM) is fundamental in describing the type of your character, operating style and follow through. There are no
come-to-market strategy. You need to be a market expert; segment casual interactions!
and identify the revenue opportunity by customer type, size, depart- At the end of the day, the decision to invest will be heav-
ment decision makers, plus any threats present in the market today ily weighted in the confidence the VC has in you and your team.
and within the next six to 12 months. Investors bet on the jockey and not the horse.
Competitive landscape: This is a very important segment of the
presentation for many reasons and too much to delve into in the
For more information contact Stash Lisowski, Acting Managing Director,
context of this article. However, be aware that a space filled with Emerging Business Group, Geller & Company at email@example.com.
large, well-capitalized competitions also indicates opportunity for Geller & Company provides finance, accounting and tax services to
an exit strategy for your investors. A deal breaker is if someone says public companies and emerging businesses.
they don’t have competitors or threats to potential market share.
Who’s going after the same customer or budget dollar?
• Do be prepared. Prior to the presentation, talk to people who • Do be realistic about the milestones you present that you
have raised capital before. Contact CEOs of the portfolio com- will achieve. The due diligence process is lengthy and you
panies of the VC firm you are presenting to. Get a sense of the will be benchmarked on what you presented.
partnerships focus, the types of questions they may ask and
the environment you will be presenting in. Work with the deal • Do Not hand out your presentation until after you have
sponsor to understand the main points of concern from part- presented. All eyes should be on the speaker and all ears on
ners and what the key issues are to address. your message.
• Do make your slides clear and uncluttered. Stay away from • Do Not appear scripted. Give real-life client examples, tell com-
sound effects and flashy graphics. pelling stories and experiences related to building, growing
and delivering the product and/or service to support your main
• Do bring a working model or prototype of your product. points in the presentation.
• Do bring copies of your presentation. • Do Not read your slides to your audience, they can read. The
content of the slides should highlight key points you want to
• Do be flexible and react to what the partnership is interested expound on in a conversation to your audience.
in hearing about your company.
• Do Not have a slide that discusses valuation.
• Do bring key senior members of your team. All VC firms
differ on who they like to have present, so ask in advance • Do not state what percent of your business you are looking
what they prefer. Limit participation to three to five people to exchange for an investment. That is a one-on-one nego-
including you. Give everyone who attends from your team tiation if and when you get to the term sheet stage.
an opportunity to speak.
• Do Not be afraid to say you do not know an answer and
• Do ask questions of the partnership. Understand how that you will get back to the partnership. No answer is
they see their role if they invest in your company: are better than the wrong answer.
they hands-on or hands-off? Understand the value add
they bring (i.e., key potential customer contacts).
• Do be prepared to discuss your revenue plan in detail. Be
prepared to discuss sales cycle, close ratio, expected average
sales per customer, forecasted sales price and gross margin.