How To Get A VC To Say Yes
I recently came across a piece by Clear Ventures Founder and General Partner, Chris Rust on why a VC will turn down founders, and what those founders can do to earn an investment. This resonated with me because many of the points he made are based on the same criteria I use when evaluating angel investments.
Know your audience
Whether you are selling a product, an idea, or a company, one of the most important factors of your pitch is how it is received by the potential investor. After all, they’re parting with a significant amount of money to hopefully see a large return after a relatively long amount of time. Given the illiquidity of a startup investment, a founder’s ability to prove their worth and establish credibility can mean the difference between an investment and a “pass.” Most VCs will use 3 criteria to judge startups: market, team, and product or technology. Each VC firm typically has their own rules about how they weight each of these criteria as they evaluate startups and founders.
Some questions will go unasked during a pitch meeting. However, because VCs have a sharp business acumen, they’re still thinking about several fundamental questions. One of these questions is whether there is already an established market leader. If so, how exactly is the current market leader vulnerable to a smaller, newer company? What is the market size? If the market size is small, is it at least rapidly growing? And why now? Because if the idea is too early, it won’t be profitable. Too late, and other companies can easily steal your customers. Another question VCs might not ask outright but will determine during the pitch meeting is whether the team is coachable. The path to becoming a VC is often paved with learning a lot of lessons firsthand. Will the founders appreciate and respect the VC’s wisdom? Or have they been listening only to people who agree with them?
VCs bet on companies with the ability to achieve a large degree of success, measured by revenues in a specific timeframe, market size, and customer growth. Over $100M per year as the company reaches year 4 or 5 of shipping product is ideal. Proving customer engagement and loyalty is another large step towards credibility. Communicating a shared vision from the founders or founding team is essential. So is knowing the market better than the VCs, since they have a breadth of knowledge about a large number of industries, but not enough hours in a day to have depth of knowledge in all of them.
For more of Chris’s advice on how to get VCs to say yes, read his piece on LinkedIn.