What are investors really looking for? Your guide to the pitching process

Let’s get ready to pitch your startup

You have a brilliant idea for a startup, a solid business plan, maybe even a prototype of a unique product. That’s a great start. But don’t make the mistake of thinking it’s enough to turn heads — let alone convince an investor to back you.

Venture capitalists see hundreds, if not thousands, of pitches every year. To net a Series A investment, you are going to have to work hard to make sure your pitch truly stands out and sets you apart. The VCs and entrepreneurs within SVB’s network offer plenty of ideas for how to do that. Much of it boils down to the understanding the mindset of an investor.

What is your startup’s story? This is essentially what venture capitalists want to know from founders at a pitch meeting. Ideally, that story will be a compelling narrative about a team of skilled entrepreneurs inventing the future or devising an innovative approach to an old problem that will result in a happy ending — meaning a profitable exit — for all.

As you prep for potentially the most important day in your business’ history so far, there’s something you should keep in mind: Investors have heard a version of this story, probably thousands of times.

To keep them from nodding off or checking their phones, it’s crucial that you understand how VCs will try to poke holes in your pitch. Examining your own strengths and weaknesses will help to smoothly answer their questions. You also need to understand the VC mindset to recognise how potential investors are likely to view your startup in a larger context.

“I think that sometimes founders drink their own Kool-Aid a little too much,” says Nancy Pfund, a veteran venture capitalist and managing partner at DBL Partners, an early investor in Tesla, Space X and SolarCity. “For all the benefits of being laser-focused on their company, they risk not having a broad enough lens to view all of the dimensions that their startup will exist in.”

Pitch questions VCs will definitely ask

Although your pitch may be your big moment — the meeting when your startup’s future is decided, for VCs, it’s just another day at the office. “I want to get answers as to why should I invest in this company over all the other opportunities I have,” says Pfund.

To answer that question, VCs will start by pressing you on these key areas:

• What problem is your company solving?

• What is unique or proprietary about your product or service?

• How large is the market for it?

• What is the competitive landscape and how is it evolving?

• What are the revenue and growth models?

• Can your team pull it off?

For a full list of questions that VCs may ask, Download now.

But the devil, as they say, is in the details, and VCs will drill down to determine the depth of your knowledge about the market you aim to capture and your understanding of the obstacles you may face.

Brett Plotzker, co-founder and chief executive of Los Angeles health software startup Patch, initially prepped for VC meetings by sending his deck out to a core group of advisors who sent back real, useful and honest feedback. It was tough to hear but paid off when it came to the pitch meeting.

“It's exhausting and temporarily deflating to hear about what pieces of a presentation are flat, parts of the business that need improvement and how far we still have to go,” says Poltzker. “But this feedback is gold. I'd say, if a new founder has an experienced person who will spend the time telling them harsh — and real — truths, they should thank their lucky stars.”

Pitch questions that will really make you think

Of course, investors will put money in your startup in the hope of scoring a big return, so they’re going to be paying close attention to how you plan to use their money and how far it will take you.

“How much money is it going to take you to get to a certain point, where you've proven that you are worth further investment — that's a big, big issue,” says Pfund. Importantly, Pfund says you need to be able to credibly say what — and how long — it will take to get your startup to the point where someone will invest at a markup in a new round.

VCs will want to know which milestones — particularly those related to growth and revenue — you will hit and when. If your startup has no immediate plan for revenue, say, because product development will take time, you should be ready to list other benchmarks you will achieve in lieu of revenue.

“The hardest questions to answer, at least for me, were the ones that were more process questions that may not have necessarily had correct answers,” says Plotzker. Think hiring and marketing plans, both are subject to opinion.

He adds that there are two questions from VCs that always made him think hard and choose his answers carefully: Where do you see this business in five years? And what are you looking for in an investor?

“These are very important questions to critically think about and answer honestly when pitching an investor,” he says. “The last thing you want as an entrepreneur is to be disingenuous while seeking capital — which you may think you need but may not.”

Lisa Suennen, a long-time Bay Area investor who currently manages the venture fund for law and professional services firm Manatt, says there are two questions that often stump founders: Who is your real competition? And who absolutely needs to have your product?

Similarly, Pfund says founders are often unprepared to answer questions relating to political and regulatory change. “They don’t adequately risk-adjust their view of that,” she says.

The questions in summary:

• How do you plan to use the money?

• How far will the capital take you?

• Which milestones you will hit and when?

• Where do you see this business in five years?

• What are you looking for in an investor?

• Who is your real competition?

• Who absolutely needs to have your product?

It’s YOU VCs are actually investing in

Your story and that of your team should be a prominent element of your pitch; in the early days this is the most important part. Without a marketable product or revenue, VCs at this stage are really investing in the people behind any startup’s big idea.

You should be ready to talk about your team’s expertise in management, technology, product, sales and marketing. If there are knowledge and skill gaps, you must have a plan to show how you will fill them.

How you react to questions — especially the ones that are difficult to answer — will also come under scrutiny. “If you see a very peevish founder that bristles at any of these kinds of questions, that's not the greatest sign,” Pfund says. “It’s not necessarily a deal killer.” But composure and honesty can help make up for the lack of a good answer, she adds.

Suennen, who formerly served as senior managing director for GE Ventures, also says that poise is critical for founders. “They should just relax, figure out how to be, or at least act, confident,” she says. “Take a breath before speaking so they don’t interrupt, be open minded to concerns and criticisms and try to see it through the investor’s eyes, too.”

Plotzker emphasizes the importance of bringing co-founders who will complement each other to pitch meetings. “Once my co-founder and I developed a cadence that allowed us to highlight our strengths, I believe it resonated more deeply with investors,” he says. “This allowed investors to understand how our interpersonal dynamic worked, which truly translates to what areas of the business we each excel at. After all, a solid co-founder relationship is one of the most important things for a startup’s success.”

VCs are also likely to see how much you’ve thought about the world in which your startup will live. What, do you know about economic or political cycles? Have you thought about things that may be outside your control?

Suennen’s strategy is to “mostly spend time together getting them to tell stories.”

Are you selling to the right buyer?

You’ve got to do your homework and find the right VC, otherwise your pitch is moot. Take the time to really understand a firm’s investment thesis and portfolio to make sure your idea, product and scope are a good fit.

That approach paid dividends for Farmers Business Network when its founders pitched DBL Partners on their plan to use big data to increase the efficiency and transparency of agriculture. “We had been wanting to invest in agriculture and, even though they came in with a very early-stage business plan, it was so compelling we were hooked,” recalls Pfund.

On the other hand, as an early investor in renewable energy, the firm heard too many undifferentiated pitches from solar startups, even after it made bets in the sector. For a VC, it’s “sometimes it’s just a function of been there, done that,” she says.

For her part, Suennen says she’s seen both great pitches and horrible ones. “The best are when they are confident but humble, get right to the 8-10 most important points and understand this is a sales process, not something else,” she says.

Takeaway: put yourself in a VC‘s shoes

The best way to prepare for any pitch meeting is to really consider the VCs POV. If you were looking to invest, what would you want to know?

Plotzker says in summary: “I wish I had given more credit in the early days to VCs for being smart and rational people who had more empathy than I thought for the plight of a startup. I think it's important to try to put yourself in a VC's shoes — not just the firm but the partner — and understand how a decision gets made, the risks VCs can take and cannot take, what they need and how firm dynamics work.”