How to Pitch to Venture Capitalists A Practical Guide This presentation has been developed to help entrepreneurs refine their initial pitch to potential investors. In addition to Venture Capital funds the concepts are also relevant for presentations to business angels, strategic investors, and other sources of capital. This presentation continues to evolve - please check the Resources page of our website www.joycapital.com for the latest version. There are also some additional files to help build a financial model, as well as links to useful sources of information for entrepreneurs and investors. Good Luck! Graham O’Keeffe June 2011 What VCs Look For ‣ A warm introduction to qualify taking a first meeting ‣ High binary upside investment propositions • • You win, you win big You lose, you lose early ‣ Something that fits their investment profile • But not one that overly concentrates their fund in any one area ‣ Management teams that can work out the answer • • Most VCs will back a great management team over a great idea Paradoxically, management is the one thing a VC can change..... ‣ Capital efficient business models • • Early proof of concept and customer adoption with relatively little capital invested High gross margin leading to strong operating leverage ‣ Deals that their competitors would love to do • • Catching the latest hot wave (eg social networking) is what they are paid to do Consequently VCs can exhibit a herding mentality © Joy Capital LLP 2011 The Ideal VC Pitch ‣ Consider it as a journey from A to B ‣ Starting the journey: • • You only get one chance to make a first impression The opening gambit - create an emotional hook ‣ What is the starting point? • • • They have never seen you before This is the “final pitch” to all the Partners - they know you well and will grill you Some people in the room know you, some don’t ‣ Where does the journey end? • • • They will take this to their partnership meeting They will make a final decision at their investment committee They will decide there and then ‣ Get a result • • Go for gold - ask for the cheque! Do not leave it open ended - even if the answer is “no”, get feedback, ask for helpful suggestions © Joy Capital LLP 2011 Pitch Considerations ‣ Format • • • • PowerPoint vs. PitchBook Product demo (must be bullet-proof) Video/Audio conference/Webex VCs will demand print outs “to make notes on” (but actually to skip ahead when they start to lose interest) ‣ Time • • • Plan on one hour - 30 minutes pitch, 15 minutes questions, 15 minutes spare 20 content slides max plus bookends Avoid the post-lunch graveyard slot ‣ Environment • • Get the IT working - projector, internet connection etc. before you start Where to sit you and your team vs. your hosts ‣ Team • • • Be yourself - act naturally, be comfortable in your own clothes Inter-team dynamics will be analysed closely Rehearse the material, keep it simple © Joy Capital LLP 2011 The Three Minute Mark ‣ Many investors consider themselves “intuitive” and will make an emotional decision within three minutes ‣ You are doing badly: • • • Blackberry’s are out People flipping through the printed deck You’re trying to connect to the internet to show your website demo ‣ You are doing well: • • • Heads nodding in agreement Your demo is rolling Questions being asked - how should you respond? ‣ At a minimum the audience should know this: • • • • Customer Value Proposition Interesting market size Differentiation (technology, IP, brand, customer base) How much money you’re raising ‣ The rest of your presentation must build on the first three minutes and provide the rational justification for the initial intuitive reaction © Joy Capital LLP 2011 Presentation Essentials and Sequence ‣ ‣ ‣ ‣ ‣ ‣ Meet and Greet - the First Impression and Opening Gambit Investment Overview The Customer Value Proposition Market Size and Structure Competition Differentiation • • • • Three Minute Mark Technology/IP Brand Customer Base Market Access ‣ Route to market • Channel structure (direct/indirect/on-line) ‣ Customers • ‣ ‣ ‣ ‣ ‣ Who/Where/How Big Management Team Financials Exit Considerations Investment Summary The Ask Some people would put this higher up, depends on who’s in the room from the team Leave no doubt at the end what you’re after - how much, timescales, number of investors. © Joy Capital LLP 2011 The following slides are the absolutely essential ones to have in a deck. T U The opening gambit Every Cloud Needs a Silver Lining..... Universal Technologies Presentation to Entrepreneurship Ventures March 21st, 2010 Always number your slides for people following on a conference call Slide 1 Investment Overview These are the key points you are making Large market ‣ Universal Technologies addresses the $4Bn market for cloud infrastructure Great products ‣ Our QuickSilver™ line of edge servers leads the market for large enterprises in the US and Europe Blue chip customers ‣ Our customers include GE, Goldman Sachs, AT&T, and the NHS Lean, smart organization ‣ We are headquartered in Reading, UK with offshore R&D in India Strong USPs ‣ We own an extensive patent & IP portfolio ‣ Our management team has a strong track record in building new Great team businesses around innovative market-oriented solutions ‣ Our products have high gross margins due to a large software content, resulting in a capital efficient business Attractive financial profile ‣ We are raising up to $5m in fresh capital to grow our sales team The Ask primarily in the US to support immediate market demand, and to explore Asia © Joy Capital LLP 2011 Strong Revenue Growth and Excellent Gross Margins “Up and to the right” Attractive profitability © Joy Capital LLP 2011 Financial Summary This can be cut down to size, but it’s the most you should try to fit onto one slide. (Excel template on www.joycapital.com) © Joy Capital LLP 2011 This is a great format for explaining why you are raising capital, the structure and safety margin Cash Requirements and Funding Plan In this scenario, the company is using debt to finance working capital (circled), and equity to fund operating losses through to cashflow breakeven © Joy Capital LLP 2011 Investors can do this work themselves, but it’s always a good idea to lead them to the answer Exit Considerations ‣ Cloud Infrastructure Vendors • • EMC, HP, Dell, IBM Desire to own full stack for end-to-end system solution ‣ Network Equipment Vendors • • Cisco, ALU, NSN, Ericsson Defensive play to address price-point pressure ‣ Cloud Service Providers • • Oracle, Amazon, Google Massive purchasers of infrastructure – may bring much of it in-house ‣ Recent Precedent Transactions • • EMC/Isilon - $2.3Bn HP/3Par - $2.1Bn ‣ Our exit value is over $500m by 2014 • Comparable multiples of 3-6x forward revenues © Joy Capital LLP 2011 Investment Summary Similar to opening Investment Overview Slide ‣ Universal Software is ideally positioned to create significant shareholder value based on its current position in the fast growing cloud infrastructure market ‣ We intend to build on our existing blue-chip reference customers by growing our US sales team growth to support immediate market demand and establishing a position in Asian markets through partnerships ‣ Our products have high gross margins due to a large software content, resulting in a capital efficient business model which we operate with a lean philosophy ‣ Our management team has a strong track record in building and exiting technology-based businesses The Offer ‣ This investment offers a high return potential in a relatively near time-frame with multiple strategic exit opportunities proven by recent transactions ‣ We are raising up to $3m in equity and $1m of venture debt to accelerate our growth path with the expectation of closing the round in early 2011 © Joy Capital LLP 2011 The Ask Always say “Thank YOu” Make sure your contact details are clear Thank You George Cameron CEO, Universal Technologies go@unite.ch.com +45 7765 4326 www.unite.ch.com Pitch with Passion ‣ Never forget that you are selling shares in your company • A product needs to be positioned in order to sell it effectively ‣ Would you buy a car/computer/guitar/camera from somebody who wasn’t passionate about their product or company? ‣ Be enthusiastic, energized, committed, hungry • • American style versus British/European style But always be genuine - be yourself! ‣ Practice, Practice, Practise • • • • • • • In the shower With your friends With other CEOs With a VC you who isn’t going to invest At conferences To your colleagues To a video camera © Joy Capital LLP 2011 Get the VC to sell to you!! What are they going to do for you? A Great VC Can Offer Many Things ‣ Experience of building internationally competitive companies ‣ Extensive network of valuable contacts ‣ Leverage with other organisations (banks, lawyers, access to local talent pools etc.) ‣ Access to follow on capital ‣ Help raising the next round of money ‣ Knowledgeable about exit processes and capital markets Should make the difference between success and failure © Joy Capital LLP 2011 16 Venture Capital is not for everybody - there are other source of capital that may be more relevant depending on the maturity of the business. Funding Sources Equity returns Individuals Business Angels Incubation University/ Regional VC Funds Seed Funds Proof of Concept Government Grants Endowments VC Funds Company Creation Strategic Investors Growth Funds Business Build Out R&D Tax Credits Pension Funds Private Equity Growth Venture Debt Other possible sources of funding: •Business plan competitions •European collaboration programs •Hedge funds •Customer up-front payments © Joy Capital LLP 2011 Market Domination Invoice Discounting Debt returns Idealogical returns Public Markets Bank Loans Stages of Business Development ‣ Incubation • • Maybe a project within a research lab, four people sharing a serviced office with a plan on a whiteboard, or even just an idea sketched on the back of a napkin An ad-hoc organization structure, no legal framework, resources often paid for “in kind” ‣ Proof of Concept • • As much as a working prototype, or a software demo, as little as an investor pitch Some agreement between parties on economic and intellectual ownership of the concept, depending on attribution and investment ‣ Company Creation • • A legal entity, employees, an organization (probably chaotic), a shareholders agreement defining economic rights People often doing multiple jobs, roles often changed, business plans subject to frequent revision ‣ Business Build Out • • The business becomes structured and defined, with clear roles and responsibilities for management, employees, Board etc. The business trades, perhaps profitably, but with varying predictability ‣ Growth • • Business becomes repeatable, predictable and scalable Economies of scale may lead to inorganic growth through acquisition ‣ Market Domination • As market leader in a large market, business is able to tap a number of financial resources to maintain, extend or defend its core business and to expand into adjacent business areas © Joy Capital LLP 2011 Early Stage Investors Seeking Equity Returns ‣ Individuals • Investing in their own business, using gains from previous successful businesses, or savings from themselves or family members ‣ Business Angels • Successful entrepreneurs or business people, investing in others’ businesses, often in collaboration with others (angel networks), and frequently providing business advice or maybe taking a Board seat ‣ Seed Funds • • • Organized and managed pools of institutional capital, often focused on a particular market sector such as Web 2.0, investing in very early stage companies Frequently created as an adjunct to, or allocation from, an existing VC fund Often unable to follow their original investments due to limited fund sizes and therefore focus on capital-efficient business models requiring only a single round of funding ‣ VC Funds • • • Significant pools of institutional capital, professionally managed, and able to invest across a number of investment rounds through to an exit such as a trade sale or IPO Will invest in pre-revenue startup or seed stage investments but anticipate a high attrition rate due to the risks inherent in backing unproven ideas, business models, technologies and entrepreneurs Fund returns often dependent on one or two “home run” investments to compensate for the multiple losses © Joy Capital LLP 2011 Resources Suggested further viewing: http://www.youtube.com/watch?v=Nx7v815bYUw Suggested further reading: http://www.powerltd.com/presenting.htm Other links from the Resources section of our website www.joycapital.com © Joy Capital LLP 2011