If you want money, ask for advice.
No one likes a beggar, not even firms designed to give out money. Venture capitalist are made to seek investment opportunities and pour billions of dollars into great businesses, but many businesses never receive those dollars. We won’t pretend VC investments are as diverse racially and economically as they ought to be, but our goal is to prepare you to efficiently pitch to a venture capitalist once given the opportunity to. As a black and women-owned business, we understand the scarcity of black and/or women vc-backed funding. Tchuento has had its fair share of ups and down in raising capital, but just by following the advice we’re about to share, we at least increased our chances of being funded.
Rule #1: Let the VC come to you. If you must go to them, be referred.
There are exceptions to every rule, of course, but you’ll have a greater success rate in getting through the door if the VC finds you first. It’s not that all VCs don’t want unsolicited proposals, but they get so many that it’ll take a lot more than a well-worded message for them to click on your information and invite you in. You’ll need to do something that makes you stand out enough for them to 1) read your message in its entirety, 2) see potential, 3) propose a meeting with you, 4) care about you and your business, 5) share with their firm 6) invest. Chances of receiving an investment are much better if your company is doing so well that VCs need you. You want venture capitalists to know that you’ll be fine without them and not the other way around. So when you continuously cold call or seek an investment without any leads or referrals, it’ll be much more difficult to prove that the VC needs you.
Rule #2: You’ll have more leverage if you can hold onto as much equity as you can.
If you can scale your business on your own without outside capital, keep your equity. You’ve probably heard the saying, “it’s better to have a small piece of a large pie than a large piece of a small pie,” but that’s not always true. We urge you to remember that if you don’t need to share your pie at all, then just keep the whole pie. Most startups or early-stage companies want to be backed by a venture capitalist but at what cost? Truly evaluate if the outside investment is beneficial for the growth of your business. You should only ever accept venture capital if the value added after the investment is far greater than the company’s future value would have increased on its own. There are many companies that scaled on their own with no outside investments, albeit they were mostly retail or service-based companies, it’s not impossible.
Rule #3: Pitching is an art. Be creative, show passion, know your numbers.
Your company has shown promise and you’ve made it through the VC door. You’re IN – pat your team in the back! Just don’t screw it up. Pitching to a VC is very similar to selling something. Most people don’t buy from a sketchy salesman. VCs want to feel like you care about your product, understand the risks, and can be coachable. The best way to show you’ll make a good investment is by being passionate about your product, adequately explaining the problem you’re solving, showing through data how your solution to the problem is the best one, and being fit to scale. Do your due diligence and get to know your VC audience: their interests, firm’s portfolio, success rate.
The one thing that matters the most is that you know your numbers. Not only should you know your numbers, but you should know them so well that you’re in love with them. VCs think MONEY. If they can’t be certain that you’ll make them money, they won’t give you theirs. If you’re wondering what the numbers are, here are a few: product/market metrics (total available market, market share, market value), profitability metrics (monthly recurring revenue, renewals, burn rate), customer metrics (customer acquisition cost, lifetime value, churn rate). If you’re reading this and your company doesn’t have customers or is pre-revenue, then be more creative in expressing your numbers. Find a way to show that you CAN have customers and you CAN make money. Some suggestions for a pre-revenue business: have a landing page with “fake” payment sign-ups, conduct surveys with existing users, have purchase intents.
Rule #4: Not all pitches are equal.
In 2018, VC deals generated around $85 billion. Only 2.2% was allocated to women founders. Just about 1% was allocated to black founders. Over 70% was allocated to white founders. It’s no surprise that if you’re a woman or fall within a racial minority group, VC funding is highly unlikely. Don’t get discouraged, the scales can’t shift if everyone gives up. Continue to persist and stay driven until you hear “yes, done deal”. Now that you know that you might face more odds, it’s really important to always be ten steps ahead: follow rules 1-3. It’s unfortunate, but the truth is, if the majority of VC deals are led by groups of people who do not look like you nor would advocate for you, it is imperative that you eliminate reasons as to why they can overlook you.
Rule #5: Stay true to your vision.
The value a VC can add to your business is just as important as the value you can provide to them. Don’t relinquish from your company’s objectives unless pivoting is the most ideal next step. You will likely hear “no” until you hear “yes”. Just because a VC doesn’t see your business potential or is willing to align with your vision, it doesn’t mean that every VC will react the same. While pitching, conduct yourself as a leader and an advocate for your product. If your numbers are good, your vision is good, your team is good, and your business has potential – don’t let one VC’s apprehension to investing in you deter you from achieving your dream. A lot of VCs will claim to bet on innovation and risks, but the majority of deals are done with companies that are safe in nature and can guarantee a non-threatening return. Show a venture capitalist why not betting on you is a huge mistake and the smart ones will place a bet.
