Outline For A First Pitch To A Venture Capital Investor Todd Hixon New Atlantic Ventures September, 2009
Overview of NewCo State the theory of the business Indicate what is novel/unique You should be able to say this very succinctly, without a lot of wind-up.
NewCo’s Market Opportunity VCs are looking for businesses that can grow to be worth $100s of millions, and $ billions in the best case. Give a credible estimate of the size of the market Explain how NewCo’s market gets to be that big. How do you expect to get paid? What are the critical assumptions and inflection points?
Expected Business Growth Who is the customer? Describe a “poster child” customer. Explain why customers are strongly motivated to buy What problem do you solve? How important is this for the customer? How much time until you are ready for revenue? How long are your sales cycles? How fast does this spread once it takes root? Explain why is now the right time for this business to take off? I.e., “why this, why now?”
Market Traction Demonstrate that the business concept works in the market Examples: trial purchases from well-regarded customers, web site activity, revenue from a predecessor business model, or endorsements from industry thought leaders.
Competition Who else solves the problem that you solve? How does this play out as the market evolves How do you create competitive advantage? You need to make the case that your success will be hard to imitate, and potential acquirers will chose to buy, not make.
Business Model How do you get paid? What motivates the other parties in the system to pay you? What do you have to do to get to revenue? The ROI characteristic of the business The up-front investment to get to revenue Ongoing ROI at the margin: $ of margin per incremental sales dollar versus $ of investment needed to support growth
Team Who are the key people? What have they done? Who needs to be added? Investors are looking to understand what kind of people you have, their expertise, and their track record.
Exit Opportunity M&A Exits: Who are the potential acquirers? Have they been active? What kind of revenue multiples are paid (or other relevant valuation metric)? Why will they chose your business and not some other? IPO Exit: why does your company have characteristics of an IPO company? If it does; this is no a must
Investment Required Show a financial forecast, focused on cash flow Key issues: How much investment does it take to get to cash flow breakeven? How high is your burn rate before revenue ramps up? In today’s world this is a key risk factor. Venture capital has become scarce, and follow-on financing rounds are often painful. If you build up a big burn rate on the threshold of revenue, and revenue is delayed (as often happens), the business quickly consume a lot of cash and be forced to raise money before it can demonstrate a revenue ramp
Proposed Financing How much money do you want to raise? Brief info on the current cap table is useful: how much money has been raised before, post-money value of the last round? What value-creation milestones can you reach with this money?
Investment Summary Tell the investors why they should reach for this deal “Ask for the order” Focus on the elements that are exciting for investors, e.g.: $ billion recurring revenue market >200% hard ROI for customers Patented technology costs <50% of competing solutions Experienced team with record of start-up success 5 marquee names are already customers