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Below are the different ways I've noticed to convince VCs to invest in your company, in descending order of desirability. It seems the higher you can get in this list, the better terms / higher valuation you'll get from VCs.
- A product / prototype with traction
- Examples:
- Facebook when they met with Peter Thiel (it had traction at Harvard / Stanford / Columbia)
- Oculus Rift when it raised money from Founder's Fund (it had traction on Kickstarter)
- Elon Musk when he raised money for Zip2 (he had 3 commissioned salesmen and a few local newspapers as customers)
- The Shark Tank contestants that get the best deals, with a bidding war between the sharks. (they all have demonstrated sales, preferably in the millions of dollars)
- Examples:
- Positive cash flow
- Examples
- Elon Musk - 2003.10.08 - Stanford University Entrepreneurial Thought Leaders Lecture
There was an ISP on the floor below us. Just like a little tiny ISP. And we'd draw a hole through the floor and connect to the main cable. That gave us our internet connectivity like a hundred bucks a month. So we had just an absurdly tiny burn rate. And we also had a really tiny revenue stream. But we actually had more revenue than we had expenses. So when we went and talked to VP's we could actually say we had positive cash flow. That helps, I think.
- Elon Musk - 2003.10.08 - Stanford University Entrepreneurial Thought Leaders Lecture
- Examples
- An impressive team with a product / prototype, but no users
- Examples:
- Jack Dorsey with Square (he and his cofounder paid some engineers to build a prototype)
- DropBox (they created a video showing what the final product would look like, and how it would work)
- Examples:
- An impressive team, but no product / prototype
- Examples:
- Conveying that you are going to work extremely hard.
- Examples
- 2015.12.26 - TC - How I Created A $350 Million Software Company Knowing Nothing About Software - This is the cofounder of Five9, John Sung Kim.
Clearly, I needed help (therapy), so I asked my former boss at the discount brokerage firm if he knew of any angel investors.
Thankfully, he introduced me to his favorite day-trader client and explained to him that I was a promising entrepreneur and that Tooter was an amazing engineer, which he absolutely was. I explained to the investor as passionately as I could that I was going to build a successful software company or die trying, and that I was into self-preservation, so…
The day trader pointed to a picture of a small jet on his office wall and said, “I want you to help me buy this.” He then wrote us a check for $150,000 on the spot, and we were officially funded.
- Get the quote about Elon Musk pitching VCs for his company Zip2.
- 2015.12.26 - TC - How I Created A $350 Million Software Company Knowing Nothing About Software - This is the cofounder of Five9, John Sung Kim.
- Examples
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1. Start With a Great Company - "Having a great startup pitch has more to do with setting up and running a great company than optimizing some type of sales process to investors"
2. Don't Forget the Basics - To put it short, the pitch should include details on the company overview, team, market, solution, business model, customers, competition, financial overview, funding, vision and of course, a demo — or at least a mockup — should be available for viewing. "Cover everything investors want, or you look like you're ducking the questions "Cover everything investors want, or you look like you're ducking the questions," Teten suggests.
3. Razzle Dazzle 'Em - "Be human, entertain your crowd, and use your body and voice to help convey your message"
4. Be Honest and Thoughtful - "Don’t massage your numbers, omit critical information that will impact the business or exaggerate the extent of your business partnerships"
5. Do Your Research - "The best CEOs are able to get inside the heads of their customers, investors and employees and know what they are going to ask in advance. If you have good, well thought-out answers to our questions, it makes us believe that you’ll also have them for your customers and employees." While you're at it, make sure you've done thorough research on the people you're pitching to, says Howery. Who you pitch to is nearly as important as what you pitch. You should know why this specific investor would be a good partner for your company.
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