Top 5 VC Pitch Turnoffs
By Mark Graffagnini
Here are five of my top VC turn-offs for when companies are pitching or trying to raise money:
1. Metrics. Either a lack of understanding of what key metrics are that VCs want to see or a fundamental lack of presentation of metrics in whatever pitch deck or executive summary of materials or even conversation that I might have with a founder. If as a VC, you send me a pitch deck or make a presentation to me that’s not centered in essence around the metrics of the company, whatever they may be at that stage, then you fundamentally shown me that your business isn’t really focused on the bottom line. So in any given period when we’re looking at decks from companies that are trying to raise money, we’ll see a lot of presentations that are essentially what I call fluff decks. These are decks that you might present at a pitch event or demo day that is geared toward giving the understanding of the business only to a crowd and showing a big market that you can address. If you’re not showing us user data, revenue data, prototype data, scientific data, some data that gets to the bottom of how your business is actually performing then you’re either not a candidate for the venture capital investment or you’re just not at the stage at which a fund like ours or any kind of Series A fund will invest in and, so it’s absolutely crucial that you focus on metrics.
2. Disorderly house. I’m shocked that the number of companies that come and try to raise money from venture capital groups without either their corporate documents in place or when they say things like “I’m still working out things with my existing investors” or “Me and my founder are in the process of negotiating things.”
If you do not have your corporate house in order, there’s no way shape or form you should be pitching me as an investor or any other investor group for that matter. What it shows is that you have a lack of attention to detail and that you don’t understand that the most critical thing that you’re selling is a stock of your company and that’s not even in order yet. Absolutely 100% get those things in place before you’re pitching everyone and don’t pitch anyone before you have it done.
3. Lack of a partnership mentality. There seems to be a misunderstanding amongst some founders that they take advice from one quarter and they take money from other quarters and this is just a failure on the part of founders to interact with more venture capital groups and maybe even angel investors who are familiar with the process in some markets.
The process of raising money is actually the process of doing business with someone and if your startup is simply looking at investors as someone you pitch for money, but you’re getting advice in different quarters and you’re not learning how VCS think to work during the development of your business, then you’re missing out and you’re not going to get funding from those groups.
4. Lack of exit data or understanding of the exit plan. There are a number of founders and these are typically founders that like to compare themselves to people like Elon Musk or Mark Zuckerberg that say, “I’m not worried about the end game. I’m really focused on this immediate near-term with my customers. I don’t need to worry about the exits because this is such a big market.” Automatic disqualifier. There’s not one great founder in the history of the world that wasn’t concerned with how the development of the business plays out over time and whether or not this company was going to pursue an exit by acquisition or just become a large behemoth and go public. If you’re not talking to that and you’re talking to a venture capital investor in the sense of “I don’t have to worry about that,” you’re going to be disqualified. No doubt about it. It’s a trap for the unwary.
5. A failure to understand and do research on the venture capital market. If you are going around pitching investors and you do not understand basic things like the average or median deal size in a particular venture market, what average and median valuations are various markets, you are behind the curve, you are not part of the 1% that are going to be able to raise venture capital. You’re already starting behind the curve for people that know that information and have realistic expectations. What we see time and time again in various markets outside of Silicon Valley and in New York is that they’ve talked to friends or they’ve read blog posts or they have otherwise done research on what the Venture market looks like in either Silicon Valley or Silicon Alley.
It is not representative of the data in the rest of the country. If you are typically gearing your round at seed and Series A benchmark to an out of coast market, you are going to miss the key opportunities that will actually get your funding done according to milestones that make sense. Even the companies that are here that are raising coastal rounds from VCs need to understand the inner nuances of those markings, how to pitch and the two pitches are very different and the two markets can be very different.
For the very top performing companies in the central US, you’re able to get Silicon Valley type terms when it comes to valuation and round sizes, but understanding how those rounds come together is also very important. If you are a founder expecting to raise for example, five to six million dollars from one single group in a Series A round – it is possible, but it is a extremely rare number of cases that happen. You need to be able to successfully benchmark what your actual round looks like in terms of syndication to better educate yourself. But if you’re coming right out of the gate with numbers that aren’t supported in your particular market, you’re going to disqualify yourself before you even get a real chance to pitch.
Those are the top five things that I find to be a VC turn off. Number one lack of understanding and presentation of metrics, number two the disorderly house, number three lack of partnership mentality, number four the lack of understanding of the exit markets and data and exit plan down the road and number five, the failure to understand the VC market in general and pegging your rounds to data and information that isn’t supportive.
If you address those five things you may get to the next level of discussions of the venture capital group, but if you miss any one of those five things – it’s an easy disqualification of your company from the round.