By Guest Blogger Rebekah Wu, Founder at Right-Hand Partners
You walk into an elevator with Tim Draper from Draper Fisher Jurvetson, and you casually strike up a conversation and he then asks you, “What do you do?” Do you have an elevator pitch ready for such a serendipitous meeting?
An elevator pitch is about a minute long that tells the venture capitalist (VC) what you do very quickly. It’s a teaser that can get you in the door for a meeting with your target investor…or not.
First, you want to tell them what your company, which I’m calling “GR8 Oy”, is. Are you enterprise software, SaaS, a platform, gaming, e-commerce, social advertising, mobile application, cleantech, medical device, etc.?
Once you tell them what you are, you can follow it up by telling them what your “solution” provides at the 1,000 meter level, and not the 100,000 meter level. The investors want to hear a clear description of your solution and size of your market in one short sentence.
For example: GR8 Oy is a scalable BI “app exchange” SaaS platform to deploy and exchange on demand BI solutions without IT disruption in the 1.1B € Fortune 2000 market.
Here are a couple reasons why you want to offer fast details. If BI is the “flavor of the month,” which it is not at the moment, you will perk an immediate interest from the investors to inquire more about your company. Or, if SaaS is not one investor’s personal investment focus, but it is one of the firm’s focuses, then s/he will continue to listen to your pitch and may refer you to the partner who invests in SaaS deals.
Heads-up #1: VCs rarely invest in tools because the market is typically too small. They look for solutions w/ huge market opportunity with 10X exit potential for Series A deals.
It’s important to note here that Silicon Valley (SV) VCs want to see a $1B market size in one market vs. collectively by adding three markets together. They want your startup to become a sustainable $100M company in one market that can extend to other markets after you dominate your target market. The risk is too high to bet on a company playing in a $300M market. They will typically deem a startup targeting a small market as a “non-venture-backable” deal and encourage you to look for angel investors.
After you tell them what your solution provides, it’s a good time to give the investor your value proposition. Believe it or not, the value proposition mantra has stayed the same over all these years – How is your solution faster, cheaper and better? And, I always tell my clients: quantify, quantify, quantify!
- reducing cost by factor of 10 and time to market by 85%
- increasing bottom line by ~5M € over 12-mos
- unifying currently disparate BI information and solutions
Now is a good time to mention your marquee/referenceable customer(s), current revenue stream and your sales pipeline.
Heads-up #2: If you are at the beta, know that VCs like to see *paying* beta customers even if they only pay 1,000 € each. These paying beta customers will have a stake in your success and will contribute valuable feedback more often than pilot customers who are evaluating your product for free.
Sales pipeline (a.k.a. sales funnel) is the total sales revenue from all the warm leads you have already communicated with and/or have been introduced to. Keep in mind that if you have 10M € in your pipeline today, the VCs are going to cut that number into 1/10th and assume that you will close 1M € in revenue over the next 6-12 months depending on your business model.
If you don’t have a revenue stream, you should at least tell the investors how you make money.
For example, it can be as simple as: Our SaaS revenue model is 50 €/user/month. We expect 250 users on average per customer.
Heads-up #3: In a meeting, a SV VC will often ask how many customers you will need to become a $100M company. I suggest that you have this answer prepared in case you get asked in the elevator. J
At this point, if you have signed distribution partners, you should mention them. And, if your contracts with them include expected annual revenue terms, it’s definitely worth mentioning in your pitch.
Now that you’ve highlighted the value proposition for the investors, this is a good time to tell them very quickly how much capital you are raising.
For example: We are raising 2M € in Series A. We have raised 500K € from two founders and 2 angels in convertible debt so far.
Lastly, don’t forget to introduce yourself and spell out your domain expertise. You want them to get an impression that if ANYONE can create a market leading company, it’s YOU!
Domain expertise includes number of years in your domain, which companies you worked for, in what capacity, how your contributions increased their bottom line and by how much over how many years. If you have been a VP level and higher manager at a company that went through an IPO or a substantial M&A, you will want to mention those experiences. VCs particularly in the SV want to know your proven track record over what degree you have from some top school.
If you have a management team member or a co-founder that has IPO or M&A experience and/or with deep domain expertise, you will want to tout that as well.
Heads-up #4: Don’t give the VCs what IRR they can expect from your deal. It’s a pet peeve for most VCs!
This is pretty much all the time you have in about a minute.
Don’t be stuck without a refined elevator pitch you can use at any moment! You never know who might walk into the elevator with you.
Trick Question Alert: If a VC asks you in your first meeting what valuation you are expecting, the answer is always – “fair market value”.
About Right-Hand Partners (RHP): RHP is a VC Relations company and a trusted conduit to reach the venture capital community. RHP has relationships with hundreds of venture capitalists representing over 150 VC firms. 34 companies that RHP coached have raised over $167M since September 2001; 8 have been acquired. www.rhpartners.com
RWu (at) rhpartners.com