Not doing their homework: Know who you are pitching (the fund and the partner)

1. Top Ten Mistakes Entrepreneurs Make When Pitching VCsVini JollyExecutive Director: Woodside Capital Partners

2. #1 • Not doing their homework: • Know who you are pitching (the fund and the partner) • Is there a fit between the amount being raised and the size of the fund (Don’t pitch a $1B fund for a $500k raise, or a $50M fund for a $25M raise) • Remember: you can divorce your spouse, but you cannot divorce your investor, so do your homework and choose wisely

3. #2 • Not thinking big enough: • VCs are in the business of outsized returns. They want to invest $10M and get $100M out • For that type of return, a company has to believe that it can be a $500M-$1B Enterprise Value company. Early stage VC may start with a 20-25% stake which may dilute to 10-15% by the time of an exit. For 10% ownership to yield $100M, the company has to be valued at $1B • Often the psychological threshold that VCs look for is a line of sight to $100M revenue possibility (with believable metrics) within a multi-billion dollar market • A lifestyle business is fine, but not venture fundable

4. #3 • Wanting control: • Entrepreneurs need to understand that as soon as they take other people’s money (OPM), they are indeed relinquishing control • Investors will take board seats and guide the company forward with certain rights, often veto rights. • Giving a hint to a VC that you are looking to retain control post investment will likely deter the investor from proceeding further

5. #4 • Vitamin vs. Cancer Drug: • This is connected to the “thinking big” bullet point. • Investors like “monumental” rather than “incremental” • 10% improvement does not make a difference. A 10x improvement does. • Go after a real pain point for which customers will trip over each other to buy, and they themselves become ambassadors of the product or service.

6. #5 • Not understanding the competitive landscape: • Never say that you have no competition. That means either that the market is insignificant or that you are naïve and don’t really understand your market • There is always competition (direct or indirect) • Use a table of features/functionality or a 2x2 matrix to clearly identify your differentiation vs. others in the market

7. #6 • Not Articulating The Addressable Market: • Entrepreneurs often make the mistake of making statements such as “we are going after the multi-trillion dollar healthcare market” or “we are going after the 1.3 billion strong Indian market”. Understand the real addressable market and the revenue possibility • As mentioned earlier, for most VCs to be interested you have to after sizable addressable markets and become one of the dominant (or the dominant) players • Being a mid-size fish in a large pond is better than being a big fish in a tiny pond.

8. #7 • Projecting Unreasonable Scale: • Often entrepreneurs excel in excel. As a result, they projections tend to be unrealistic. I have had startups pitch me businesses which will make their startup the most successful in history in terms of growth. • There needs to be a balance between thinking big, and being pragmatic and realistic in terms of growth metrics or overall margins

9. #8 • Uncertain Team Dynamics: • Investment decisions come down to four key ingredients – Team, Technology (differentiation), Traction and Market, with team being the most important criterion. • The moniker that “A team, B technology almost always beats B team and A technology” is very true. • Founders should know their respective roles and responsibilities. Usually it’s a mix of an outward facing CEO with an inward facing techie CTO (think Gates and Allen, Job and Wozniak etc) • A confused founding team without specific roles and leadership will be a disaster.

10. #9 • Lack of Self Awareness: • This is related to the team aspect. The team or an individual leader needs to be self-aware to know that he/she does not have to have all the answers. Know what you know and know what you don’t know. • An investor is going to respect the above a lot more than someone who comes across as a “know it all”. • Not being self aware often leads to entrepreneurs not hiring well (especially the initial team). The goal should be to hire the best (often people smarter and more talented/experienced that the founder). • Also understand that while you as a founder might be great for getting the company from 0 to $5M, you may need a professional CEO at some point to scale the business.

11. #10 • Lack of crisp fundraising story: • Entrepreneurs sometimes have a tendency to be unclear about their fundraising, often indicating that they are looking to raise a broad range of funding ($1-3M or $5-10M). Be clear about how much you are looking to raise and what the use of those funds will be. • If you have to give a range, keep it to a reasonable level with rationale (if we raise $1M, we can achieve X in Y timeframe, but ideally we would like to raise $1.5 to pursue a more aggressive product development timeline)

12. #11 • Lack of Understand Both Product Market Fit and Go To Market: • It’s important for the investors to know that the “dogs are eating the dogfood” with some initial customers or POC’s in place before you approach VCs • Entrepreneurs often find themselves in a catch-22 – They need capital to hit meaningful milestones and need miletones/traction to get funded • At the early stage, it is important to get market validation and at least have the potential customers saying that “if the product was available today, they would absolutely buy it”

13. #12 • Lack of Understanding of the Fundraising Process and Choreography: • It is important for entrepreneurs to have realistic expectation of the entire fundraising process which can take 4-6 months. • The first meeting with the VC is to get to a second meeting – i.e. create interest, bait the investor to want to learn more. Throughout the process, the key is to continue hitting mini milestones along the way, and providing positive news to the prospective investors. • VCs are notoriously bad at saying yes or No. They fall into the “definite maybe” category, unless they fear missing out. Key is to get a termsheet on the table. That creates a sense of urgency.

14. #13 • Over-optimizing: • All too often, entrepreneurs try to over-optimize on valuation. More often than not companies wait longer than they should to hit the fundraising trail (hoping to scale the business further and get a bump up in valuation). • The startup should have at least six months of cash on hand before starting the fundraising process. If a startup is on fumes, the investor has all the leverage

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