There are two basic steps to a successful pitch: outlining the value of your product, service or idea & making your presentation memorable. Doing that, however, is easier said than done. There is a lot of work that goes into creating a memorable & valuable sales pitch – various steps that must be put into a strategic & systemic process in order to win a VC’s heart and capital. While the details may be many, the fundamental approach can be distilled into 3 major steps. The first step is perhaps the most important.
Estimating Market Size
Accurate estimates of a market are essential for a VC Pitch! VCs are looking more for market dynamics than plain numbers, so it is important to prove them that each and every detail about the market being targeted (present-day conditions & future expectations) is included in the pitch. Estimating market size is the first rung on this ladder and probably the most important as it gives VCs an initial picture of the current situation – is there enough buyers who want and need the product being pitched to make them money? The great thing is that it is relatively easy to get these estimates.
Google research firms like Forrester, Gartner, & IDC to check statistic for Total Addressable Market (TAM).
Calculate the Total Obtainable Market (TOM): Total Target Customers X Average Sale Per Product
Once these basic numbers are established, the next step is to convince the VCs that there are trends within the market that would insinuate future technological adoptions, a strong signal for future market growth. This will give them the “Big Picture” (i.e. the future probability of growth and expansion).
*** In this instance, it would help to bring in experts that can confirm that there is a need for the company and the products being pitched. These experts should be based on industry leaders who intimately work within the market the startup is targeting.
On to step 2…
Showing Product Value
Most startups pitch their products with benefits and features first. What VCs really want to see is how their product solves specific problems within their a given market. The best way to show the value of a product is to tell a story about it – a real story.
How did the product solve a pain point for a particular person or group of people (real-life story)?
How was the product thought up – what weakness or obstacle was prevalent in the market that produced the product idea (real-life story)?
Stories help make a product and company more personable, which helps build the know, like, trust, factor – a definite boon when trying to convince someone to write out a check for an unproven company and product!
Some other tips for increasing the value of a product in the eyes of a VC are as follows:
Showcase benefits & not features: Benefits are a list of how a product helps people and features are a list of what a product does. VCs want to know if a product has any value in the market place more than they want to know how the product actually functions.
Showcase product profitability: This is a compilation of how a product is different from similar products within a given market as well as how it is better than products sold by the competition. Once this is established, a clear plan of action should be laid out in front of the VCs as to how the product’s advantages are going to be monetized.
Now, for the final step…
Valuing The Company
Without knowing what a company is currently worth as well as what its potential worth is, there is really no way to seal the deal. How does one go about valuing a company that hasn’t even started yet, though?
The most important factor in valuing a company during the beginning stages is to outline how much stake the VC will have in it – how much return will they get for investing in it.
Once that is settled, the company can be further valued using the following strategies:
Base the valuation on any current revenues, market demand, or garnered reputation level.
Suggest a value equal to an 18-month advance in order to gain some traction until the next round of talks (further investment).
Offer a lower valuation than what is expected to give the company some breathing room – more money equals faster growth, less money equals slower but steady growth. Slow and steady wins the race!
Showing what a company does and how it does it through personal stories makes for a unique and memorable investing pitch. Backed up by solid numbers supporting the story, and the probability for investment increases.
A call-to-action at the end of the presentation is not a bad idea either as most VCs will expect a startup to ask for their decision as soon as possible. The call-to-action, however, should be stated in the same manner as the presentation itself – confidently and naturally.