Venture capital (VC) has been a major source of funding for innovative companies over the past 30 years. As a result, VC has had a significant impact on the U.S. economy and global economies.
There has been much debate around intellectual property (IP), do venture capital (VC) firms care about IP? Does anyone else really care about innovation or IP protection? The answer is “yes”.
Venture Capitalists provide private equity for startups that are likely to grow over the long term. In other words, their interest is on startups that have the potential to grow quickly and receive capital. Their focus is mainly on technology, high market opportunities, and a significant return on investment.
This article contains important tips and guidance for creating an engaging, comprehensive, and compelling investor pitch deck.
Table of Content
The Funding Process: Approaching a Venture Capital for funding as a Company
Types of Venture Capital funding
Venture capital Guide to Investor Pitch Decks for Startup Fundraising
What is Venture Capital?
Venture Capital is the money that an outside investor provides to finance a struggling, new, or growing business. Venture capitalists provide funding in the knowledge that there is a high risk of the company’s future cash flow and profits. However, instead of a loan, they give capital in exchange for an equity share in the company.
VC firms put their money where there’s intellectual property rights. Intangible assets (patent, copyright, trademark) account for 80% of a business’s value.
Venture Capital is typically provided by institutional investors or high-net-worth individuals. It is then pooled by dedicated investment firms.
Venture Capital is the best option to fund a capital source that is expensive for companies. Venture capital funding is very popular in biotechnology and fast-growing technology fields.
The funding process: Approaching a Venture Capital for funding as a Company
Venture capital funding typically involves four phases of company development.
- Idea generation
- Get more
Step #1: Ideas generation and submissions of the Business Plan
A business plan is the first step to approaching Venture Capital. These are the points you should include in your plan:
- Include an executive summary in the business proposal
- Description of the opportunity, the market size, and potential
- Examine the current and anticipated competitive situation
- Financial projections in detail
- Details about the management of the company
Thereafter, venture Capital conducts a detailed analysis of the submitted plan to determine whether or not to accept the project.
Step #2: Introduction Meeting
After the VC has completed the preliminary study and found the project to be suitable, a one-on-one meeting is scheduled to discuss the details of the project. The VC then decides whether to proceed to the due diligence phase.
Step #3: Due Diligence
The nature of the business proposal will determine the extent of due diligence. This phase involves answering questions related to customer references, product evaluations and business strategies, interviews with management, and other information exchanges during this period.
Step #4: Funding and Term Sheets
If due diligence is successful, the VC will offer a term sheet. This is a document that explains the terms and conditions of the investment agreement. Generally, all parties can negotiate and agree on the term sheet. Funds are then made available after the completion of legal documents and due diligence.
Types of Venture Capital funding
Types of venture capital are classified according to the stage at which it is used in a business. There are three main types of venture capital: expansion financing, early-stage financing, and acquisition/buyout financing.
Venture capital financing is completed in six stages that correspond to the development periods of a company. They include:
Stage #1: Seed Capital
Seed capital is for those who are just starting out but don’t have a product or a company. This stage is not a good time to seek seed capital as VCs are unlikely to invest much. You may use investment capital to fund market research, create a product sample, or pay administrative costs.
Stage #2: Startup Capital
Your company will have a product sample and at least one principal who is working full-time. This stage is not often funded. This funding usually covers the recruitment of key management, market research, and the finalization of the product or services for the marketplace.
Stage #3: Early Stage Capital
Your venture is now two to three years old. You have a team in place, and your sales are growing. VC funding can help you grow sales to break even, increase productivity, and improve the efficiency of your company.
Stage #4: Expansion Capital
You have a well-established company and are now looking for a VC to help you take your company to the next level. This stage could help you expand your market reach or boost your marketing efforts. Look for VCs who specialize in investing at later stages.
Stage #5: Late Stage Capital
This stage is when your company has made impressive sales and revenues, and you have an additional management level. For example, you might be seeking funds to expand your company’s capacity, increase marketing effectiveness, or increase working capital.
Stage #6: Bridge Financing
A partner may be needed to assist you in a merger, acquisition, or public financing. Some VCs specialize in this part of the business spectrum. Consequently, they can help you with buyouts, recapitalizations, and initial public offerings (IPOs). In addition, a VC can help you with bridge or mezzanine financing if you’re planning an IPO. This short-term financing allows you to cover the costs of going public.
Stage #6: Risk versus return is a key factor in VC
The longer the time between VC exit and investing, the higher the risk. VCs will typically expect 10x multiple returns on their investments in the early stages, usually between four and seven years. An investor at a later stage may seek a return of two to four times the amount within two years.
Venture capital Guide to Investor Pitch Decks for Startup Fundraising
A “pitch deck” is a presentation, which startups prepare to present their company and ideas to potential angel investors or venture capitalists. A pitch deck typically comprises 15-20 slides in a PowerPoint presentation. That is to say, it is designed to present the company’s products and technology to potential investors.
It is time-consuming and difficult to raise capital from investors. Therefore, It is crucial that startups create a compelling investor pitch deck. Here is the guide:
#1: Make a presentation
Your pitch deck should be completed first. You want to create a deck that is both easy to use and inspires investors to invest in your business.
Keep this in mind. You should have both a shorter version you can talk to within 10 minutes and an extended version that covers everything you would like to share with potential investors.
To get started, you can download our pitch deck template for Powerpoint. You can also browse our gallery of more than 50 different Industry Pitches. This list of tools can assist you in putting together your pitch.
#2: Practice your pitch
Practice your pitch. This list is useless if you are unable to address each aspect of your business quickly.
Many entrepreneurs believe that they can quickly and succinctly describe its value by simply knowing their business. A great pitch deck with captivating visuals and compelling information will help you get the job done. Unfortunately, they go to pitch meetings completely unprepared.
Instead of saying, “I only require 10 minutes of your attention,” when it actually takes 10 minutes, you will soon find yourself rambling 20-minutes after reading slide 5. Practice, simplify your messaging and keep only the elements that will help you grow your business. All other elements should be left behind.
#3: Use a story to outline the problem
Start your pitch by telling a fascinating story. Your pitch should address the problem that you are solving in the market. So you will immediately engage your audience if you have done any testing, including the actual data.
It is a great idea to relate your story directly to your audience. Which industries have they previously invested in? What were their past entrepreneurial ventures’ biggest challenges? You can learn a lot about the investor by doing some research so that you can tailor your story to their interests.
#4: Your solution
Describe what makes your product unique and how it will solve the problem you highlighted in the slide before.
It should be incisive and easy to understand for investors. If your investors are not familiar with your industry, avoid using buzzwords. If you have done any testing before, please include that test results here to give your solution greater credibility.
#5: The Target market
You shouldn’t assume that everyone on the planet is your target audience, even though it might be true in one day.
It would be best if you were logical about the people you are building your product for. Break down your market into SAM,TAM and SOM. This will impress your audience and help you to think strategically about your rollout plan.
When speaking about your target market, you should try to create a user profile. Investors can see the potential customer base, and this shows that you have thought carefully about who your company will serve. It is easier to talk to a specific person in a short pitch than to a large demographic.
#6: Your business model or revenue
This slide is the most important to investors. How can you make money? Your products and pricing should be very specific. Also, emphasize how eager your market is for your arrival.
#7: Your success: Early traction and milestones
You want to establish credibility early in your presentation. Then, you can take some time to discuss the relevant traction that you have gained.
This is your chance to shine your own light. You and your team can impress investors by highlighting what you have achieved so far (sales, contracts and key hires, product launches, and so forth). Although you may have mentioned a few of these things early in your career, this is where you can create a complete picture of your company.
Don’t stop at what you have done. Be sure to talk about where you are going. You can show them a roadmap with the next steps and milestones and even how funding will be helpful.
#8: Acquisition of customers: Marketing and sales strategy
This section is often the most overlooked in a pitch to investors or a business plan. How can you reach your customers? What will it cost? How do you measure success?
You should be able to calculate customer acquisition costs using your financials easily. Most importantly, you should mention your plans for reaching customers, the channels you will be advertising on, and provide examples of messaging. Now that you’ve concluded your research and know your customer well, it’s time to show your investors how this will look in practice.
#9: Your team
Investors invest in people and ideas first, so make sure you share details about your rock star team and why these people are the best people to lead this company.
Be sure to let your team know what skills you are lacking. For example, many startup teams lack key talents, such as programmers, marketing, management expertise, or sales. Let them know you are not an expert.
#10: Financial projections
Show how much revenue you project per product over the next three-five years. Your assumptions must be supported by numbers. Investors will be using their smartphones to check your numbers. Give them the information they need so that they can verify your calculations.
If you see “hockey-stick” growth in your financial charts, explain why. It’s easy to spend too much time explaining financials, but you must speak quickly to investors. Investors want to know more. So add your financials to the extended presentation deck. Or offer to answer any questions once you have finished speaking.
#11: Your competition
This is an important section of your pitch. Many people skip it or don’t give enough information about what makes them different from other competitors.
This slide can be used to demonstrate your value proposition to your competitors. First, you list your competitors on the left side. Then you place your benefits and features across the top. Checkmarks are placed in the boxes that indicate which companies offer this service. You should have checkmarks at the top of each category, and your competitors are lacking in key areas to demonstrate your competitive advantage.
#12: Your funding requirements
It is important to clearly state how much money has been invested in your company by whom and how much you need for the next level (and what that level is). Are you looking to raise multiple rounds? Are you looking for a convertible note or an equity round?
Remind investors why you and your management team are capable of managing growth investments. Tell investors how much money you require, why you need it, what you will do with it, and the desired outcome.
#13: Your exit strategy
Investors will be interested in your exit strategy if you are looking for large amounts of capital investment (above $1M). Do you plan on being acquired, going public (which very few companies do), or some other type of exit strategy? Do your research on the exit strategy and the companies that you are targeting. Also, show why it makes sense in the future.
Investors want to see proof that you can back up your claims. You should have a well-thought-out business plan ready to share with investors so they can learn more. After all, the goal is to deliver a compelling pitch and have investors asking for your executive summary or your entire business plan.
#15: Get feedback to improve your pitch
No matter the result of your pitch, regardless whether you get funding, another meeting, or rejection, always look for ways to improve. Ask for feedback and consider it when you next pitch. Don’t press the issue if the investor doesn’t want to give any. You are asking for more than the time they have just given. It’s important to strike a balance.
As much as possible, ask another member of your team to review the slides and take notes. You should look for weaknesses, areas that you missed, or slides that caused negative reactions from investors. Even if you believe you have the perfect pitch, keep refining, practicing, and executing.
You won’t know how great your pitch is until it is done. So do not stress out and view every investor pitch as an opportunity to learn for your business. You will continue to improve, and you can apply these learnings to all areas of your business.