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June 2011
How to Pitch to Venture CapitalistsA Practical Guide
This presentation has been developed to help entrepreneurs refine their initial pitch to potential investors. In addition to Venture Capital funds the concepts are also relevant for presentations to business angels, strategic investors, and other sources of capital.
This presentation continues to evolve - please check the Resources page of our website www.joycapital.com for the latest version. There are also some additional files to help build a financial model, as well as links to useful sources of information for entrepreneurs and investors.
Good Luck!
Graham O’Keeffe
© Joy Capital LLP 2011
What VCs Look For
‣ A warm introduction to qualify taking a first meeting‣ High binary upside investment propositions
• You win, you win big• You lose, you lose early
‣ Something that fits their investment profile• But not one that overly concentrates their fund in any one area
‣ Management teams that can work out the answer• Most VCs will back a great management team over a great idea• Paradoxically, management is the one thing a VC can change.....
‣ Capital efficient business models• Early proof of concept and customer adoption with relatively little capital invested• High gross margin leading to strong operating leverage
‣ Deals that their competitors would love to do• Catching the latest hot wave (eg social networking) is what they are paid to do• Consequently VCs can exhibit a herding mentality
© Joy Capital LLP 2011
The Ideal VC Pitch
‣ Consider it as a journey from A to B‣ Starting the journey:
• You only get one chance to make a first impression• The opening gambit - create an emotional hook
‣ What is the starting point?• They have never seen you before• This is the “final pitch” to all the Partners - they know you well and will grill you• Some people in the room know you, some don’t
‣ Where does the journey end?• They will take this to their partnership meeting• They will make a final decision at their investment committee• They will decide there and then
‣ Get a result• Go for gold - ask for the cheque!• Do not leave it open ended - even if the answer is “no”, get feedback, ask for helpful
suggestions
© Joy Capital LLP 2011
Pitch Considerations
‣ Format• PowerPoint vs. PitchBook• Product demo (must be bullet-proof)• Video/Audio conference/Webex• VCs will demand print outs “to make notes on” (but actually to skip ahead when
they start to lose interest)‣ Time
• Plan on one hour - 30 minutes pitch, 15 minutes questions, 15 minutes spare• 20 content slides max plus bookends • Avoid the post-lunch graveyard slot
‣ Environment• Get the IT working - projector, internet connection etc. before you start• Where to sit you and your team vs. your hosts
‣ Team• Be yourself - act naturally, be comfortable in your own clothes • Inter-team dynamics will be analysed closely• Rehearse the material, keep it simple
© Joy Capital LLP 2011
The Three Minute Mark
‣ Many investors consider themselves “intuitive” and will make an emotional decision within three minutes
‣ You are doing badly:• Blackberry’s are out• People flipping through the printed deck• You’re trying to connect to the internet to show your website demo
‣ You are doing well:• Heads nodding in agreement• Your demo is rolling• Questions being asked - how should you respond?
‣ At a minimum the audience should know this:• Customer Value Proposition• Interesting market size• Differentiation (technology, IP, brand, customer base)• How much money you’re raising
‣ The rest of your presentation must build on the first three minutes and provide the rational justification for the initial intuitive reaction
© Joy Capital LLP 2011
Presentation Essentials and Sequence
‣ Meet and Greet - the First Impression and Opening Gambit‣ Investment Overview‣ Customer Value Proposition‣ Market Size and Structure‣ Competition‣ Differentiation
• Technology/IP• Brand• Customer Base• Market Access
‣ Route to market• Channel structure (direct/indirect/on-line)
‣ Customers• Who/Where/How Big
‣ Management Team‣ Financials‣ Exit Considerations‣ Investment Summary‣ The Ask
The Three Minute Mark
Some people would put this higher up, depends on who’s in the room from the team
Leave no doubt at the end what you’re after - how much, timescales, number of investors.
March 21st, 2010
Universal TechnologiesPresentation to Entrepreneurship Ventures
UT Every Cloud Needs a Silver Lining.....
The opening gambit
The following slides are the absolutely essential ones to have in a deck.
© Joy Capital LLP 2011
Investment Overview
‣ Universal Technologies addresses the $4Bn market for cloud infrastructure
‣ Our QuickSilver™ line of edge servers leads the market for large enterprises in the US and Europe
‣ Our customers include GE, Goldman Sachs, AT&T, and the NHS‣ We are headquartered in Reading, UK with offshore R&D in India ‣ We own an extensive patent & IP portfolio‣ Our management team has a strong track record in building new
businesses around innovative market-oriented solutions ‣ Our products have high gross margins due to a large software
content, resulting in a capital efficient business ‣ We are raising up to $5m in fresh capital to grow our sales team
primarily in the US to support immediate market demand, and to explore Asia
Always number your slides for people following on a conference call
Strong USPs
Lean, smart organization
Blue chip customers
Great products
Large market
The Ask
Attractive financial profile
Great team
Slide 1
These are the key points you are making
© Joy Capital LLP 2011
Strong Revenue Growth and Excellent Gross Margins
“Up and to the right”Attractive profitability
© Joy Capital LLP 2011
Financial SummaryThis can be cut down to size, but it’s the most you should try to fit onto one slide. (Excel template on www.joycapital.com)
© Joy Capital LLP 2011
Cash Requirements and Funding PlanThis is a great format for explaining why you are raising
capital, the structure and safety margin
In this scenario, the company is using debt to finance working capital (circled), and equity to fund operating losses through to cashflow breakeven
© Joy Capital LLP 2011
Exit Considerations
‣ Cloud Infrastructure Vendors• EMC, HP, Dell, IBM• Desire to own full stack for end-to-end system solution
‣ Network Equipment Vendors• Cisco, ALU, NSN, Ericsson• Defensive play to address price-point pressure
‣ Cloud Service Providers• Oracle, Amazon, Google• Massive purchasers of infrastructure – may bring much of it in-house
‣ Recent Precedent Transactions• EMC/Isilon - $2.3Bn• HP/3Par - $2.1Bn
‣ Our exit value is over $500m by 2014• Comparable multiples of 3-6x forward revenues
Investors can do this work themselves, but it’s always a good idea to lead them to the answer
© Joy Capital LLP 2011
Investment Summary
‣ Universal Software is ideally positioned to create significant shareholder value based on its current position in the fast growing cloud infrastructure market
‣ We intend to build on our existing blue-chip reference customers by growing our US sales team growth to support immediate market demand and establishing a position in Asian markets through partnerships
‣ Our products have high gross margins due to a large software content, resulting in a capital efficient business model which we operate with a lean philosophy
‣ Our management team has a strong track record in building and exiting technology-based businesses
‣ This investment offers a high return potential in a relatively near time-frame with multiple strategic exit opportunities proven by recent transactions
‣ We are raising up to $3m in equity and $1m of venture debt to accelerate our growth path with the expectation of closing the round in early 2011
Similar to opening Investment Overview Slide
The Ask
The Offer
Thank You
George CameronCEO, Universal [email protected]+45 7765 4326www.unite.ch.com
Always say “Thank YOu”Make sure your contact details are clear
© Joy Capital LLP 2011
Pitch with Passion
‣ Never forget that you are selling shares in your company• A product needs to be positioned in order to sell it effectively
‣ Would you buy a car/computer/guitar/camera from somebody who wasn’t passionate about their product or company?
‣ Be enthusiastic, energized, committed, hungry• American style versus British/European style• But always be genuine - be yourself!
‣ Practice, Practice, Practise• In the shower• With your friends• With other CEOs• With a VC you who isn’t going to invest• At conferences• To your colleagues• To a video camera
© Joy Capital LLP 2011 16
‣ Experience of building internationally competitive companies ‣ Extensive network of valuable contacts‣ Leverage with other organisations (banks, lawyers, access to local
talent pools etc.) ‣ Access to follow on capital ‣ Help raising the next round of money‣ Knowledgeable about exit processes and capital markets
Should make the difference between success and failure
A Great VC Can Offer Many ThingsGet the VC to sell to you!! What are they going to do for you?
© Joy Capital LLP 2011
Incubation Proof ofConcept
Company Creation
Business Build Out Growth Market
Domination
Funding Sources
VC Funds Public Markets
Growth Funds
Strategic Investors
Seed Funds
University/ Regional VC
Funds
Government Grants
R&D Tax CreditsEndowments
PensionFunds
Bank Loans
Venture Debt
Individuals BusinessAngels
PrivateEquity
Other possible sources of funding:•Business plan competitions•European collaboration programs•Hedge funds•Customer up-front payments
InvoiceDiscounting
Equity returns
Idealogical returns Debt returns
Venture Capital is not for everybody - there are other source of capital thatmay be more relevant depending on the maturity of the business.
© Joy Capital LLP 2011
Stages of Business Development‣ Incubation
• Maybe a project within a research lab, four people sharing a serviced office with a plan on a whiteboard, or even just an idea sketched on the back of a napkin
• An ad-hoc organization structure, no legal framework, resources often paid for “in kind”‣ Proof of Concept
• As much as a working prototype, or a software demo, as little as an investor pitch• Some agreement between parties on economic and intellectual ownership of the concept, depending
on attribution and investment‣ Company Creation
• A legal entity, employees, an organization (probably chaotic), a shareholders agreement defining economic rights
• People often doing multiple jobs, roles often changed, business plans subject to frequent revision‣ Business Build Out
• The business becomes structured and defined, with clear roles and responsibilities for management, employees, Board etc.
• The business trades, perhaps profitably, but with varying predictability‣ Growth
• Business becomes repeatable, predictable and scalable• Economies of scale may lead to inorganic growth through acquisition
‣ Market Domination• As market leader in a large market, business is able to tap a number of financial resources to
maintain, extend or defend its core business and to expand into adjacent business areas
© Joy Capital LLP 2011
Early Stage Investors Seeking Equity Returns
‣ Individuals• Investing in their own business, using gains from previous successful businesses, or savings from
themselves or family members‣ Business Angels
• Successful entrepreneurs or business people, investing in others’ businesses, often in collaboration with others (angel networks), and frequently providing business advice or maybe taking a Board seat
‣ Seed Funds• Organized and managed pools of institutional capital, often focused on a particular market sector
such as Web 2.0, investing in very early stage companies• Frequently created as an adjunct to, or allocation from, an existing VC fund• Often unable to follow their original investments due to limited fund sizes and therefore focus on
capital-efficient business models requiring only a single round of funding‣ VC Funds
• Significant pools of institutional capital, professionally managed, and able to invest across a number of investment rounds through to an exit such as a trade sale or IPO
• Will invest in pre-revenue startup or seed stage investments but anticipate a high attrition rate due to the risks inherent in backing unproven ideas, business models, technologies and entrepreneurs
• Fund returns often dependent on one or two “home run” investments to compensate for the multiple losses
© Joy Capital LLP 2011
Resources
Other links from the Resources section of our websitewww.joycapital.com
Suggested further reading:http://www.powerltd.com/presenting.htm
Suggested further viewing:http://www.youtube.com/watch?v=Nx7v815bYUw