When preparing for meetings with VCs to hopefully gain funding your high-tech start-up, it is important to understand your audience.  VCs are investment bankers.  They all want to know:

  • What is the likelihood that they will get a return on their investment?
  • When will they get a return on their investment?
  • How much will that return on investment be?

VCs review hundreds and thousands of companies to make just a few investments each year.  Here are the 5 top criteria they evaluate to decide whether or not to invest.

  1. Competitive Differentiation.  All VCs want to know in the first few minutes of the meeting exactly what you do and what makes it both unique and compelling.  This is more than just an elevator pitch.  It must be framed with the competitive landscape in the select target market(s).  If you are unable to articulate this clearly and succinctly, they will tune out and start checking their watches.
  2. Team.  Once the VCs believe that your offering is compelling, their second question is whether the company can execute.  Ideally, they look for a complete senior management team who have worked together before and have been successful in a start-up before.  It’s the very reason that it’s so hard to get funded for the first time.  Though you may not meet all these criteria, you must convince them that you have assembled a team that can make this happen.
  3. Traction.  VCs expect that you will have much more than a demo or proof of concept.  Whether your offering is B2B or B2C, they want to see a significant number of existing customers or users.  They expect your company to be generating and growing revenue over time.   Without traction it is nearly impossible to get funded.  Significant traction immediately reduces their risk, makes them more likely to invest and improves your terms.
  4. Market Opportunity.    VCs love money, so the bigger the opportunity, seemingly the better.  Not always the case.  Many focus on niche plays rather than broad plays so they can minimize risk.  In contrast, CEOs know that it’s just as much work to run a company whether the opportunity is small or big, so they tend to think big.  If you do have a broad play offering, capture a target market or market a subset of the offering to illustrate ROI.  For example, WebEx was built as a revolutionary communication platform, but monetized it by selling a conferencing service.
  5.  Time and Money.  VCs want to see that friends and family believe in you and your company and have provided an initial seed round.  They want to know exactly why you are raising a specific amount of money for the “A” round and how exactly that money will be spent.  When will that initial round run out?   What will you do then?  When will the company become profitable?  What is the exit strategy?  When will we get our money back?

There will be more preparation for your first meeting.  You will need to submit an executive summary and perhaps a slide deck that will include the above and more.  You should be prepared to demonstrate your offering at the meeting.  Submit the materials in advance, and make sure that in the meeting that you are hard hitting on the 5 items that matter most to investors!