This past weekend I was fortunate enough to attend the nationwide entrepreneurship bootcamp and competition hosted by Business Today and the Stanford Business Association on behalf of Auctus Partners. This conference featured some of the best venture capitalists in Silicon Valley and some of the brightest undergraduates from around the U.S., each with a great idea or venture that could be the next big thing.
The focus of the conference was to guiding young entrepreneurs at such a pivotal stage in their ideas, the beginning stage. There were various workshops, panels, and speakers over the course of the weekend that were extremely valuable. We will be sure to go over each and every major focus point via our blog, today we will talk about what does a VC look for in your venture?
This was definitely one of the biggest points that the conference members wanted to stress. Many ideas may be good ideas, or many teams may be remarkable teams, but unfortunately they do not know how to properly present themselves to venture capitalists.
There are three main key points that every entrepreneur should emphasize when pitching to an angel investor or venture capitalist:
- The Team
- The Idea and it’s Traction
- The Market Size
Each of these three items are things that are extremely important to investors. First and foremost, the team is everything. Why invest in an idea if the team is not passionate, hard working and driven? What investors like to see is a team whose goals are aligned, who are passionate, and knowledgeable about the product/idea that they are trying to build. People may say that in the pitch, the team should go last and that it’s not very important, however that is extremely wrong. Team is just about everything at the early stage, it is the only tangible thing that investors are investing in.
In terms of the idea itself and it’s traction, that is also a very important aspect which shouldn’t be taken lightly. Without a good idea, well, there is no pitch. But with the idea comes a lot of necessary, additional information…
Investors not only want to see that the idea is potentially disruptive and different, but they want to see what you have done with the idea to date; traction.
The idea may be amazing, but without traction you really are not showing investors what the idea is capable of. Make sure that you take your idea somewhere once you think of it, do not get caught up in the imagination stage and leave the idea there; get started on it! A beta or prototype is essential, and a following/proven interest in your service or product is also just as essential. Investors like to see that not only do you have the team necessary to make it, but that you have went ahead and done something with it so far.
Finally, the market size. Many may ask why is that so important? Well, one should keep in mind that angel investors/venture capitalists like to see a large, potential growth in an idea. If your idea is entering a market that has a total size of $50 million, well, that is not too attractive. You might think that $50 million is a lot, and of course it is, but what do investors look for? Return. It does not make much sense to assume that you will take the total market share away, so that already caps your potential growth under that $50 million number. Given the high risk nature of investments that these investors make, it is safe to assume that nine out of ten investments inevitably fail; therefore, the one investment that does not fail must be in a potentially large market to be able to make up for the nine failed investments plus the large required return on top of that. To make a long story short, ensure that you portray your idea to be in a large market size and be able to substantiate your assumption (don’t lie though).
Those are the three biggest things to focus on. Many may say, what about the fifty page business plan? Or what about all the financial projections? Those are all complete myths. Of course, investors want to see how you plan on using their money, but it is quite absurd when you try to show how much money your company will be making in the third quarter of year three. Stick to the basics, but make sure that you have done your research.
Make sure to come back and find out more about what goes into a successful pitch, how to build a successful base strategy, and how to bring together a healthy, passionate team. Work hard, build your network, and stay passionate.