Freud once asked in frustration, “What do women want?” A lot of entrepreneurs have been similarly frustrated trying to figure out what VCs want. At one level it should be an easy question to answer: massive returns in a short period of time with little risk. But the reality is, of course, never that simple.
I recently found a great article on Harvard Business School’s Working Knowledge website. They asked four HBS alums who are now VCs what they look for in companies that they fund. You can get the benefit of their thoughts here.
In a previous post (Venture Capital Without Illusions), I suggested four critical points that you need to make in a successful venture capital presentaiton. I’ll repeat them here:
In my experience there are four statements that an entrepreneur needs to make to attract the attention of venture captialists:
1. We’ve identified a significant and underserved segment. Dollars make markets not bodies. It’s a lot more plausible to show that you’ll get a small percentage of a huge market than 100% of a small one. It also gives you a little more room to make a mistake in your planning.
2. We have a strategy for serving this segment that is unique and compelling. Why will you succeed? People? Technology? Strategy? It needs to be simple and believable. Hope is not a strategy. Bankable business plans are not based on a pile of “Ifs”.
3. We’ve already got some traction that provides proof that we can really do this. It’s preferable to seek funding after you’ve started to put some numbers up on the board. The only exception is if you are a proven venture CEO in which case you probably aren’t reading this entry. Otherwise, your plan is more credible when you’ve started to build the product, acquire some customers, make some sales.
4. There is a reasonable oppportunity for a significant exit through IPO or acquisition in a reasonable period of time. VCs invest to sell not to own. Their interest in your company begins when they can see a successful sale or IPO. It’s important to show other transactions that demonstrate that when you are successful they can take their money off the table at a high valuation.
One last thought. Keep your story simple. I have recently seen a couple of investor presentations from very bright people where I could not track the “story line”. They were so busy trying to keep their options open that I never understood what they were really committed to doing.