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Authored by Maria Mikhaleva, with contributions from M. Medveczky, O. Hassine, and P. Georgiadou.
Statistics show that only a small percentage of startups secure venture capital funding. Forbes recently referenced research by Fundera, which estimates that 0.05% of startups successfully receive investment from venture capital firms. This means that many entrepreneurs face the problem of not securing funding from VC.
You are passionate about your startup. You’ve spent hours perfecting your pitch, but the answer is still “no.” You might believe in your product, but repeated rejections can make you question its value. Here is the good news: it may not be about your product. The bad one? The failure often lies in how you present it or failing to address crucial aspects that VCs care about.
Step One: Research.
As a founder, you imagine the world recognizing your project with the same clarity and passion as you do. However, investors are driven by numbers. Are you able to articulate your vision using data language?
The mistake often lies in trying to exaggerate revenue figures rather than a genuine lack of understanding of the difference between booked and actual revenue. Booked revenue represents the signed contracts and oftentimes used to represent the forecast future revenue. There is an important principle of revenue recognition, which states that revenue is earned when it is performed. You can’t show revenue until you have provided service.
Trying to avoid presenting data or substituting it with different metrics (like using CAGR to hide the fact of low growth in one year) is a red flag for the investor. Showing an understanding of the market, industry and financials shows VCs the intellectual rigour behind the idea. It doesn’t only increase your confidence, but also helps to build trust.
Alright, you have reviewed your reports and double-checked projections. You are fully equipped with knowledge about essential metrics. You are ready to answer all of the questions. But who exactly is going to ask you those questions?
Know your Audience
Imagine the situation: you’ve perfected your pitch, and your deck is top-notch, but the answer is still “no”. You are trying to figure out what you have done wrong.
Have you taken the time to check your investor’s portfolio? Are they interested in your stage? Are they interested in your field?
VCs receive thousands of decks every year, and they often specialise in specific industries or markets. Failing to align your pitch with the investor's interests is another common mistake. This is especially crucial at the early stages, where pitch decks are sent before any actual conversation happens.
But how do you actually find the most relevant investors? We’ve got you covered. Here are the following tips:
The research of an investor's portfolio will play a key role in shaping your communication strategy during the pitch. Knowing your audience's background will help you establish reliable heuristics, ensuring alignment and preventing the use of jargon that could create confusion.
Step Two: Communication
A well-researched pitch becomes powerful only when it's translated into compelling communication. Knowing your numbers is one thing, but the ability to articulate their significance to investors and maintain their attention is usually the next-level challenge for entrepreneurs. In a startup pitch, communication is not just about delivering facts; it’s also about resonating with investors on both emotional and intellectual levels. Entrepreneurs often forget that pitching is about persuasion, not simple presentation.
When discussing persuasion, it is important to remember the significance of the linguistic register. In simple words, it is a type of language that is used in a particular context. Ethos, logos, pathos are part of a rhetorical triangle used in argumentation that are often referred to as “the modes of persuasion”. The key idea behind this model is to introduce different aspects of human reasoning and the role of emotions that help speakers craft compelling arguments.
Ethos: Build credibility. Why should investors trust you?
Logos: Use logic and data to make your case.
Pathos: Appeal to emotions. Show why your product matters.
Confidence is key to persuasion. It makes you seem reliable and knowledgeable, which strengthens your appeal to potential investors. In this case, thoughtful preparations are your key solution: addressing your tone, pace and body language will help you feel more at ease. Don’t forget that often confidence arises when you shift your focus from yourself and transfer it to your product and the value it brings. Your key goal is to make the world recognise your product with the same clarity and passion as you do.
Advice: Create a prioritised list of potential investors, but starting with those who are lower on your preference scale. Pitching to less-preferred investors allows you to practise your presentation in real-life settings, which will help you to refine your pitch based on feedback, get comfortable with Q&A and clarify common inquiries. By the moment you reach your top-choice investors, you will gain confidence and reduce pressure, enhancing the likelihood of success.
Advice: Confidence develops with practice which is a gradual process. Public speaking skills can be effectively honed through active participation in panel discussions, conferences and similar forums. These environments offer opportunities for engaging with diverse audiences, responding to on-the-spot questions and refine the delivery of ideas.
You followed all the steps and recommendations mentioned above and you hear “Let’s stay in touch for a future round”?In the same second, you feel dopamine release. But let's stop for a moment, are you sure that you are being transferred to a future round? This is a hidden pitfall — VC vocabulary. To boost your vocabulary and help to understand when ”yes“ is a ”yes”, Intel Ignite and Flashpoint have created the VC Lingo Dictionary https://intelignite.com/vc-lingo-dictionary/.
To sum up, if you want to succeed in fundraising, remember the 6P rule: Proper Prior Preparation Prevents Poor Performance. This means getting your story right, selecting the right investors and reaching out to them. The key role of communication and research is to build the bridge between the founder's internal understanding of the product and the external persuasion of the investor. Mastering both is crucial to help the audience to envision your product.
