Before you pitch, it pays to think like a VC

pitch

Before pitching your startup to raise funds, it pays to think like a VC. I have been involved in many great discussions with venture capitalists (VCs) in Singapore and Malaysia, here I have boiled it down to four main questions for you to consider.

What problem are you solving?

One of my friends had invented the perfect pen. No, I am not kidding. He had analyzed all the different styles of pens, found that each had its own flaws, and come up with a clever design.

Unfortunately, I was pretty sure there were no office workers sitting at their desks cursing their pens because they did not work well enough. Nobody saw this as a problem that needed to be solved. That’s the problem with entrepreneurs: They come up with brilliant concepts that nobody needs or even wants. They devise elegant solutions to nonexistent problems.

And whatever you do, don’t confuse that with a cause or purpose. They are not the same.  

You are always better off coming up with a solid problem statement, or what VCs call a customer pain point. And whatever you do, don’t confuse that with a cause or purpose. They are not the same.

How will you deal with your competitors?

James Caan believes startups should be researching their competition and understanding the market. Photograph: Sarah Lee for the Guardian

Lots of entrepreneurs neglect this issue.

There is a simple reason VCs like to say you have to come up with something ten times better than anything out there. People are creatures of habit, and they dislike change. So there is a cost associated with getting your consumers to switch.

So there is a cost associated with getting your consumers to switch.  

Even if the switching cost of your products or services may be low, but so are the barriers to entry. In other words, it is just as easy for your competitors to build the same thing as you.

Do you have the right team?

You may have heard that the most important thing that VCs look at when they assess a startup is the team. That is true, but the reasons may not be as obvious as you would think.

If they are going to invest their money in you, they want to dig pretty deep to find out what really makes you tick. They don’t just want to know your capabilities. They want to know who you are. They want to know your true colours before they write you a check.

If they are going to invest their money in you, they want to dig pretty deep to find out what really makes you tick.  

VCs will never admit to this, but that is one of the reasons it takes so long to get funded.

Do you have a solid business plan?

A business plan is a formal statement of business goals, reasons they are attainable, and plans for reaching them. Photograph: Soko Directory

Running a company has to be about more than just your great idea or product. Finance, raising capital, operations, they all go hand in hand. You have got to do the math.

You have got to do the math.  

You have to remember that the absolute number one failure mode for startups is to run out of cash. Running a startup is like playing a poker game: Even if you are good, luck may not be on your side. So even if you make the right bets, you have got to have enough money to fund a few risks and keep you in the game over the long run.

That is why you need to have a plan that essentially consists of three things,in order:

1.) Go-to-market plan, include market share, phases and milestones.

2.) Expense and revenue plan.

3.) Capitalization plan that keeps the pipeline full of cash to pay the bills and fund growth.

That is why you should think like a VC before going to pitch your business and make sure you got yourself covered. Just keep in mind that people tend to be polite, so you sometimes have to read between the lines to get what they are really saying.

On a final note, if your first venture fails, do not give up, learn from your mistakes. That is the only way you are going to improve the odds of making it next time. And yes, there will be a next time for sure.

I wish every entrepreneur and all my friends a great 2017.

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