Pitching to Hard-Hitting Investors

Management

• Who is on the management team? Investors want to see experienced hungry blue-chip players who have successfully built other companies and virtually guarantee a success just because they showed up. The investors want management loaded with industry experience, big-name employers and databases of contacts that would make strong potential partners.

Capital Requirement

• How much capital do you want? When you give them a figure, the venture capitalists will go back to the notes on your 24-month cash flow projection and see if they believe you can make your timeline.

  There are two choices for the needy entrepreneur. Choice one: Provide the investors with high revenue projections and low expenses, knowing that the check writers will cut the projections in half. They will also double the expenses, because they believe that most entrepreneurs are basically living in a fantasy land where everything goes according to plan. The second choice, and the one I opt for, is being very good at showing them how you arrived at your numbers and defending them.

• What do you need capital for? The key is to demonstrate that all of the money is going to work in building sales and hiring smart people and that little will be wasted on palatial offices.
• How much of the company do you want to sell? Typically, if you say you need to own a majority of the stock, that could kill the deal even if the investors love everything about you, your team and your product or service. The reason is that in the back of their minds, they'll think you won't be open to changes in strategy and to possibly replacing yourself if the business requires a better leader. This could pull a Katrina on your getting their investment.

Exit Strategy?

• What is the exit strategy for the investors to get their money out? The biggest fear of investors is that you don't want to sell the business. Investors are not in it to build a great company; they are in it to provide a return that is at least twice as good as they could get putting their money into mutual funds.

Just remember, these venture investors need good ideas to sink their money in. They aren't being paid to sit on money and give their investors a passbook return on their capital. Venture capital is a simple business. The money boys give you a few bags of cash, and you give them a return that allows them to buy vacation homes in Jackson Hole, Wyo., and Tuscany, Italy.