How well entrepreneurs manage a fundraising process will determine its success. It is crucial for founders at this stage to be transparent, honest, and understand the value that meetings with investors and venture capitalists can bring, beyond the financial aspect.
These are five tips for founders who want to pitch venture capitalists.
Honesty and accuracy are key
Although a venture round raises money, it is a sales process. However, claims that might question the founder's integrity could lead to a negative outcome and not an investment.
We cannot stress enough how important it is for VCs that founders are open and transparent.
These are just a few examples of such claims.
Overstating traction and revenues. This was discovered through due diligence.
The founding team's material attributes, such as their commitment to the company by their co-founders, are hidden.
Talking of investors who were ready to wire money to the company. But they were still in the due diligence phase and decided to not invest.
Investing in companies at the early stages of their development is often about placing bets on people. We cannot emphasize enough how important it is for founders to be transparent and open with VCs. It is crucial to establish trust with capital partners.
Investors also understand that things can change during diligence. It is important to communicate these changes promptly as it shows maturity and uprightness. This will help you get through the capital raise and beyond.
Know your BATNA
Venture capitalists are often attracted to founders who have a clear understanding of their product and business. It is common for entrepreneurs to fail at the negotiation stage. They don't know what their best alternative to a negotiated deal (BATNA).
We've seen founders misunderstand their initial interest in the venture capital market for genuine commitment and overvalue their valuations, leading to them losing serious investors. We've also seen founders who fail to recognize the value of serious VCs and discount their valuations, only to find out later that there is not enough firepower in the existing cap tables.
Using an efficient process is the best way for founders discover their BATNA. This is why: