The Truth and Untruth About VCs

Most of us think we know what venture capitalists are like. But what’s fact and what’s fiction? And what do you need to remember when pitching to them? At a recent Envestnet | Yodlee Incubator Bootcamp, Eric Rosenthal, VP of International Business Development and Strategy at Abra, separated the truths from the untruths to help entrepreneurs better understand the VC mindset and connect more successfully. Rosenthal started by debunking many of the common myths about pitching:

Untruth #1: Write a killer pitch deck and you’ll get funded.

Rosenthal noted that most entrepreneurs obsess over the design and content of their pitch decks. A whole industry has been built around creating the perfect pitch deck. But VCs don’t fund pitch decks. They fund people.

Untruth #2: You have the best idea. Ever.

The VC you’re pitching to has heard plenty of ideas. They may have heard yours. Don’t automatically dismiss their feedback – it may be invaluable in taking your idea from good to great.

Untruth #3: You’ll get funded because the market is HUGE!

Every entrepreneur says the market is huge and shows the same slide in their pitch deck. So, you’ll need to go deeper.

Untruth #4: You and your team are rock stars.

Ok sure, you have an all-star team with 100 years of experience combined, and you’re practically all under the age of 15. The truth is that many other startups have the same. Getting funded requires going beyond the basics to really understand the VC’s reality and what they’re looking for.

Who are you talking to?

The stereotypical VC studied engineering, graduated from an Ivy League school, and favors Patagonia vests. Another stereotype is the egomaniac. You may think all VCs are egomaniacs, but the reality is that when you meet with a VC, there’s just as much ego on your side of the table. Yet another stereotype is the VC who says to “call when you have traction,” instead of saying “no.” If you read between the lines, what they may be saying is, “I don’t get it” or “My own investment strategy doesn’t align with your stage.”

What’s the VC’s reality?

  • VCs have massive info overload. VCs meet with thousands of companies a year, go to multiple conferences and appointments, and juggle multiple business relationships. Because they’re bombarded with info all the time, it’s difficult for them to process it all.
  • VCs have expertise bias. VCs are biased to what they understand. If they don’t understand your idea, they won’t fund it. So, you’ll want to make sure you’re talking to a VC who gets your idea.
  • They are ambitious too. VCs are under a tremendous amount of pressure, because they’re getting paid to find companies, source deals, and go back to their partners who will quiz them on their every decision. They want to get ahead and not get fired, just like you.
  • VCs have selection bias. First impressions are everything. If a VC can’t get along with you in the first 30 minutes, then why would they want to work with you over the next 7-10 years?

How you conduct yourself matters as much as the market opportunity. Rosenthal relayed a story of an entrepreneur who didn’t get funded because he monopolized the conversation and didn’t let his co-founder talk. Another VC made entrepreneurs wait in the lobby for five minutes. If they weren’t polite to the receptionist, then the answer to fund them was always “no.”

  • VCs have to sell, too. VCs relationships with their partners may last longer than the life of your company, so if you communicated your idea poorly or they don’t have the materials and the arguments to defend your idea to their partners, then they won’t.

So how do you approach VCs and get them to successfully sell your idea to their partners?

#1 Focus. Zero in on the right VCs to talk to, find out what other companies they’re invested in, and make sure they understand your country, your culture, and your idea. #2 Create a sense of urgency. Building a sense of urgency and scarcity can spark VC interest. One example is the entrepreneur who never scheduled meetings on Fridays, telling VCs he was completely booked that day. #3 Educate people about your market. Go beyond “the market is huge” and walk VCs through the details. Don’t assume they know what a credit union is or who the underbanked are – this isn’t their reality. Help them understand the market you’re attacking and how you can make an impact.

“At the early stage, VCs are investing in you. Actually, it’s you placed in a large market that they understand.”

#4 Stay organized. You wouldn’t go camping without a tent. So, you need to have your entire kit ready. Be prepared to share it all – your pitch deck, blurb, one-pager, customer contacts – your whole Dropbox. By staying organized, you’re demonstrating you are organized enough to keep your own company an order. If you aren’t very organized, why would a VC trust you can manage his/her money? #5 Never bad-mouth anyone.  Have empathy for the VC you’re meeting with, because they have a high-pressure job, too. VCs hang out together, and word gets around, so be careful of what you say. You want to create that long-term connection.

“It’s a marriage, especially with your first investors, because they’re going to take a board seat. Listen to your gut, because you’re going to be with this person through the good and the bad for a long time.”

Rosenthal brought to light the perspective of VCs for our Incubator’s entrepreneurs and helped them better understand how to come to the table when approaching a VC. If you’re an entrepreneur with an idea to leverage financial transaction data, applications for our next cohort are now open. You can learn more here. Start the application on our F6S page HERE. Applications for Cohort 4 to be submitted by August 31st, 2017 deadline extended to Friday, September 8th, 2017.