I was attending an investor pitch last week along with a company I advise. I could see the rejection coming from a mile away. Our presentation was clunky, the value proposition was weak for its intended audience and the investor wasn’t buying what we were selling for a single minute. The investors ultimately blew us off, coaching, “We’d like you to come back to us once you’ve got an active customer under your belt.”
Yet, as we walked away from the presentation, the founder said, “I think that went great!” It left me in the uncomfortable but vital role of having to explain that the investor just wasn’t that into us.
It was no fun, but it had to be done.
If you are preparing to pitch investors for an equity fundraise, here are the the clear clues as to whether there is a real investment in your future or not.
1. Who shows up to the meeting?
Venture capitalists (VCs) and professional investors are busy people, so they keep a team around them to help streamline the due diligence process. Ofte, for a first (and sometimes second and third) meeting, those team members — typically associates (also known as "VCs in training," who are often straight out of business school) or junior employees on the team will take your appointment. These frontline employees are tasked with finding the “diamonds in the rough” and are eager to bring good deals to their firm’s partners. Don't worry — this is typical in the investment process, which can last six weeks or six months.
Your purpose at a VC meeting is to get another meeting — that’s it. You are not there on your first visit to push a decision, much as you might wish otherwise. As a result, it is absolutely critical for founders to understand the general flow of the meeting. Be prepared with these tips:
- Ask exactly who will be sitting in on your meeting
- Learn as much as you can about who you're meeting with (including deals they have led in the past and similarities between those deals and your concept)
- Make a clear presentation of how investing in your company could be their next big win.
Your action: If the associate doesn’t offer a second meeting at the close of your presentation and discussion, ask for one. If they hedge in offering even after a request, it is time to move on — they are not taking you on a second date.
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2. How quickly does the investor divert from your deck?
I have worked with numerous founders who do not want to give a canned presentation. Too many founders have told me time and time again, “I’m much more natural when I wing it,” to which I respond, “No, you aren’t.” You may think that you sound authentic when speaking off the cuff, but more often than not, founders come over as ill-prepared and unprofessional when their presentation is not thoroughly thought through in advance.
Investment teams have built their entire business around sourcing deals just like yours, so you should offer them the respect of a prepared presentation. This ensures that you will cover the items they need in order to appropriately assess your business and that you will not go on an off-track tangent unhelpful to you or the investor.
But, I have to admit that I love when investors take me off track. If you make it through your entire presentation without being sidetracked at least once or twice, it's a sign that the investor didn’t latch on to any specific item in your presentation. If you find yourself being pulled away from your deck and needing to refocus again and again, this is actually a strong sign that they are interested.
Allow the investor to take you wherever they see fit during your hour with them, but be sure to hit the key slides in your deck that can allow them to communicate your concept with their partners after the meeting.
Your action: Be completely prepared — and then prepare to be diverted.
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3. Who suggests the next steps?
I’ve always believed that fundraising bears a striking resemblance to dating. Just as you can tell as you fidget with your keys at the front doorstep in anticipation of a kiss that you are on your way to a second date, you’ll get similar verbal and nonverbal cues from your investor.
Watch their body language throughout your presentation. Are they leaning in, or are they skipping ahead in your printed deck, paying little attention? Are they actively engaged in conversation or checking their phones? If your investor is bored, it's hard to get them back, but if they are interested, they will give you clear signals.
Ending a meeting appropriately is key in these environments. First, read your potential investors. If they aren’t interested, ask them up front if there is reason to move forward with ongoing discussions. If they tell you they would like to see you after you complete meaningful milestones, smile, thank them for the advice, ask them if they would be willing to suggest any other investors you should also approach and then add them to your monthly investor update mailing list. They are politely turning you down.
But if they suggest next steps, you are on your way toward an investment.
Your action: Make another date or make a graceful exit.
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4. How readily does the investor introduce you to their network?
Just like many first dates, founders can be clueless and either unable or unwilling to read the signs of interest from a VC. If you are still completely unaware of how the meeting is going by the time you close your presentation (my guess is that you are still single), then one question can work to seal the deal for you either way.
Ask them to introduce you to their network.
Make sure you know the investors who have co-invested with them on past deals, and ask for specific introductions to two or three of these investors. It is important to ask for a partner by name, so be sure to do your research before the meeting. If investors like what you are selling, they will be eager to introduce you to their peers, allowing them to get credit for sourcing your company and providing themselves with peer backup and co-investment, should they choose to sign a check.
However, if they are not interested in your deal, they will hold their connections very close to the vest; they don‘t want to share a losing deal and hurt their reputation in the process. If you walk away without an introduction, you walk away without an investment.
Your action: Be courteous and understated, but do your best to get an introduction to other potential investors.
If the investment pitch fails, execute your plan anyway.
In the end, I’ll offer you the same advice that I gave to my founder friend last week. The best way to garner investor interest is to execute. Go meet those milestones. Go find that first customer. Go close another investor. Prepare your deck, and then prepare some more. Work hard at it, and politely keep the lukewarm people you have met in your loop.
Once you are sought after by other investors, it is highly likely that the people who rejected you before will follow suit.
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