Venture Capitalists are known to tread carefully when it comes to investing in startups. A survey of startup funding for the year 2015 showed that VCs made 464 deals in contrast with angel and seed investors, who made 632 deals. What are your chances then, of being one of these few deals that VCs make? Understanding what happens behind the scenes can be difficult, especially when VCs maintain curt relationships with potential candidates. Here are a few things that VCs don’t disclose but that’ll help you gain a better understanding of their responses to your pitch.
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That they don’t understand your product
VCs don’t have the time to decipher your pitch. If you’re unclear in communicating your product’s potential, your business model, and market knowledge, a VC will only assume that you’re a bad investment. So even if your startup has great potential, you might not receive any response or an offer as they will never tell you or ask you to elucidate the holes in your pitch. Since they won’t tell you this, follow ups will not be of any more advantage to you, and before you know it, the trail would have gone cold
That they don’t see potential
Now you could be perfectly clear about your product, but a VC might think it just won’t survive the market, and that your plan isn’t good enough to support it. They many even believe, without any doubt, that you might not be competent enough to execute the plan in the first place. Since VCs are very selective of the startups they invest in, they would have seen a cornucopia of pitches and products which they use to compare yours with – putting you at a greater disadvantage. Although they maintain clear communication, they will never tell you directly that they believe you have no potential. They might, however, hint with “I have seen other startups that did…” this or that.
That they understand your pitching difficulties
As an entrepreneur looking for funding, you will have everything at stake. VCs understand how difficult it is to pitch confidently under that kind of stress. Knowing that they understand this can relieve some pressure that’s on you. Since they see through redundant confidence, you can be straightforward in communicating your pitch without talking through your hat. This improves the quality of your pitch and increases your chances of creating a good impression with it.
That they are partial to fancy degrees
VCs tend to have a soft-spot for quality education. Although they’re open to potential that is not defined merely by a piece of paper, it is sometimes undeniable that prominent colleges provide a solid training in business management. In the eyes of a VC, better training equals better reliability, especially if you’re new to the startup sector without much experience to show for. Don’t fret if you don’t have a fancy degree from a fancy college because you still have a good pitch to rely on.
That they are financially answerable to their LP’s
Ever wondered where your VC acquires funds from? Limited Partners (LP) are the individuals that invest in the Venture Capital firm with limited legal rights over the firm. When a VC invests in you, the Return on Investment (ROI) that your startup generates is used to reimburse an LP’s investment. This is the reason why VCs are picky in selecting their startups. If your product doesn’t promise revenue that is at least five-fold the investment, VCs will only consider you a risk.
No matter what your VC thinks or says, it really comes down to the strength of your pitch. Convince them that you’re worth their investment, and you will have no trouble reading the mind of your VC.
- Startup Funding
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