Startups

Six things venture capitalists are looking for in your pitch

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Image Credits: Noel Hendrickson (opens in a new window) / Getty Images

Founders pitch venture capitalists at every available chance, which is why most of them quickly develop the skills required to identify whether someone is offering them an opportunity or wasting their time.

At TechCrunch Early Stage, I chatted with NFX Managing Partner James Currier about how founders can find the right investors and what they need to show to win an investment. Currier has been on both sides of the deal table and founded several startups before devoting himself to early-stage investing, where he has backed companies like Lyft, Houzz and Houseparty.

“One of the ways that investors are similar is that whenever they look at all the companies coming to them, most of them get into a quick ‘no’ situation, some of them get into the ‘maybe’ and very few get into the quick ‘yes,’ ” Currier says.

He shared six reasons investors might give a founder the rare and highly coveted “quick yes,” an effort to lock down a deal that’s either perfect for them or too enticing to pass up. Realizing what exactly investors are seeking can help founders understand how to pitch at the first meeting and what they should leave for follow-ups. For those who couldn’t virtually attend TechCrunch Early Stage, check out the link below.

This interview has been lightly edited for clarity. 

1. Traction

“So the first thing that they’re looking for is traction. Look, even if they don’t like you, if they don’t like the market, but you’re making a ton of money, what are they going to say? Like if it’s growing really quickly and you’re profitable, you’ve got high margins and everyone wants to work for you, and there’s this buzz around you. What are they going to say? They’re gonna have to invest because you’ve got traction.”

2. Team

“The second thing that they’re commonly looking for is proof that your team is extraordinary. Now, that proof could come in many forms; it may be that you did a startup before, you worked at Facebook before or you did this very same thing before… and maybe you’re a Navy SEAL or maybe you were at the right college or maybe you did some incredible nonprofit but you might have some proof in other areas that shows that you’re extraordinary or that you’re highly capable.”

3. Sector

“The third thing that makes investors say ‘yes,’ is your sector. You just might be in the hottest sector known to man. So if you were doing credit cards and controlling payments two years ago when Brex was big and Airbase and all these other things, then yeah, sure, the investor is going to throw money at you because you’re in this hot sector. So get yourself into the right sectors, find the fast-moving water in the sectors where you’re building a business.”

4. Timing

“There’s timing, the fourth reason that the investor says ‘yes.’ If there’s a moment in time, like the iPhone is introduced and so X thing is suddenly possible, then investors can’t not invest here because we don’t want to miss out on this trend. We don’t want to miss out on the timing of the shift in technology or consumer behavior. Now, it’s COVID, so if you’re helping with something with COVID in April or May or June of 2020, then you had the right timing.”

5. Business type

“The fifth thing they look for is business type. So for instance, at NFX, we look at network effect businesses or we look for marketplace businesses, because we know a ton about them,” Currier says. “Other people love enterprise SaaS. Other people love robotics, and subscription revenue or advertising revenue. There’s business types that different investors love. And when they see them, they’re like, you know, I know so much about that, I’ve got to be in that sector, I want to invest in that.”

6. Referrals and other investors

“Boy, does it de-risk things for investors when they get an intro from somebody they’ve already invested with in the past and they say, ‘This person is great. I’ve been working with them for a year and a half and they’re amazing. I’m going to take my pro rata, I’m going to take as much as I can.’ It’s really easy to take that meeting. This is important because it de-risks it. It eliminates risks, it eliminates the unknowns… and we have ways of overcoming that to help people who are outside the network do better, but at the same time, you’ve got to understand that who you’re referred by matters a lot, and who your existing investors are matters a lot.”

 

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