In today’s Venture Capital environment startups are being forced to prepare elevator pitches and extremely condensed versions of their dream businesses in anything between 90 seconds to 15 minutes. For simplicity and generalizing, let’s make it 5 minutes. Whether investors or consumers, potential partners or employees, the time span to get people’s attention is getting shorter and shorter. The thought behind is that if you have a good business idea, it shouldn’t take more than 5 minutes to explain, nobody will hear longer than that. Additionally, Venture Capital (VC) folks are quite busy and time spent on a bad idea can be expensive.
Let me build some background and take you through points not to ignore if you’re thinking of going the VC route. I’m writing in the context of startups located in the Central and Eastern European (CEE) region.
Persuading VCs is a time-consuming and expensive job that many startups just can’t afford. Once the founders have a working prototype or a proof of concept of their ideas, they just head to Silicon Valley scouting for investors, leaving their new companies in a very vulnerable state back home. So, before you start, it is advisable to know what your risks are.
Secondly, VCs do select one out of a thousand, but the other way should not be taken lightly either. Engaging with and selling your stake to VCs with too many loss making or under performing companies may not be a good idea. Remember, your company is just one more in the overall portfolio of PEs (Private Equities) or VCs and any losses from other non-performing companies will be recovered from your company by holding it longer. So, if you’re thinking of making quick buck, this route will make you wait longer for that golden exit.
In addition to making it extremely difficult to get funds, making your life hell by interfering in company management and taking away your profits, PEs also charge you a monitoring fee. All in all, your business needs to be very profitable to be able to make you some money. The only incentive comes when company is sold which again is not your decision but that of the investors.
I’ll reserve my opinion on whether startups should depend so much on VC funding, but in view of the context I just laid out, let’s assume this is the way to go. Startups should therefore do all they can to be highly effective in pitching their ideas in front of potential investors and partners. Something where students at business schools have an advantage.
I’ll write another post on what constitutes an excellent pitch, but in general your pitch should be compelling enough to catch attention of listeners, presented with clear words, a confident body language and should include real product demo if possible, give some real numbers, make business sense and should of course be short.
You can find experts for each of the areas within any business school class. If each student tries to go solo, their chances of failure will be higher as no single student can claim to be perfect at all the aspects. That’s precisely the mistakes many startups make, when starting up, all they have is an idea or worse still, just a dream. They need collective knowledge to be able to fine tune their ideas and products and perfect their pitches. Now imagine using the collective wisdom and experience of the whole of MBA class and you’ll have all the inputs needed to build an excellent pitch.
Business School students could use their own class as playground, enact simulation games and have some play the part of investors, some as customers, get constructive feedback and fix obvious holes lest they get exposed by potential investors and result into lost opportunity. For technology startups that plan to go the VC route, it seems there is no way to ditch the pitch, so, roll-up your sleeves and get your hands dirty!