How do Venture capital firms value a start-up?
I’ve had the opportunity to pitch my startup idea in front of VCs , as part of a shortlisting of startups at a Incubator in Bangalore when I began as an entrepreneur.
Some of the points I’ve noticed are
1. A compact presentation
A sales pitch is a bit like a magic trick . You got to wow your audience in a very short time ,explaining what is your USP within 5 minutes! Most VCs hear pitches from breakfast to dinner , so if you are gonna dish out boring standard fare , they’ll have you out of the door in five minutes . BE COMPACT, NOT COMPLACENT
2. A tangible Value Addition
When you present a five minute sales pitch the first half can be devoted to explaining your understanding of the chosen industry narrative , how large the potential user base is , and any numbers you might have achieved . The second half must be devoted to explaining what you are personally doing to solve the problem I.e what is the specific value addition your startup idea brings to the industry narrative
3. Team Strength
Ultimately no single entrepreneur can deliver a great product , and it is actually the strength of partnerships that ensure the longevity of your startup idea . Having a compact but diverse skillset in your core founders / co- founders greatly increase the probability of catching the interest of VCs.
All said and done , this is the white elephant in the room . Unlike what you might have heard of angel investors , Venture capitalists maintain a portfolio of startup investments purely so that they can get 15 -20 % return on their financial investment , as a measure of the risk they are taking . That’s why every successful pitch ends with the answer to the question - How successful (revenue, profit, sales , user base) will you be in 5 years from now ?. Even if you don’t answer the question they can easily deduce this info in 5 minutes from the strength of your presentation .
5. VC strategy
Again unlike Angel investors , a strategy that VCs follow is they seldom put money from their company’s holdings actually , but borrow money on your behalf from banks and financial institutions where they have leverage . This strategy enables them to be invested in a wide variety of companies by offsetting any risk to their personal holdings , since the money is coming from banks.
All the best.
Really nice sharing to startup needers…