Dave McClure’s 10 tips for the perfect investment pitch

We’ve covered how to effectively pitch your startup to the tech press before, and at the Future of Web Apps conference in London this month, entrepreneur and angel investor Dave McClure was in attendance to give his advice on how best to pitch to a venture capitalist. It was interesting to note some of the similarities between pitching for money, and pitching for press.

10 tips for pitching to VCs

Deviating from the topic in the conference programme which had been 10 Tips for Web App Success and Profitability, Dave started: “I don’t know shit about that. So I’m going to talk about this instead. Though if you want to make a profit, I think you should sell something – way too few people are trying to do that these days.”

So the theme of the hour was how to build a presentation and pitch for VC money. “If you’re constructing a way to present your story, you should be aware that most investors have small attention spans”, says McClure. “They may be late to the meeting, they may be reading other stuff on their iPhone. So you want to organize your information in a way that allows them to process it more efficiently”.

As a general rule of thumb, the more time you spend speaking, the less time they spend listening. This means organizing your information by priority. “If there’s one thing you want them to remember, make sure that’s on the front slide”, says McClure. “A picture image that conveys what you’re talking about and leaves them with a quick memory or a reference is also good. So, at least if you don’t get any more time with them, at least they have that much.”

With the formalities out of the way, McClure launched straight into the ten tips.

1. Elevator pitch

The elevator pitch should be short, simple and memorable,  ‘what’, ‘how’ and ‘why’ should be answered. “And remember to keep it free of jargon too”, says McClure. “So don’t be using technical context, or industry-specific context unless you know that investor has that background”.

McClure also noted that ‘X for Y’ is a good approach for the elevator pitch, as long as they are pretty similar. “So for Slideshare, it might be ‘we’re the YouTube for PowerPoint presentations. Both of these are well known, so that’s a reasonable claim. But if the points of reference are too obscure, they might not get it”.

Whilst the notion of having fun might seem a bit difficult in the face of one or more money dragons, this is something McClure says you should aim for. “Fun is infectious. So try and enjoy yourself”.

2. Think problems first, then solutions

When we interviewed Instagram founder Kevin Sytrom a few weeks back, he hit on this point too. “The app store is 90% full of solution-based apps”, said Kevin. “But do they solve a problem?” It was this concern that was the building blocks of Instagram. “Let’s focus on problems, not solutions” was the ethos as Instagram emerged from the ashes of Burbn, its previous incarnation. “With Burbn we started at a solution and worked back”, says Kevin. “That’s the wrong way to do it. You have to start with the problem and work forward from that”.

Dave McClure was coming from the same position at the FOWA conference. “A lot of the time people begin by saying what their solution is”, says McClure. “But I recommend that you talk more about what the problem is. This helps you establish emotional context with the person listening”.

“About 20 years ago, a friend of mine broke his wrist when were out rollerblading”, says McClure. After regaling the story in some detail, including a painful car journey to the hospital with his friend’s hand sitting at a most unnatural angle to his arm, he reveals the point to the story. “I’ve shared with you a problem, I’ve taken you through an emotional experience, perhaps even one you know personally”, he continues. “So you have all these ideas running around your head, and I haven’t even told you about the solution yet. But I probably have your attention, and we now have a shared emotional context”.

So if the problem is a horribly broken wrist, McClure’s point is that now’s a good time to talk about pain relievers, wrist-guards…any number of solutions to the problem. Translated into a pitch situation involving investors, you should consider scenarios that will help you connect with the people you’re facing, this may involve doing a little research into their background. “Do they have kids, are they straight, gay, old, young”? asks McClure. “Is there a context that you can tap into and share with them?”

3. Solution: Sex, money or power?

Great products and companies do 1 of 3 things: Get you laid (Sex), get you paid (Money), get you made (Power). “How does your solution tap into the emotional, powerful, evolutionary needs that we as humans have?”, asks McClure.

With that in mind, all good pitches should outline how it makes customers happy, how it’s better and different to existing products/services out there. And if it isn’t different, then change the context so that it is different to everything else.

“Maybe you’re not the best snorkel solution to ALL customers”, says McClure. “But maybe you are the best for left-handed grandmothers. If you’re product/service isn’t the best in your field, you need to change the frame of reference enough so that you become the best in your niche”.

Of course, all the talk in the world can’t beat a proper demo. This is the same whether you’re pitching for press coverage, or pushing for investment. “You need something that illustrates your solution”, says McClure. So what we’re talking about is live product demos, screenshots, videos and such things.

Ideally, you’ll have backups too. So if your product demo fails for whatever reason during the pitch – perhaps you lose the Internet connection, or some other unforeseen problem arises, you have something else up our sleeve. That could be paper printouts, or a glove-puppet presentation.

As McClure alluded to earlier, investors are often not the most personable people. “Expect to be interrupted. If you do get interrupted, what should you do? Listen”, says McClure. “If they interrupt you, it usually means they care enough about your product to ask you something. So don’t go right back to your presentation, answer their question properly – you’ve got their attention. The script isn’t your slides, the script is the face of the person you’re talking to”.

4. Market size

“Market size matters because most investors want to know that you’ve got a big business”, says McClure. “Bigger is generally better. There are two ways to think about market size – top down, which means someone else reported this market data – such as Forrester or Gartner. Or bottom up. This is the one I prefer. A number of users, a size of transaction, and frequency.”

Another way of doing this is if there is to look at the value of an industry in an offline capacity and compare it to its present online state. So for example, $100bn of transactions are carried out offline, but only $1bn takes place online – but it’s growing at 300% each year. This would demonstrate both size and a gap in the market.

5. Business model

“The business model – AKA ‘how do you make money”, says McClure. “I’m a big fan of simple revenue models, typically direct models, either transactional or subscription. When you’re listing sources of revenue, I recommend you keep it simple and keep it to one or two. When you list a large number of sources, generally that tells me that you don’t know how you’re making money.”

Whilst McClure acknowledged that some investors may have a different viewpoint on this, it makes sense that listing 5 or 10 sources demonstrates a lack of clear focus on where the bucks will come from. “If you do have a bigger list, at least prioritize them by biggest first”, continued McClure.

6. What’s your big unfair advantage?

“Try to identify some big, unfair advantage”, said McClure, against a backdrop of images including a hand holding 5 aces, and a gun battling a knife. “Another micsconeption is that VCs like to take risks. That really isn’t true. VCs like to not take risks and bet on sure things. Your market lead could be based on your team, number of customers, revenue or intellectual property or patents. Your job during the pitch is to say what your biggest assets are, and emphasize what your advantages are over others in your market.

7. Competition: Why you’re better or different

Again, this is similar to how you would pitch your startup or app to the tech press. Investors want to know what else is out there and how what you’re doing is better than what’s already out there. “It is important for you to list your competitors”, says McClure. “I wouldn’t recommend leaving competitors off your pitch if you don’t want investors to know about them. That isn’t a great way to start a relationship with them.”

It’s also not good if investors know of competitors that you don’t – so it really pays to know your competition well and outline why what you’re doing is different. “Your job isn’t to hide your competition, it is to figure out how you can be better and different to them.”

By way of an example, you could outline how you plan to target different niches or cater for a slightly different demographic or market segment.

8. Marketing plan: Customers and distribution

With the best idea in the world, you still need to effectively broadcast your message. “This one’s tough because marketing has changed so much in the past  5 years”, says McClure. “There are more channels than ever, channels that didn’t even exist 5 years ago with hundreds of millions of users. Think Facebook, Twitter, YouTube, Apple, Android, LinkedIn, Zynga…”

So, there’s a lot of platforms and channels to market through for sure, covering search, social, mobile, local, TV, radio…the list could go on. But there are challenges in successfully getting your word out there. In terms of communicating your plans to a VC, there are a number of things you should consider. “Volume, cost and conversion can be a good framing exercise that at least allows you to think about what volume of customers, or leads, and what does it cost me to get them and what is the conversion rate to the target – namely revenue?”

Put simply, when pitching for investment, it’s a good idea to outline how you plan to get your message out there. You should frame the problem or product that you’re selling to people in a way that’s interesting.

9. Team hires: Hustler, hacker designer

“In general you want people that can build and sell products”, says McClure. “That’s the simplest way of looking at your team. Geeks with deep technical experience are great, these days designers with great visual or usability experience are also good. But if you can tap into entrepreneurs that have sold companies before, or at least sales and marketing folk who have successful sales backgrounds, those are also important skills to have”.

McClure talked specifically about the ‘hustler/hacker designer’ skill-sets. Hustlers being those that figure out how to get customers, hackers being those with engineering or technical depth, and designers framing the product in a way that’s appealing. The one key point to glean from this is a breadth of skills is important.

Check out our guide to finding, hiring and keeping top technical talent.

10. Money and milestones

“If you’re trying to pitch people for money, have some frame of reference for how much money you’re asking for and how you would spend it”, says McClure. A key point McClure noted was the importance of having three budgets in mind which cater for different investment opportunities – small, medium and large. You should be able to demonstrate that each amount of money will be able to get you to a certain milestone.

“When you’re thinking about raising money, an optimum way of doing that is you want just enough capital to get you comfortably to a milestone that raises the value of the company”, says McClure. “And then you can raise more money with a higher valuation of your company.”

In terms of pitching what you’re going to do with that money, McClure noted that there’s three ways you’ll spend it. Hires, to help build your products, hires to help with marketing campaigns and get customers and then overheads. “Generally I think you should bucket money into those three categories”, says McClure. “When you’re talking to investors, you want to be able to say ‘I need this much capital to run operations, this much to pay headcount, and I might need this much to acquire customers'”.

Ultimately, you should demonstrate an understanding of exactly what you need the money for, what you’ll do with it and how you plan to make money on the back of it. Sounds simple, huh?

Meanwhile, The Next Web’s Boris produced his very own 10 tips for the perfect pitch last year, which is well worth a read too.