An 8 point guide on how Venture Capitalists really assess a pitch

Pitching a venture capitalist can be a significant step in a business journey. They could be the primary driving force behind your startup’s financial plan or idea. But ever wondered, what makes a pitch unforgettable? Convincing a VC is not cakewalk, and one has to bite off more than they can chew to deliver a successful pitch and make VCs loosen their pockets. 

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While there is no proven formula to pitch a VC, the combination of compelling financials, proven MVPs and a robust business plan, everything works together for a convincing pitch. Unfortunately, first-time founders are not privy to this information and must understand how VCs assess a pitch. 

Market opportunity

For creating substantial returns in a deal, a VC considers the market as a significant variable. What’s the size of the market in which the startup is operating and the revenue opportunity available for the startup’s product or service? To ensure a compelling market opportunity, startups must draw a realistic estimate for their market share by conducting a classic exercise – Total Addressable Market (TAM), Serviceable Available Market (SAM) and Serviceable Obtainable Market (SOM). This also includes competitors’ landscape, market structure and addressability. 

Founder & the core team

The founding team is pivotal for a successful startup, and it needs to get it right. Firstly, a strong founding team backs exceptional people and helps them turn their capabilities into a marketable product or service. A typically strong founding team must focus on exhibiting prior experience that could be a good fit for the startup’s journey. Apart from this, the vision of the core team should be aligned with the startup’s future steps. This makes VCs understand the success rate of the startup, further resulting in higher financial support. 

Business model

A solid business model gives a competitive edge to startups over others in acquiring VC funds. It helps VCs to have an elaborative idea of the revenue streams that further gives them an idea on the financial sustainability of the business in different market conditions. In addition, it also keeps startups and VCs abreast of how much exactly a startup can make. 

Traction

The significance of traction is a necessity for startups to generate trust. For VCs or even in general terms, traction is the initial progress of the startup that potentially builds the momentum of growth. Good traction clearly indicates that the product or service is viable for the market and getting the required attention from the target audience. A VC can look out for the rate of growth of users, revenue, actual users, churn rate, MRR and ARR. 

Competitors

Knowing your competition is as important as knowing your customers and business. VCs always keep a close eye on the startup’s competitors, their weaknesses, strengths and market position before making a deal. It certainly contributes to developing a robust go-to-market strategy with possible barriers to entry or scale. VCs also assess the prices, services, features and customer satisfaction levels of competitor startups.  

Financials

As VC funding opens a stream of making possibilities happen, revenue generation and more, the startup should exhibit financial viability. VCs deliberately assess the customer acquisition cost, lifetime value and burn rate of the startup before taking a decision. Startups also have to present previous rounds of fundraising details including the amount of money raised and valuation. Furthermore, VCs take interest in deals that have a sustainably anticipated timeline for profitability with a seamless exit strategy. 

Risk mitigation

A sustainable and progressive startup is known for its ability to predict risk factors accurately. Amid the market uncertainties, VCs are looking out for safer bets – an investment opportunity in a less risky startup with higher earning potential. A VC funding pitch revolves are the ability of startups to mitigate technological uncertainties – from knowing how the product can be built, how cost-effective the solution can be and the problem it can solve. 

Fund utilization

The pandemic era saw a steep surge in the flow of investments in startups along with an unjustifiable allocation of funds. However, VCs have become stringent in cashing out and consider startups that are focused on sound fund utilization strategies. During a startup pitch, VCs assess the allocation of funds, salaries of founders, overhead-expansion split and business milestones. 

Perfecting the pitch

Pitching a VC is an unavoidable part of a highly progressive and disruptive startup. One of the best ways to perfect the pitch is to get surrounded by like-minded founders, mentors and investors. This can help founders in equipping themselves with the knowledge to create minimum viable products and scaling the business intelligently. As a result, founders are able to connect different elements to make an outstanding pitch and make it assessment ready for VCs.