The amount of venture capitalist (VC) money in the US was 62,8 billion in 20161,2. The Bay Area alone collected 45% of this and the rest of California another 10%. For comparison, the state budget for Finland in 2017 was just short of 50 billion euros.
“Money, money, money” – Benny Andersson, Björn Ulvaeus
The Valley and San Francisco is like a candy store for venture capitalists. There are so many start-ups and emerging businesses to choose from, one really needs to find ways to select the best ones. There also many venture capitalists in The Valley, but fundraising is very competitive. Compared to less competitive markets like Utah, San Diego, Maryland, Georgia etc. where there are roughly 1,5 VCs per company, there are only 0,5 VCs per company in The Valley.
Are you in the right industry for an investor?
In 2016, 13 VC-backed US unicorns were born – by the end of Q2, there were already 12 new-born unicorns in 2017. What are all these unicorns doing?
Assuming San Francisco is a reasonably valid indicator of where the global investment focus is heading to, get this: the Internet, mobile and telecommunications industries account for the loaf (70-80%) of the investments in 2013-Q2/2017. Healthcare trails next with a slice of 10-15%, software (non-internet/mobile) and hardware scrape up 3-5% of the crumbs.
The Silicon Valley is not quite as skewed. The Internet-industry investments alone are collecting about a fourth of the wallet and the other top five industries trail behind fairly evenly at 10-15% each1.
Especially start-ups don’t have a track record, so investors need to understand and estimate future potential and possible earnings. What do they look for2? And how should you be prepared?
They are looking for couple of things – always be prepared to pitch
Make it come natural, rehearse it, get it right. If can’t make your story compelling 30 seconds at a time, you will not make that first impression count. Your first impression makes the difference between making it or breaking it.
Addressable market & 10x opportunity
The addressable market needs to be big enough and opportunity needs to be equally big. The business model needs to be scalable and the go-to-market plan must be clear. This would be the first 30 seconds of your pitch.
Stunning Product & Magic
The next 30 seconds of your pitch should be about your product. What VC’s look for is a huge pain-point that your solution heals. It needs to include an obvious uniqueness. Preference is that you have evidence that there is already some market traction.
VC’s want to see talent and ambition, superior technical skill sets and business acumen. Visionaries need to show evidence of execution.
A clear Ask – How much and what do you need?
To close your pitch, you need to be able to formulate your ASK. How much do you need? What else do you need besides money? What will you use the money on? For how long do you need money for?
Focus. Focus. Focus.
There is no room for blurred fringes in what you do. If you have too many ideas, scrap most of them and if possible, just focus on one. Concentrate all efforts on the one bold idea, which you think can really make it. It shows you are able to prioritize and it makes your pitch and your ask lean and mean.
The honeypots and Bumblebees
We went one evening to Rosewood Hotel bar in Menlo Park, which on Thursdays was reportedly the place to be. It is located coincidentally or not just off Sand Hill Road, which is the address of most of the VCs.
Lots of hustle’n’bustle and flirting and you have the whole spectrum of start-ups, scale-ups, grown-ups, entrepreneurs, in-between-jobs (not has-beens but perhaps fast-failers), VC’s, rising stars, shootings stars and wanna-be’s. Kind of like Thursday evening at “Kalle”, the thursday-evening iconic flirting hot-spot in Helsinki, but then again, not at all. Not even close.
While waiting for your beer at the bar, you will get to pitch your business once or twice. When you mingle around and get introduced, you get to pitch again a couple of times. When you bump into someone, you get to pitch. You don’t have to – you get to. People are genuinely interested about what you are about, why you are there, about your dream and your 1-2-3 pitch.
The analogy with flirting and pitching is not far-fetched. The basic idea is the same: suggest interest in a deeper relationship and you if don’t succeed in 3 minutes, the game is probably over.
- PWC MoneytreeTM report Q2/2017
- Alliance Venture presentation – Investor in residence perspective, Arne Tonning