With many years in early-stage investing Lian Michelson, Investment Director at Vala Capital, finds that unlike men, women underplay what their business is worth when they pitch to VC investors. Here she gives her top tips for that successful pitch.
It’s long been an issue in the world of start-ups. Women just don’t get the same deal as men. Year after year, figures show that female founders make up a minority of new startups and raise far less capital than men. Last year, female founders raised the lowest proportion of total capital since at least 2017. Figures dropped from a record 2.4 per cent last year to 1.1 per cent – and 49 per cent of female founders felt that being a woman negatively impacted their chances of raising capital. One of the major reasons for this imbalance is the lack of women leading funds in Europe – just 12 per cent of GPs and MDs of European VC firms are female.
There are tentative signs that the landscape is changing with women making up nearly a third of the next generation of European tech leaders – those with zero to five years’ experience – compared to just 16 per cent of those with 20+ years. Female founders in the UK were among those that secured the highest proportion of deals (but no more than 10 per cent).
But we have a long way to go. There are still massive biases that hinder female entrepreneurs – barriers such as investors asking female founders “whether they are going to go and get pregnant or not” sadly continue to prevail. This must change. As with all founders, female or male, some are not as well-oiled as others when it comes to pitching their idea.
There are many factors I look for in a start-up. I always look behind the founder and check the leadership team. For me, evidence of a great team. In my role as a mentor and listening to rehearsal pitches from would-be founders, I see some common mistakes:
Know your market
You’ll be surprised how many people come into a pitch that don’t fully understand the market they want to disrupt. People will say, “I’m selling baby products” and then go on to say their market size is the number of babies born in the UK. That simply won’t wash with an investor because it’s too broad – the market they are targeting is only a subsector. It is a basic rule of pitching, you must know and be able to convey to potential VC investors the market you are targeting. You also need to be able to correctly articulate its size.
The two-sentence challenge
If you can’t explain your business and how great it is in two sentences, then you are going to have a problem persuading an investor to part with their cash. Sometimes I hear an elevator pitch and several minutes in, I’m still asking myself, “Yes, that is all well and good, but what is it that you actually do?”.
Prove proof of concept
You must be able to prove that you have a product that has potential by having already tested it. Have you proven that customers want what you have, whether it’s a consumer product or a business-to-business product? Is it pre-revenue and what are you basing your projections on? There has to be some analysis that offers an investor some tangible guidance based on reality.
Make sure you have thought through the challenges your business faces, as well as the opportunities you face. Answer questions directly and succinctly because if you go off course into sale banter and take 15 minutes to get to a point, venture capitalists will suspect (probably correctly) that you don’t know the answer. If you can’t explain what you are planning concisely, it will be a massive red flag to an investor.
Have a smart marketing and distribution strategy
You’ve got to prove you have a smart marketing strategy. You should already have figured out who your customers are and why your product has potential because you will have done some tests. Simply telling a potential funder that you are going to advertise on Facebook, will be unlikely to convince them to invest. You need to think outside the box on how you are going to get your product to market in a cost-effective way: are you going to utilise pre-existing distribution channels? Or perhaps you’ve already had some conversations and are like to be partnering with a more established brand? A coherent, well-thought-out marketing strategy is paramount.
Know what your business is worth
Female founders can be modest and put their numbers in too low, while men tend to inflate their numbers – and in fact, going too low is just as off-putting, because it tells me the founder doesn’t have a long-term plan. The amount they’re asking for won’t get them far enough. So don’t underplay your business. Be bold and confident.
Promote your personality and your passion for what you do
Venture capitalists are looking for someone with charisma and passion, who also has the hallmarks of being an inspirational leader that will be able to attract backers and employees to work for them. Be creative, be different, relax and be conversational – a dry, monotone pitch a VC has heard many times before will fall on deaf ears. As someone who’s passionate about the business you’ve created, just let that shine through and don’t let nerves get the better of you. Good luck out there!
Author: Lian Michelson, Investment Director, Vala Capital.