How to nail your meeting with a VC investor
Once your business plan has caught the eye of a VC, what happens next?
A small number of venture capitalists (VCs) will let you know as a matter of course what to expect from your first meeting.
The Capital Fund, run by London Fund Managers, is onesuch group, and they provide amazingly detailed guidance for entrepreneurs. More normally you won’t get that, and you should certainly feel free to ask your contact what the format will be.
Venture capitalists look first and foremost for a great management team. Without one, they won’t invest; with one, they just might. So if your business plan has persuaded one or more VCs to invite you in for a meeting (first meetings almost always take place at the VC’s office), you really need to convince them about the strength of your management team.
It’s one thing to write well and look good on paper, but VCs know that business plans can be – and often are – written by consultants trained to write good business plans, so it’s only in person that they can really get a sense of you and your team, and decide whether they want to invest in you.
The first meeting
The first meeting will sometimes be a relaxed discussion about your plan and your business, but more often will involve you making a formal presentation to the VC. There will usually be two or three of the investor’s people attending the meeting. Sometimes you’ll be left alone to go right the way through the presentation without interruptions, but more normally you will get the odd question thrown at you during it. Either way, you should expect some probing questions at the end, so be prepared for them.
Personalities obviously vary enormously, but many entrepreneurs are intimidated a bit by the experience, especially given how important it usually is to the business raising the capital, so the more you know in advance the better. Typically VCs are smart, self confident people, usually with an accountancy or legal background. They invariably dress in smart, formal suits, and have smart offices. Their language will frequently use financial jargon (‘burn rate’, which is how much cash you currently need each month, or ‘EBITDA’, earnings before interest, depreciation and amortisation, being typical examples). Entrepreneurs frequently don’t match that description, and can therefore find it a bit off-putting.
Just relax, and you’ll be fine. Remember that your business could make these people serious money, and that you could take the opportunity to another investor if you don’t like this one. It’s important that you appear self-confident, and in no way desperate. (If you are desperate for the cash, you’re far less likely to secure it, so try as hard as you can not to show it even if you are.) In reality, it’s probably true that you could go to others anyway – if one VC is willing to invest, there are almost certainly others who would be also, since they all tend to use very similar criteria.
First impressions count, so make sure you’re there on time, and dress well (it might seem old-fashioned, but these things really do count). What does ‘dress well’ mean? Of course investors vary, but as a norm it certainly does not need to mean a suit and tie, if that’s not your usual style. I think most investors would be surprised to see an entrepreneur looking scruffy (if you’re not willing to make a little effort for this meeting, what does that say about your ability to win sales with clients?) but these days most VCs wouldn’t bat an eyelid if someone is smart but not in a suit. It’s important that they get to know who you are, as a person.
At this meeting it is probably best to make your presentation a summary of the business plan. Remember that your goal is to persuade investors to buy into your business, rather than persuading customers to buy your product or service. Focus, therefore, on the business opportunity rather than the advantages of your product. [For more tips on the presentation, see First Meeting Tips, left].
Remember, as with any presentation, that your audience will only retain a tiny fraction of what you say, so pick the most important points and repeat them when applicable. Also make sure you have a printed copy of the whole presentation available to distribute afterwards.
Should you use PowerPoint or an equivalent? There are no rules, and each investment house will have their own expectations. Some will want to see visual aids. For others, such as Mark Wignall, chief executive of the newly formed Matrix Private Equity Partners, PowerPoint is a real turn-off. It’s well worth asking the investor beforehand.
What will always go down well, is evidence of research and planning. “Without being too theatrical, rehearse what you’re going to say,” says Wignall. “Understand what you’re trying to get out of the investment and work as a team to convince. If the management team can’t work together to create a decent presentation then this is hardly a sign of good things to come.” It works well, too, if you can tailor what you’re saying to the VC, and show an understanding and appreciation of their track record and investment criteria.
At First Stage Capital, initial meetings with chief executive Jason Purcell last for an hour and allow potential investees equal time for a presentation and then for relevant questions. “I would recommend compiling a presentation for 30 minutes, highlighting key points, and leaving the remainder of the time free to answer questions.”
When it comes to the question-and-answer section of the meeting, you should try to anticipate the questions you’re likely to be asked, and prepare answers. Make sure you have information to hand to back up your response, rather than scrabbling about for bits of paper, and show that the issue at hand is something you have already considered.
Don’t worry about trying to tell the VCs everything about your business, but see this first encounter as a means to getting to the next stage in the process. Private investors are understandably cautious with their money so don’t expect to secure an offer within an hour. If the initial meeting goes well there will be a number of follow-on meetings, and requests for quite a lot of specific detailed information about your business, which will examine it in a lot more detail.
Make sure you prepare your own questions in advance. There will be lots you’ll want to know, including when you should expect to hear next from the VCs and what their next steps are. It’s also worth asking whether they would want to invest the full amount you’re seeking on their own, or whether they’d be prepared to invest part of it alongside another VC, and in that case whether they’d be willing to lead the deal or not (some firms never lead, some always lead, and some don’t mind). You should clarify this, as their answer will clearly affect what you need to do next.
This is also a great chance for you to start the process of deciding whether you want to work with them. Try to find out what their investment style is – hands on or laid back. Would they put a non-executive director on your board, and if so who would they want that to be, and how often would they expect the board to meet? Are they able to invest in subsequent funding rounds if they are likely to be needed? And can they add value to your business, perhaps through introductions to potential key staff, suppliers or even customers? How quickly will they want to seek an exit? What sort of returns do they seek from investments?
To cap off the advice, give it your best shot. “Look professional,” says Teresa Graham, advisor to Baker Tilly. “Once the doors open you have to make the most of the opportunity. The presentation should be clear, brief, and most importantly of all, full of passion, but whatever you do don’t hide things or bend the truth.”
After the initial meeting you should hear within a week to 10 days. If you don’t, it probably does indicate a lack of interest in taking it further, and you should phone to see if that is the case, so that you can move on. If the investor wants to take your proposal forward, it is likely to follow something like the following form:
… A request for further detailed information
… A meeting to discuss the information you have supplied
… Possibly a meeting with an industry expert the investor wants to pass an opinion on your business
… More formal due diligence information requests
… Final meeting
… Contract negotiation
The time it takes to complete a deal from the initial meeting can vary greatly, from weeks to months. “A lot depends on how much the VC wants to do the deal, and simply how much time they have,” says Jason Purcell. A smaller investor in the midst of another deal might be very keen on your proposal but simply unable to move as fast as you would like. If you are in a hurry, which is often the case with management buyouts where a company might be formally up for sale, for example, investors can move extremely rapidly, though that is not the norm for development capital deals. “We have completed one deal from initial contact in about a month,” comments Helen Reynolds of London Fund Managers, “but three to four months would be a more normal timeframe.”
You could receive an outline offer within a month of the initial presentation, but two to three months would generally be a more typical time to wait.