I’ve seen many founders make this mistake over the past 7 years, so I thought it was worth a post.
Surprisingly, one of the hardest types of VC pitches (and one that a lot of founders struggle with) is the pitch to existing investors.
This is the “update meeting” to the broader investment team of an existing VC. Often, this might happen relatively early in the fundraising process, but sometimes, it happens later. Sometimes, the fundraising process hasn’t really started yet (in the eyes of the entrepreneur). So, they are surprised when they walk into an “informal update” and realize that the entire partnership has assembled to critique their business.
Entrepreneurs struggle with this for a couple reasons:
1. Too casual. These meetings are almost always couched more casually then they really are. That’s because as the VC, bringing in a portfolio company to update your team does seem casual. But to the founders, this is a very high stakes pitch. It’s the job of the other members of a partnership to press on a company and keep their partner honest and offer fresh perspective, so although the environment will be friendly, the folks in the room are likely to take a more critical eye on the business than one would think.
2. Assuming too much. It’s easy to see friendly faces in a partnership pitch and think that everyone in the room is up to speed.
As a result, these pitches often dive quickly into the details, and fail to present an emotionally enticing story-arc. Big mistake. Even though other members of a VC team have some context, you can’t assume that they are fully informed and have seen the narrative unfold. In fact, these pitches are tough because you have to cater to both folks who are pretty unfamiliar with the business, and others who are intimately involved. On top of that, VCs are always asking themselves, “how would other investors evaluate this opportunity.” So even if they are aware of the details, failing to cast an exciting vision can lead existing investors to think “maybe there will be future financing risk for this company.”
3. No practice. Often, by the time you get to partner meetings during an external fundraise, you have honed your story through repetition and practice. In this case, you probably haven’t had much practice, and practice would seem contrived anyway since it’s just an “internal update”.
4. No sense of competition or external validation. All fundraising conversations are easier when there is a sense of competition that
creates both external validation and/or FOMO. With internal pitches, it’s harder to create this. Usually, these meetings happen at the beginning of a fundraising process, so it’s hard to create external validation. Also, as an existing investor, there is an assumption that even in a pretty competitive round there will be the ability to do one’s pro-rata and maintain ownership. The investors have a very strong sense of security, which makes it tougher for founders to get investors hot and bothered.
So, what should a founder do? Couple thoughts,
1. Practice. Find some insiders who are relatively small investors that do have experience with this but aren’t likely to influence the round dynamics significantly. Practice the real pitch with them, and do so in a realistic setting so it really does feel like a pitch.
2. Create some external demand. Even if it’s new angels or strategics, it’s helpful all around to show some external demand for the company’s equity. I wouldn’t front run a ton of VC conversations, but some outside validation helps a ton.
3. Own it and deliver. Realize that this is going to be one of your harder pitches and treat it as such. You have to captivate with your story, but show complete mastery of the details, for an audience that doesn’t feel like they are at risk of missing out. It’s tough. Don’t take it lightly, and be prepared.