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Los Angeles, CA (Profitable.com) Venture Capitalists (VCs) are constantly having business ideas presented to them. According to Growthink President Dave Lavinsky, this constant bombardment of proposals, plus the fact that the vast majority of these ideas fail to materialize, causes Venture Capitalists to start to develop a pessimistic attitude about new ideas.
“I went to business school nearly 15 years ago with several bright guys who became venture capitalists. When they first became VCs, they were very positive people. They heard ideas with the mindset of ‘how can we make this work,'” said Lavinsky, who at Growthink has helped thousands of entrepreneurs launch and grow their own businesses.
“But after hearing thousands of ideas over many years, and investing in lots of companies that didn’t pan out, their thinking shifted. In fact, today, their attitude is more like ‘what are the reasons that this idea won’t work.'”
Lavinsky is not revealing this to “put a downer” on the situation, but to help entrepreneurs become aware of what is going on inside to mind of a VC when they are making their proposals.
“You need to understand and play to this pessimism,” Lavinsky says.
To help entrepreneurs to do so, and thus increase their chances of obtaining VC funding, Lavinsky has revealed the follow “pessimism playing” tips:
#1. Pre-emptively address their concerns
“While you speak with VCs, they are considering the reasons your venture won’t work. So, address these concerns before they even ask about them. For example, state in your presentation the top 5 concerns you think they might have and why you will overcome/address them,” says Lavinsky.
Generally, you should address these concerns in the core part of your investor presentations. You should also have four or five back-up slides (that you keep at the end of the presentation for use if and when needed) that address other less-common concerns that you guess investors might have. By pulling up these slides when the investor voices the concern, you will have the best possible answer and seem ultra-prepared (which you will be).”
#2. Avoid superlatives
“Most VCs I know hate superlatives,” said Lavinsky.
“Superlatives are words like ‘best’ ‘greatest,’ ‘most powerful,’ ‘world-class,’ etc. Unless you can back up these words, don’t use them. Since VCs have been promised everything under the sun, and are turned off by such claims.”
#3. Relate your ideas to proven companies
Lavinsky recommends that entrepreneurs should tie their ideas to proven companies to make them appear more viable.
“For example, say that your company is like eBay but you [fill in the blank regarding how you differ]. Both consciously and subconsciously, this simile gives VCs and other investors the impression that your company might become as successful as that other proven company,” said Lavinsky.
“Importantly, don’t bad mouth another company (particularly a successful company); as this will cause you to lose credibility. Rather explain why you are unique and can perform better and/or differently.”
4#. Boost your credibility wherever possible
As well as avoiding the use of superlatives, Lavinsky also advises that other grand claims are also avoided in order to help bolster the credibility of the proposal.
“Having a financial model that shows you are going to grow from $0 to $100 million in revenues in 3 years is generally going to be frowned upon. Since achieving such a feat is extremely rare,” he said. “Conversely, by researching the growth profile of similar firms, you can come up with more credible forecasts that will escape skepticism and show investors you really understand the business and its potential.”
Another credibility bolstering technique that Lavinsky advises is to go out there and get some customers before speaking to a VC.
“One of a VCs greatest concerns is whether you’ll be able to acquire enough customers. Proving this early on significantly enhances your positioning and chances of raising VC dollars. Even if you don’t have a product or service that’s ready for customers, there are things you can do. For example, you can get alpha or beta customers. Or, at the least, you could survey customers and show VCs survey results and testimonials from customers saying they are seeking the precise solution you are building,” Lavinsky said.
The Growthink President also goes on to highlight the importance of building a Board of Advisors and/or hiring accomplished employees to boost credibility and show VCs that the business has the ability to effectively grow with the new funding that will be injected.
While Lavinsky is keen to point out that not all VCs are seen as pessimists that are no fun to be around, he wants entrepreneurs to be aware of the a natural pessimism that will come with a new venture.
“It is your job to overcome this pessimism. And once you do, you can gain the funding and the guidance of a VC that could help you dramatically grow your business,” says Lavinsky.
Growthink, Inc. is a leading provider of business planning services. Growthink has also developed several training products and tools for entrepreneurs, including a simple business plan template, sample marketing plan template, and strategic planning template. To learn more about Growthink’s products and services, call 800-506-5728.