In the zoo that is Silicon Valley, the most popular exhibit is the unicorns. Billion-dollar companies feted by the press and the envy of every entrepreneur with an idea - the rarest of the rare, but nonetheless what comes to mind most when most people think of the innovation race.
Today's savvy venture capitalist knows profitability doesn't come from chasing unicorns. And smart founders see the writing on the wall - private investors are looking for more than reassurance than a set of white wings and a sparkly horn. In smaller markets (ie. pretty much anywhere outside the Bay Area), where institutional investors aren't as prevalent as Starbucks in Manhattan, founders who understand the realities of their own situations will be set up for success in pitch meetings.
Be realistic about your value
"In small markets, where there are fewer if any unicorns, we see a lot of skewed valuations," says Patrick Armstrong, a partner at private equity firm Canal Partners in Scottsdale, Ariz. "Entrepreneurs will come to us having read the latest article in TechCrunch about some hot, trending product and they don't understand that those are the outliers."
What are venture capitalist firms looking for? Well-defined, deeply vetted companies and founders who understand the market they are getting into. In a nutshell - true problem solvers. Workhorses, not unicorns, have the advantage.
"Instead of simply investing in an idea and hoping for payoff five, six years down the road," Armstrong said. "Let's start at the goal, the exit, and solution to the problem, and work backwards. The best pitches are the ones that tell us how we are going to make our money back, times ten."
Sherman Chu, partner at Grayhawk Capital in Scottsdale, agreed. "When I'm listening to a pitch, even if it's an elevator pitch, I want to hear that you have a product already in the market that's generating revenue, and you're looking for capital for sales and execution instead of R&D."
Know thy investor
Before you plunge into the "shark tank" you better have a clear understanding of who you're pitching.
"We have a business model, it's on our site," Armstrong said. "If you look at our portfolio of companies, it's not hard to see who we're going after."
Even so, eager founders with great ideas might find themselves wasting time in the wrong place. Or worse, wasting investors' time talking about the wrong things.
"I see this all the time when we're pitched by inventors," Chu said. "They talk about the product exclusively for an hour. Or someone comes in with a healthcare pitch talking about a trillion-dollar market, when in reality their proposed solution fits into just a subset of that."
On-point brevity packs a bigger punch
Founders who demonstrate a clear understanding of problem, solution, market size, competitive landscape, and revenue model may at least pique interest, but in a pitch, a little bit of charisma will go a long way.
"Sometimes I encounter the mad scientist presenting to investors, and they have no business or presentation skills," said Mario Martinez, managing director at MRTNZ Ventures. "It might give us a good chuckle, but it could hurt how your company is actually perceived. It's always important for the pitch deck to be on point and concise, but just as important to have the right person presenting the opportunity."
Though intrepidness and tenacity are shining qualities in a founder, not all VCs like uninvited pitches, especially when the idea is not fully baked. Resist the urge if the time and the place is not right.
"I was giving a presentation at a university about the importance of not being overly technical with your pitch, especially in a first meeting," Armstrong said. "After I finished, a student came up to me and unrolled a sheet of graph paper that must've been 30-feet long filled with equations to create a program he didn't know how to code. It was like A Beautiful Mind, but I didn't know which of us was imaginary."
Nathan Mortensen, principal at Tallwave Capital, said the best pitches bring energy, and demonstrate deep market knowledge, a clearly defined problem and solution, acknowledgment of the risks, and drive to conquer the challenges.
"Founders have to be ready to show they have done the research on the people in the room, and the other companies in their investment portfolio," he said. "Connect the dots, and be crystal clear on what the ask is. Keep in mind it doesn't always have to be monetary. It can be introductions, feedback or advice."