It may be warming up outside, but for startups looking for their first investor, it's still winter. First venture financings dropped a chilly 62% last quarter, following six straight quarters of venture capital downturn. Even though 1800 companies divvied up some $16 billion in new venture capital funding last quarter, 90% of it was follow on or mid-to-later stage. Only about 10% of venture capital these days is funding companies for the first time.

So what are founders who are getting venture capital term sheets doing differently?

I asked the founders who were just Finalists at Startup Runway, a non-profit pitch competition my venture capital firm Valor Ventures co-hosts. Startup Runway is one of the only pitch competitions in the country to curate fast growing startups led by women and minority-founders. In this Spring's cohort, hundreds of startups competed for ten Finalist slots to pitch in front of VCs for a strings-free check built from sponsor donations. In the two weeks after the event, 30% have already received term sheets.

Several Startup Runway finalists were willing to share the one thing they felt makes the difference in a successful first pitch:

"You need to know your numbers, past, present, and future," says Jeannell Darden, founder at Moisture Love. She's a Georgia Tech engineer who created a unique moisturizing molecule that's in demand for hair and body care products. "Investors want to know that you've done the work and created a plan for how their money will grow your business, and they'll ultimately get the return on their investment."

"Sweating the tone for the pitch from the very beginning is crucial," says Christian Zimmerman, co-founder at Qoins, a platform that helps people pay off their credit card debt with spare change. Qoins earned hundreds of paying customers in its first 90 days. "This will determine whether or not you are able to capture the audience attention for the rest of the pitch."

"Time is money. The more you take to explain yourself the greater the chance you won't get the funding you are after, clarity is everything!" says Sascha Cahill, founder of HealthInfoMap in Charlotte, NC.

"Pay attention to the numbers. Knowing your numbers is essential to presenting a formidable pitch," says Quinetha Fraiser, co-founder at MyPledger, a solution that helps nonprofits like the UNCF and universities like Morehouse raise money continuously.

"It's not always about the 5 minutes you're on stage. Judges and audiences pay attention to how you interact outside of your stage presence and you never know when they will come around to speak with you after an event. Even if you don't win, making connections before or after can make a huge impact on your company," points out Jennifer Bluemling of Borrowed By Design.

"As a founder, you are more familiar with your company and product than anyone else. Because of this, it can sometimes be difficult for founders to tailor their product descriptions so that others not as familiar with the company can understand in the short time you have to pitch," says Carl P. Evans III, co-founder of Predictive, Inc. His startup won the $10,000 prize supported by sponsors like the Atlanta Hawks and Spencer Stuart.

His co-founder, Predictive CEO Raj Sultanian continues, "Focus on the needs of the investor: lower risk and higher returns. Investors are betting on your idea and market from a returns perspective, but betting on your team from a risk perspective."

For founders like these, competing outside of traditional startup hubs, there's a further silver lining in the decline of first time venture capital financing.

It's not as bad. Silicon Valley has long seen the lion's share of first time financing.

  • Now, though, the share of all venture deals going to California-based companies has dropped to just to 38%---an all time low.

Investors looking for value are looking hard everywhere--and finding the majority of it on the venture frontier outside of Silicon Valley. "Pitch competitions like Startup Runway offer the opportunity for investors to hear brilliant ideas from new perspectives," says Andrew Kangpan of New York venture capital firm FFvc, who judged the event. " It provides the forum for the entire technology ecosystem to engage incredibly unique entrepreneurs." Those startups who plan to find first time venture funding need their uniqueness paired with a heaping helping of the advice these founders are sharing. What else have you learned about first time venture capital financing this unusual year?

Published on: May 15, 2017
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