Monday, September 25, 2023

A venture capital investor reveals his top 4 ‘red flags’ when reviewing startup pitches

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Shreya Christinahttps://cafe-madrid.com
Shreya has been with cafe-madrid.com for 3 years, writing copy for client websites, blog posts, EDMs and other mediums to engage readers and encourage action. By collaborating with clients, our SEO manager and the wider cafe-madrid.com team, Shreya seeks to understand an audience before creating memorable, persuasive copy.

In this essay, we imagine a pitch from an early stage deep tech company, probably still working within a university.

An investor red flag may not be obvious to a founder.

Why would it? They build up over the years signals of weakness and they are best avoided. Knowing what they are makes it possible to avoid them.

This is not about building a strong pitch. More on avoiding an accidental weak pitch.

#1: After an hour we don’t understand what you are building

It’s all too often that we leave a pitch without really understanding what a company is building. This is usually caused by misdirected language or by a poorly balanced structure of the story. Red flags include:

  • Scientific words with no explanation for what they mean. Imagine explaining the concept to a classroom at school and you will probably avoid it. I’ve never felt patronized in a field before, so don’t worry about that.
  • 45 minutes of ‘Problem Slides’. It’s always good to have the problem hypothesis somewhere up front, but it can be done quickly.
  • It feels too theoretical. Show a demo. It’s always the best way to bring something to life.

#2: You show no urgency

The speed at which a company makes an impact is a strong indicator of future success. Companies that fail to demonstrate urgency may be waving a red flag, including:

  • No frame rate. This is often a framing issue because an investor may not know what “normal” looks like. Show the important workflows in your company against a normal range to show that you are jumping faster.
  • Don’t do what you said you would. We meet founders and inventors many times before finally investing. We always jot down what they say they’re going to do next and usually have a discussion about what feels important. Getting those things done before the next meeting is powerful.

#3: You are requesting research funding

Scientists are very experienced in applying for grants to continue their research and sometimes we are mistaken for one of those funds. VCs are your partner to build a business.

We fund research but in the context of a company that has completed its basic research enough to begin commercializing. Red flags include:

  • Pitch is all about the science. We need to know your ideas for a business you want to build. We also have to be convinced that the science stream is complete enough to start building together with customers. business.
  • IP is wide and shallow. It is common practice in research to demonstrate that a platform innovation works in multiple contexts. For example, if you develop a method to grow more oils in a plant’s biomass, it is common practice to show that this works for multiple plant species and growing regions. The problem is that they are all years away from commercialization. It’s better to go deep and show the features I described in #2.

#4: Someone other than you represents your company

VCs want to meet you. Because our partnership starts at such an early stage, you are the only part of the company that exists today and will play a vital role for years to come. It is common to have paid consultants or members of a university technology transfer office representing an academic team. This is a red flag for most VCs I know.

  • This post first appeared on Phil Morle’s daily blog, where he writes about what he learns building deep tech ventures. Read more here. Follow him on Twitter @philmorle


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