February 08, 2019

Dollars and Sense: Tips for Negotiating, Pitching and Working with Investors

How I Raised ItLast month, our CEO—and Chief Stamp Licker—Lewis Gersh sat down with the How I Raised It podcast to share some helpful insights into how he successfully raised millions in capital for PebblePost.

Lewis attributes his success to a breakthrough idea, nurturing his venture capitalist network and approaching his initial pitches from an investor’s perspective. For PebblePost, this meant thoughtful investment negotiations, a thick skin, and clearly demonstrating how the market opportunity for PebblePost reasonably outweighs most risks.

We’ve outlined a few key takeaways from Lewis’ podcast conversation, which highlight successful venture capital engagement strategies for entrepreneurs.  

PITCHING INVESTORS

  • Network, network, network: Leverage any and all existing relationships with investors/advisors and actively grow your network. Keeping a long-term investor relations strategy can also plant the seeds for investors that might not be ready for a Series A, but open to later rounds once your business proves itself. A caveat: even if you already have a lot of great relationships or manage to develop some—get ready for a lot of “no’s.”

  • Pick the right firm(s): Be thoughtful about who you choose to network with and pitch. Identify the type of firm where your startup might complement their existing portfolio. For PebblePost, specific early stage VC firms fit the bill.

  • Leave an impression: If you don’t have any relationships in the venture capital community, it’s crucial your pitches are memorable. Keep your presentation impactful, with striking visuals and a message that evokes a “feeling” for your vision. Your goal is to make investors curious and keep them that way. Firms can review the numbers in your deck, but what’s the main impression you want to stick with them? How can a partner at a fund easily explain and defend your idea(s)?

  • Consider the risks: Define the market potential for your business, and make sure you can mitigate objections. Does your revenue potential outweigh industry challenges? If you consistently receive the same questions, respect investors’ time by proactively addressing common objections in your pitch.

  • Post-pitch, keep follow up strategic: Arm investors with as many tools as possible to pitch your brand during their internal reviews. If you can keep the dialogue transparent with investors after your pitch, you’re more likely to know what resources they need to sway their partners.

NEGOTIATING & WORKING WITH INVESTORS

  • Don’t grossly overestimate capital needs: Keep things lean and mean, retaining focus as you go. Keep term notes to 10-20 percent of capital, and only at B-round or beyond, unless you have a great rationale for a higher percentage. For credit, don’t go crazy if you don’t actually need the cash—20-30 percent of what you’ve raised should be enough for a revolver.

  • Make sure you have an equity cushion: Ensure you have enough funding to support any business growth that’s higher than your expectations and if your startup does take off, don’t expect revenue to remain on a steep incline indefinitely.

  • Understand the difference between funding rounds: What it takes to succeed in a series A differs greatly from a series C—be aware of the expectations for each round of funding. Most notably, series C’s are not what they used to be—you’ll be in a tight spot if investors cannot see solid performance and real-world evidence that the product is bringing in healthy metrics by this round. Customer retention, renewal and churn rates are all under more scrutiny at this stage.

  • Remain transparent to foster trust: After you’ve secured funding, make sure you have great communication with firms. Investors love good news and they can handle bad news—they will not tolerate surprises (good or bad).


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All third party names referenced herein shall belong to their respectful owners. 

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