Raising Capital From VCs: A “Don’t” List

By Sallie Krawcheck

Convincing people to invest money in your business is hard, challenging, nerve-wracking…take your pick. And, believe me, I’m all about having uncomfortable conversations about money — asking for that raise, talking to your partner, you name it. But learning how to pitch potential investors (friends, former colleagues, and venture capitalists) has been an eye-opening experience.

As someone who was new-ish to this entrepreneur thing, my first step in nailing the pitch was to work through that pit-in-my-stomach feeling I couldn’t shake when I first started asking for money from friends and former colleagues (shudder).

As an entrepreneur, hustling to get what you need isn’t anything new to you.

My co-founder Charlie Kroll shared a valuable lesson with me when we raised our first round: Don’t think of these potential investors as doing us a favor by investing in Ellevest. Instead, since we genuinely believed that Ellevest has serious groundbreaking potential, we were doing them a favor by giving them the opportunity to get involved with the company. (I’ll admit, it took some serious repetition for me to fully get on board with this line of thinking.)

As a next step, some women entrepreneurs have been crushing it on crowdfunding platforms, and that source of capital is only going to grow. But for now, if you’re raising above a certain amount, you’re going to have to go the venture capital route. That makes raising from friends and family look like the bunny slopes.

When we started, I’m happy I didn’t know how often and how much the VC model has failed women: from the funding gap for women versus men to gender stereotypes influencing funding decisions to the rampant sexual harassment that’s in the news lately.

Infuriating. Disgusting. Depressing. There aren’t enough adjectives in the English language to describe this. Yet, while the VC industry (we hope) takes a long, hard look at itself, women entrepreneurs still have to figure out how to get these firms to invest in their companies. And it isn’t easy. But after going through several pitches of my own, I’ve learned some big asking-for-money don’ts that every first-time entrepreneur should avoid when pitching VCs.

Don’t forget about the business.

A product is necessary. A product is important. A product is great. But a product isn’t a business, and VCs want to back entrepreneurs who show that they can actually build a business.

So your pitch shouldn’t just focus on a product roadmap, which is what a lot of new entrepreneurs do. You should also include a company roadmap in which you explain how you’re going to build a business from that product. A few things to consider in your roadmap: determining how you’ll acquire customers, testing how you’ll monetize the business, and future fundraising milestones you’ll aim for if things work out well.

It’s not the end of the world if your company roadmap ends up changing — not at all. Heck, there’s a good chance it will (pivots are more common than you think). That’s why you should also think of your pitch deck as a living, breathing document — something you adjust as you encounter objections or questions while talking to different VCs. And always include numbers in your deck: this will be market size in the earlier stages of your business and your earnings model later on.

Don’t start with the risks.

I’ve seen many women pitch, and I’ve seen many men pitch. One of the biggest differences? A lot of women open with the risks associated with their businesses; I’ve never, ever, ever seen men do that.

Less focus on input, more focus on output.

According to a recent study, VCs are already more likely to ask women entrepreneurs about the downsides of their business than they are men. That same study found that the more time entrepreneurs spend addressing risk in a pitch, the lower their odds of getting funded. (Not surprising; it’s like when someone says, “Ugh, this tastes pretty bad! You have to try it”…I’m betting you say no.) So instead of giving VCs a reason to discount your business, lead with the upside and give them a reason to get excited.

Don’t fundraise based on runway.

Figuring out how much money you need to raise can be hard for a first-time entrepreneur. So a lot of people pitch VCs in terms of “I need $A to hire B engineers” or “I need $X for Y amount of runway.” And all of this might be true…but VCs don’t really care about that. (Again, they’re about the business.)

A better approach? Focus on tying your fundraising to your business goals. For example, instead of talking about how you need that money to hire those engineers, talk about how you need that money to build a mobile app (which those engineers will build). Less focus on input, more focus on output.

Don’t ask for money that doesn’t match your business stage.

VCs are used to an established fundraising cycle, one in which each business stage has a widely accepted range of funding attached to it.

Raising Capital from VCs: A “Don’t” List (mobile) Raising Capital from VCs: A “Don’t” List (desktop)

If the amount of money you’re trying to raise doesn’t line up with your business stage, you’re going to end up raising eyebrows. (“She said she wants to scale, but she’s only raising $250K — is she really ready to scale?”) And the worst thing you can do is give a VC reason to second-guess how well you understand your business. Which brings me to the next point…

Don’t skip business stages.

Especially not the launch stage. It’s easy to get excited after you have a great prototype and build an awesome team and then think, “Hey, we’re ready to scale and take over the world!” But it’s during the considerably less sexy launch stage that you learn which channels are the best for your business and will be most useful in helping you scale effectively later on. Skip this stage, and you won’t be able to use that knowledge to inform important business decisions in the future.

Conclusion? The stages in a funding cycle are sequential, so it’s good to follow the flow and go through each one.

Don’t waste your time talking to the wrong investors.

VCs specialize in certain sectors and business stages. This second point is really important: some VCs only do seed/early-stage funding while others only fund companies that are at their Series A, Series B, etc. You can have a great business, but if you’re looking for money to help you launch, a VC that specializes in growth stage companies typically can’t help you.

That’s why you want to spend your time researching (Pitchbook and Crunchbase are pretty helpful), networking with, and pitching to VCs who actually invest in your sector and companies at your stage.

Fit can matter too. If you have the choice, you want to pitch to a VC who’s excited about your business from the get-go and is ready to share advice and help out before the money even hits your bank account.

You’ll have a better chance of doing this by looking into VCs beforehand. Check out deals they’ve already made on Crunchbase to get a feel for their interests. And do backchannel checks through mutual contacts (preferably at a company they’ve invested in) or via strategic LinkedIn connections — to learn what it’s like to work with them. I actually did three backchannel checks on our lead investor during our latest raise; and they were doing the same on us.

Don’t squander early impressions.

VCs will talk about your business when you aren’t in the room, so you want them to get what your business is about as much as possible. You can do this by first making sure your deck stands on its own. Since VCs often want to see your deck in advance, having a strong one can pique their interest (not the same as getting them to invest, but a necessary first step).

In the event that a VC ends up presenting your business to fellow partners, give him or her the answers to some of the stickier questions you’ve faced or expect will be asked. True story: we sent our deck to a potential investor who was fired up about Ellevest. So fired up that she presented the deck to her partners before walking through it with us; as a result, she wasn’t prepared to answer some pretty basic questions about our business. you probably guessed...her partners weren’t interested. Even after we took her through the deck and gave her the answers, they still weren’t interested. And they remained not interested after we offered to fly out and present to them. Sigh.

Last thing: get your “elevator pitch” down to a few impactful sentences. Short and sweet so you can deliver it in the time it takes to ride in an elevator (hence the name). It also needs to be easily repeatable — something that a VC can share in a meeting with his/her partners immediately after hearing it. Like “I just met the co-founder of Ellevest. They’ve built an investment platform that’s working to close the gender investing gap. Who even knew that existed…but it’s huge. They’ve really focused the offering on how women want to invest — think investing towards goals rather than outperforming the market — and they’ve built their investing plans to take into account things like women’s longer lives and earlier salary peaks.”

And don’t go in cold.

Fact: A network is an entrepreneur’s best resource. I met my co-founder through my network, and I’ve raised funding for Ellevest through my network.

Clearly, connections go a long way; and your odds of a successful VC pitch shoot up if you get a warm introduction through a shared contact. So leverage your existing relationships to get in touch with someone — a partner, principal, or junior employee — at a VC firm. And then repeat…because you’ll have to speak to multiple while you’re fundraising.

VCs get thousands of pitches annually and only invest in a handful of companies each year, so the odds aren’t exactly in your favor. Research suggests that you may have to meet with 20-30 VCs before one decides to invest in your Series A or B. And that’s not counting the VCs you talk to who end up not being interested in meeting with you at all. Think of it as a funnel: you start out by contacting a lot of VCs, move on to meeting with some of those VCs, and then you continue the fundraising conversation with a fraction of that group.

I get that depending on who you know and where you live, getting in touch with someone at a VC firm is a lot easier said than done. But as an entrepreneur, hustling to get what you need isn’t anything new to you. (It’s basically the entire job description.) You’re doing it day in and day out — persuading people, networking with people, and cultivating relationships. So do what you have to do to get that intro.

And the one…or two…or twenty more after that.


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Sallie Krawcheck

Sallie Krawcheck is the Co-Founder & CEO of Ellevest. Her life’s mission is to help women to reach their financial and professional goals.