TL; DR It’s really hard to get VC funding, but if you follow the tips in this post you’ll maximise your chances of getting the first meeting. If you haven’t been successful, then this post should give you a few pointers as to why.
Let’s start with the VC’s perspective
To maximise your chances of success, you need to understand what it is that investors are looking for. Your idea may be fantastic, it may become a good business, but if it doesn’t generate ‘VC level returns’ it’s not a fit for funding.
Each fund will have a different view of what VC level returns means to them, but your company must have the potential to be huge — you may hear this expressed as a multiple (‘We’re looking for a minimum of 100x’ i.e. 100x the initial investment amount) or a target valuation (‘We need this to a be a billion dollar company’ i.e. the value of the company at exit is more than $1bn).
This isn’t based purely on greed but on something called the VC power law. In very crude terms, it means that the bulk of returns for a successful fund come from a few companies that achieve these outlier multiples/valuations. In other words, to be successful, a fund has to have a couple of really big exits.
What this means for founders is that if your company doesn’t have this potential, you’re likely to get a ‘pass’. To put this into context, we fund less than 0.5% of the deals that we see. A pass doesn’t mean the end of the road for your company, it just means that it isn’t a fit for our criteria.
Things to consider before you hit Start
We made the decision when we launched Fund II to have a form on our web site where founders can pitch us. We did this in the belief that access to VC should be open and based on merit. As a consequence, we receive a very large number of submissions. Please consider these steps before hitting Start:
Understand our investment criteria
We take a sector-agnostic approach and, in keeping with our angel heritage, prioritise finding and building deep relationships with exceptional founders over a rigid investment thesis. That said, we particularly like deep tech (AI, machine learning, computer vision), SaaS, marketplaces and B2B companies. Our first cheque ranges from £100k to £500k with an average of £400k. We reserve significant amounts to support founders in follow-on rounds.
Answer all the questions in the form
Based on feedback from founders, we’ve stripped back the pitch form to ask only essential questions and it should take around 7 minutes from start to finish. These extra bits of information are incredibly helpful to us — and in the case of the two we ask about gender and ethnicity — to help advance diversity and inclusion in our industry. We are signatories of the Investing in Women Code.
Get your deck looking sharp
What constitutes a good deck is somewhat subjective, but here are some things to avoid:
- Typos — seriously, this is a real deal killer. It may seem minor, but if errors creep into the deck, which is the most important document you have in the early days of your company, it makes us wonder what other mistakes are being made
- Poor design — the use of clipart, cheesy stock images or poor formatting make us want to stop reading your deck. The best decks are beautifully designed and a showcase for your company. If you don’t have the design skills in-house, there are plenty of freelancers out there who can help
- Too many words — given the volume of deals we (and any other VC) receives, your deck is likely to get a few minutes of attention (at best) before it’s put into the ‘follow-up’ or ‘pass’ queue. If it’s too wordy and impenetrable then you risk being put into the ‘pass’ queue
- Too many slides — there are many arguments about the perfect length, but a dozen slides is a good guide. A deck is not trying to tell an investor everything about your company; it should be getting them excited about you, the company and the market and want to find out more
- Misleading information — be really careful how you present things. For example, if you show 5 people on your team page, but some of them are part-time (with no intention of becoming full time) or are actually advisors this can start things off on the wrong foot
- Not being able to download — this is a minor irritation, but not allowing the option to download your deck means that we cannot easily share internally or download to add to our CRM that manages all our dealflow
- Sending out your deck too soon — if the first time you are exposing your deck outside your team is to a VC, consider getting some feedback from other people first. You could try speaking to individual angels, one of the angel investment networks or an accelerator/incubator in your space. They should be able to give you a good first screen before you reach out to a VC. The mantra that first impressions count is as true in this business as any other so make sure you are ready for a high level of scrutiny
What happens after you send your deck to us
Once you have completed the form on our web site, it goes through our deal review process.
We recognise that behind every company is a dream to do something different and to make a dent in the universe. We have enormous respect for founders and hope that this blog post and our deal review process is useful to help understand the way we analyse and think about companies when it comes to making funding decisions. We also hope it serves as some comfort if you do receive a ‘pass’.