How to Secure Venture Capital: A Series
David J. Blumberg, Founder & Managing Partner, Blumberg Capital
Once you have reviewed the terrain (market landscape, competitive comparison and growth prospects) for your startup, next it’s important to explain the technology you are seeking venture capital for itself.
There are often multiple ways to solve a thorny problem and your technology approach likely has strengths and weaknesses. This is frequently encountered when evaluating different target market segments such as enterprise versus SMB. In your presentation materials and during the investor or client pitch, take the opportunity to articulate and demonstrate that it is the best solution to the identified problem for target customers.
- Demonstrate how your technology works: It might sound obvious, but the best way to show how your product functions is through a demo. We have seen the car, now show us what is under the hood. A picture is worth a thousand words and a demo is worth a thousand pictures (and a customer is worth even more). Investors and customers are seeking to understand the secret sauce and why and how it is better than alternatives, including the status quo. Inertia is often your biggest barrier.
BioCatch showed us usage patterns for identity verification of individuals versus bots. The contrast was clear, convincing and instantaneous.
In addition to a demo, include a product architecture slide. Show us the different functional elements and how they interact. What other hardware or software is required to allow your system to function properly? The more flexible and interoperable your product or service is, the better. This is partly why SaaS model software is so highly valued among venture investors and on Wall Street. But, an exciting part of today’s technology environment is that even hardware is becoming easier to design, lower cost and less of a barrier to adoption.
- Illustrate how and why your technology beats rivals in a head-to-head contest: If possible, conduct a product ‘bake-off’ in advance and bring the results to the meeting. In a test lab, test and compare your product with 2-3 competing products. Hit the products with malware, spam and other software that is intentionally designed to cause damage to the application, computer, server or network to test for resiliency, safety, security and latency, among other factors.
In the pitch meeting, provide a side-by-side comparison of functionality (Harvey Ball charts are excellent for illustrating product comparisons). Explain where your product performed better or worse than the other products and why. Be honest about where your product is lacking and how you plan to improve. On the flipside, also explain why the rivals won’t be able to catch up quickly with the advantages that you offer.
For example, when we met the Nutanix team, they explained that compute and digital storage solutions were too expensive, inflexible and difficult to manage. Hardware was moving toward generic, lower cost commoditization. So, they drew on their software expertise from Google, Oracle and Aster Data to convince us that a storage software solution running on low-cost commodity hardware would provide a superior, cost-effective and virtualized solution for the mass market.
- Explain why your technology has a sustainable advantage: Address how you have or will protect intellectual property (IP) including trade secrets, designs, trademarks and patents. It’s helpful to show the validation of credible expert advisors or customers in this domain.
To strengthen your argument, provide a strategic technology roadmap that shows how your technology will evolve as you innovate, add new features, expand into new market segments, and how you’ll anticipate and respond to competitors or changing market conditions. A detailed roadmap helps align you, investors, customers and your team to plan and manage the business in a holistic, scalable and sustainable manner.
During the COVID-19 lockdowns and now into the recovery phase, it’s clear that our new virtualized workplaces and digital lifestyles are here to stay. Many large companies including Salesforce and Spotify are adopting permanent ‘work from anywhere’ policies. As a result, workforce and lifestyle technology innovation is increasing and adoption is accelerating. So, when trying to secure venture capital, show us how your technology and your company will adapt and remain relevant well into the future.
Check back for our next blog in the series: traction.
This post is the latest in our Entrepreneur Toolkit series that explores what entrepreneurs need to successfully pitch their idea to investors to secure venture capital.