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How to Secure Venture Capital – A Series
David Blumberg, Founder and Managing Partner, Blumberg Capital
Back in 2016, we explored a question we’re often asked as early stage venture capitalists: “How do you decide to fund one company and not another?” In response, we shared what we call the Six Ts of successfully raising venture capital: theme, team, terrain, technology, traction and terms.
Five years later, the Six Ts of securing venture capital continue to guide our investment decisions and we thought now was the time to revisit them with a fresh eye with 2021 being a year of economic rebound. Throughout the next several weeks, we’ll be sharing deeper insights on each ‘T’ to help guide entrepreneurs in how to secure venture capital through the new reality, which may be volatile, but will certainly be virtual. When combined, the insights will arm entrepreneurs with a full toolkit of advice that will help them secure VC funding.
In preparation for and during the pitch to investors, entrepreneurs need to create and tell a compelling story. The narrative should be structured in a way that addresses the Six Ts in a logical order while being comprehensive and memorable. This should generally start with the theme, which is the problem you are setting out to solve. Most often, the problem statement will fall into one of three categories:
- Improving on an existing technology or incremental improvement: A general rule of thumb is that a 10x improvement is necessary to displace incumbents, get customers to change vendors and gain market share. It is a fact that vendor relationships are subject to inertia and require an important catalyst to effect change. The catalyst could be significant improvements in efficiency, throughput, quality, service or value.
A proven method for challenger startups to demonstrate credibility when presenting to investors is through compelling client testimonials. In this context, quality of the testimonial is more important than the quantity. Referrals and references from a few well-selected, highly influential customers can lead to a cascade of business development leads.
- Solving a new problem or enabling a new functionality: In this context, the market needs to be educated as to the existence of a problem and the effectiveness of your Alternatively, your presentation can show the value of a completely new capability.
For example, when Oren Netzer, the founder of DoubleVerify, presented his venture capital pitch, we asked, “does this problem actually exist?” The problem he presented was that brand advertisers had no way of verifying if their media plan was being executed properly. Frequent problems he reported included geographic mistargeting of internet ads, ad fraud by bot clicks, inappropriate content adjacency, among others.
To validate his thesis, Oren showed screenshots of offending ad placements that violated the advertiser’s media plan. This convinced us to invest and advertisers to utilize the new service, leading to the company becoming an industry pioneer.
- Addressing a macro change, or leveraging a regulatory, sociodemographic, technological or other rapid change in status quo that creates market opportunity: A good example of a company that acted on a significant change in market conditions is Hootsuite, which responded to the explosion of new social media tools such as Twitter, Facebook, LinkedIn, etc. by creating a management dashboard and analytics for social media.
We found Hootsuite at the very first Twitter conference in 2007 and quickly decided to become the first institutional investor along with Hearst Media. We particularly liked the fact that Hootsuite had 125,000 users at the time but were not yet monetizing — and that they had a goal of pursuing a ‘freemium’ business model by adding functionality of increasing value for small businesses, agencies and enterprises.
How to Convey Your Theme When Presenting to Investors
Entrepreneurs should begin their story by articulating the theme in a brief, crisp statement in one or a few slides. Use examples to show us the problem, whether it is an improvement, a novel discovery or a response to a macro change. How well you explain the theme — and if we align with your overall purpose — will determine if you secure our initial interest.
Check back in for our next blog in the series: building the right founding team.
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. Ready to take the next steps in securing venture capital for your business? Click here to contact us today.