In Australia a new TV programme called Shark Tank does only one thing: It pairs entrepreneurs with venture capitalists. The youngest entrepreneur was 14 and despite him not being able to convince any of the successful venture capitalists to invest in his company, at least he gained a scholarship from them.
In the end, this scholarship which is supposed to be an exchange of knowledge might be just as useful as a recent article in the Financial Times stated. “In the early stages of a venture, the founders’ most valuable commodity is not money but information”, the newspaper writes and refers to a theory by Hamid Bouchikhi, a professor of management and entrepreneurship at Essec Business School in France. An investment from a venture capitalist can therefore not only be a financial lifeline but also one of knowledge and business know-how.
When pitching ideas to venture capitalists even those who have good communication skills can sometimes neglect background information and risk undermining their credibility. Therefore deciding what information to share and when is key to a successful pitch in front of venture capitalists. Ideally students and budding entrepreneurs find people to pitch their ideas to beforehand - and use the knowledge of these people to sift out unnecessary points from those the audience wants to hear. It’s a bit like preparing a sales pitch for new customers - where it also can pay off talking to existing customers to see what they felt were important topics to address.
“I have seen some smart guys who are seeking equity investment deliberately contact two or three funds which are not necessarily in their target group,” Prof Bouchikini gave as an example in the Financial Times article. “They do dry runs of their pitch to get a sense of what these people see as important. This will give them the chance to fine-tune their argument, identify informational gaps, and address key partners with the highest impact information about their venture.”
The professor also recommends withholding certain information. For example larger orders that might come in or a new deal that is about to be signed should not necessarily be mentioned as this maintains the entrepreneur’s credibility, just in case the order doesn’t end up going through. “If the order is signed, this will be a positive surprise for investors and justify their belief in the entrepreneur’s project, after the fact”, Prof Bouchikini told the FT.