He states:

I’ve found that if all the information below is addressed succinctly in an executive summary or first pitch deck, it can help us make a much faster decision —which is what the entrepreneur wants and so do we.  If we believe the story is lacking in too many areas, sometimes we just pass as there is too much else going on. At the same time, providing too much information is a problem as, like you, we are time-strapped and attention-starved.  I think most of the points below can be addressed in a few compelling sentences or slides.

1. What Do You Do? The first thing we want to understand is what you do, very simply. What’s the problem/solution or what’s the new experience that you think is exciting?  Why is this important to your customers?  For mass-market internet businesses we want to understand if this appeals to a wide or narrow audience and if it’s a frequent (daily) habit or something done once in a while (which is tougher to build a brand in the consumers mind).  Don’t talk vision or market at this point.  Zero in on what you are about.
2. Reveal Your End Game. VCs typically don’t invest in just the first product or service being the end game or in a company whose biggest goal in life is to be a feature of a platform or “add-on” acquisition.  We want to understand that your product has really big potential and could be a platform possibly for others—like Facebook or Twitter.  Don’t be afraid to dream a bit.  Here’s an example from one of my companies -  “Rubicon Project will start solving the sharp pain point of optimizing ad networks for publishers and will leverage this position to be the trusted platform to help monetize all inventory for a publisher – the Control HQ for all revenue for web publishers”.  You won’t be penalized for having audacious goals.
3. What Is The True Size Of Your Market?  No, Really.  The important point here is whether it’s a big enough market to be interesting to a VC.   Too often entrepreneurs simply state the size of the online ad market for an Internet content business or the size of a retail category for e-commerce sectors.   We’re less interested in the top down market sizing and more focused on your Total Addressable Market (TAM).  If you sell widgets, how many customers are really out there that are interested in your widget (segment the market) times what price you get for your widget.  The more thoughtful and realistic you are about how you define the customer set, the faster we can make a decision.  We don’t mind getting surprised on the upside later on.
4. The Secret Ingredient Is People.  Teams are critical and too little time is spent on them in pitches.  Don’t just include where you’ve worked but include in your slide or exec summary why this team is the best for this opportunity.  In many businesses, domain expertise matters a lot, so highlight that.  In some consumer businesses, its less about experience and more about product insight and relentless execution—highlight why you have that.  In other words, figure out what’s most important to the task at hand and make sure to tell us how each person will help accomplish that—not just where everyone worked and went to school.  In an early stage deal, Team and Market are the most important factors as everything else will change and a great team with wind at their backs will make it happen.  Also, be upfront about your holes/weaknesses in the team (and your own weaknesses) and if and when you believe you will need a new CEO.  Self awareness is one of the most important traits we look for in leaders.
5. Go-To-Market Strategy.   This is often ignored or not given enough thought.  What is the path of least resistance that you can take in terms of customers (be specific here), channels, and initial product focus.  Your go-to-market strategy should ideally be in your control (versus reliant on big, unproven partnerships) and take as much risk off the table as possible in the least amount of time.  You need to go through customer acquisition economics if you pay for customers (lifetime value vs CPA) and why you will spread for free if you don’t require marketing.   Address how you will make it as painless as possible for consumers to adopt the solution and how you will build on top of that.  Also, your go-to-market focus should not force you into a niche that’s hard to maneuver out of.
6. Be Honest About What Stage You Are At.  We need to understand what stage your company is at.  Are you at the idea stage or pre-traction in terms of customers and momentum?  Do you have momentum but are still working out the business model?  Or do you have both momentum and a solid understanding and proof behind the model.  The clearer you are about where you are, the faster we can make a decision.  Be upfront and honest on the risks and how you will deal with them.  If you have momentum, show graphs of key metrics over time (not just a snapshot of where you are)—we want to understand the shape of your growth curves and how your key metrics are performing against your expectations.
7. Your Real Competitive Advantage is Being Different In The Long Term.  On the internet, there are at least 25 companies that are or can compete with you on almost anything you do.  Often times, it’s all about execution but we want to see if there are fundamental factors which will help you outdo your competition—very hard technology/IP, network effects in your business that will make it hard for others to catch up (such as with Wikipedia, Google AdSense, Facebook, Twitter) or a fundamentally different business model that will be hard for an incumbent to change (for instance, it wouldn’t be easy for Electronic Arts to cannibalize its retail games with free to play online versions).  While we want you to list all your competitors (be exhaustive otherwise we won’t have confidence you know your business and have done your homework), its not useful to only show a chart of your competitors comparing features or positioning on a 2×2 chart.  That is a very static view and any competitor worth their salt will morph and/or expand features to keep up with competition.  If its all about execution and there are no fundamental advantages, then you should focus on why your team will out-execute all the others (a tougher sell but possible).
8. Product, Product, Product.  If it’s a live pitch, a demo is really key—but keep it short and to the point.  Don’t go into all the cool features—we are most focused on how its simple, intuitive, solves the problem and how well built it is and frictionless from a user experience point of view.  You can talk about some of the cool new features but the first meeting isn’t about going through your product requirements.  If it’s part of an executive summary or deck, this is harder but at least a few screenshots of the key experience flow are helpful.
9. Plausible Financials.  It’s tough to create believable projections for an early stage company.  I suggest showing what it takes to get to $50M or $100M of revenue in terms of customers, products, pricing, and so forth, as that’s what we are focused on.  Show a simple table of key assumptions to get there and speak to why its believable.  We also want to know how much capital you think you will consume to get sustainably cash flow positive so the nitty gritty forecasts do matter—but be able to explain the key drivers and why its capital efficient (profitable under $5-10M of investment) or requires significant investment.
10. The Ask.  Make sure to put down how much you want to raise.  Often a range is a good strategy as it usually depends on the valuation/dilution.  But there should be a minimum amount that makes sense to significantly reduce the risks in the business.  Importantly, highlight what risks you will remove and what momentum you expect to have about 6 months before you run out of cash.  We are very focused on whether we will be able to successfully raise a round at a higher valuation, so tell us what you think it will take to do that.

1)  "Sign my non-disclosure agreement and I'll tell you about my business."

VC’s look at hundreds of deals per year and have probably looked at three or four just like yours. Signing NDA’s is impractical because it could expose them to unnecessary lawsuits.  The fact is VC’s don’t “rip-off” ideas because the risk to their reputation if far too great.

It should also be remembered that few concepts are worth stealing anyway. The hard part is implementation, not coming up with the idea.

2)  "I have no real competition."

If you have no competitors, you may not have a business. When you explore who is in your space, it can validate your market and will give you an opportunity to explain why you have an advantage over current alternatives.

When you do your analysis, include not only direct competitors, but also “peripheral” companies that can react quickly to enter your market. Be certain to describe how you will create and maintain competitive barriers.

3)  “I only need 1% of all Internet users to buy my product!”

You should understand that your “available” market does not equal your “addressable” market. Although a large market is good, you need to identify who you can actually reach. By taking a “bottom up” approach, you will be able to describe how many customers you can sell in each segment and at what price. You should also explain the costs you will incur in securing those customers.

4)  “With the profits from this business, I will pay back my investors early.”

VC’s make an investment in your business - not a loan. They anticipate significant returns from their portfolio companies and paying them back early, even with accrued dividends on preferred stock, would be well below their expectations. From the start, VC’s become an integral part of your team and work with you to scale your business and create a successful future exit.

5)  “I think my start-up deserves a valuation of at least $10 million.”

Don’t volunteer a valuation for your business. If the number is too high, you are perceived as unrealistic. If it is too low, you may end up with less than your business is worth.

Valuations are usually more art than science. They are influenced by the percentage ownership VC’s look for relative to their investment, the investor’s experience with similar industries, the stage of your company and the competitiveness of the deal. Valuation is seldom influenced by the wonderful and detailed financial projections you have prepared.

6)  “I have invented a folding water bed and I even have a patent pending.”

Although you may have a very interesting idea, VC’s do not invest in sectors or themes they do not understand. Their charter defines their investment criteria and focus. They look at industries that can grow quickly (Internet, software, medical devices, networking, clean technology, etc.) and companies with some track record and a strong need to expand.

7)  “I know I can take this company to $50 million all by myself.”

Do not be so egocentric to think you can do everything – you can’t. By coming to grips with your shortcomings, you will be able to find people that are good at the things you do poorly. It also means that you are open minded, flexible and coachable, all characteristics valued by investors.

Although you should sell yourself and your ability to execute, it is very important to also describe the skills, experience and domain knowledge of your management team.

8)  “I believe that my business can reach $5 million in 5 years.”

Entrepreneurs often confuse fundability with viability. Reaching $5 million in revenues in five years is a very viable business, but not one that would be of interest to VC’s.

The size of a fund and the number of partners managing the portfolio companies means a typical investment is large and the expected returns significant. For example, a $3 million investment would be expected to return $30 in five years. This requires a highly scalable business that can leverage an investment.

9)  “I hired a broker to help me secure a venture capital investment”

VC’s tend to avoid deals with brokers because it complicates the process and gives the impression you do not have the time, interest or skills to promote your idea. VC’s like to look at opportunities from trusted associates and not “hired guns”. If you think you will need help with the process, you should create an advisory board with the experience and contacts to provide warm introductions to VC’s.

10) “We will maximize the leverage of our core competency and create a paradigm shift that will synergistically create a win-win situation.”

Being able to establish rapport and clearly communicate your ideas is fundamental. Your investors not only want to understand what you are saying to them, they want to know you can go out and sign strategic partnerships, land big accounts and raise additional money.

Presentations riddled with lingo, business jargon, buzz words and clichés do not communicate any real business value. If you want investors to listen to you and get excited about your idea, articulate your message in a clear, concise and persuasive manner.

Business Experience – VC’s are seasoned business and financial managers who know what it takes to create successful outcomes. Their mission is to provide advice that is useful and balanced without being meddlesome.

Attracting People – VC’s are well networked and can help recruit experienced managers to round out your leadership team as required.

Industry Connections – VC ‘s will use their industry contacts and relationships to identify connections which could turn into potential customers or business partners.

Equity vs. Debt - Unlike a loan, the equity position in your company usually does not require regular payments. This makes more cash available for growth.

Future Money – In addition to their initial investment, VC’s will be actively involved in attracting follow-on investors in later rounds.

Credibility – Customers and potential new hires feel more comfortable when VC’s are involved . Having partners and money in the bank are good indications you will be around for awhile.

Improved Exits – Having VC’s on your side when it is time to exit can reduce anxiety, smooth negotiations and optimize value.

Venture capitalists appreciate how difficult it can be to “go it alone” and will leverage more than money to help you achieve greater success.

As with any legal document, it is essential you employ an attorney that is well versed in this subject matter and has experience negotiating from an entrepreneur’s perspective.

Preferred Stock

The majority of VC investments are structured as preferred stock , which carries a higher ranking relative to the company’s common stock. Founders typically receive common stock, employees receive either common stock or options to purchase common stock and the VC’s receive preferred stock.

The preferred stock will often carry an annual dividend rate which is intended to reflect the time value of money. Because early stage companies are cash constrained, dividends are not usually paid on an annual basis, but accrue over the years and may become part of the liquidation preference (described below).

When a company raises venture capital, the shares of preferred stock sold in each financing are designated with a letter (e.g., shares sold in the first financing are “Series A”, the second “Series B”, the third “Series C”, etc.). Shares of the same series all have the same rights, but shares of different series can have different rights.

Liquidation Preference and Participation Rights

The liquidation preference helps ensure VC’s get their money first when a company is sold or liquidated. Under this clause, preferred shareholders will receive the value of their investment, plus accrued and unpaid dividends, before any money is distributed to common shareholders. Most VC’s also include a “participation right” that enables them to share any proceeds that remain after the payment of their liquidation preference on a pro rata basis with the common stockholders.

In the event of an IPO, the investor’s preferred stock is converted to common shares and proceeds are shared equally among the shareholders.

Redemption Rights

Investors do not want to be in a situation where a company is doing well enough to be an ongoing business after several years, but is not at a level where it can be sold or go public. To create a potential exit path in this situation, investors will retain the right to redeem their stock plus unpaid dividends if the company has not sold or gone public in five years.

Although this may be necessary to offer some protection to the limited partners of the venture fund, it is rarely exercised because the company may not have the ability to pay, or pursuing this option could place a significant financial burden on the company.

Anti-Dilution Provisions

VC’s expect the value of your stock to increase at each subsequent round of financing. But, if things don’t go as planned and you have a “down round”, the anti-dilution provision helps protect VC’s by retroactively reducing the per share purchase price of preferred stock. This is accomplished by increasing the number of shares of common stock into which a share of preferred stock will convert. The two main types of anti-dilution calculations are the “ratchet” and weighted average methods.

The ratchet method lowers the VC's previous per-share price to the new share price being offered. Because this tends to be highly dilutive to common shareholders and heavily favors investors, it is not commonly used.

The broad-based weighted average adjustment is the most common and company-friendly because it considers the effect of a dilutive issuance based on the broadest possible scope of existing equity interests. A narrow-based weighted average may exclude existing interests such as options or warrants and is typically better for the VC.

Drag Along

Drag along allows the investors to take advantage of an attractive exit opportunity without requiring approval from every shareholder.

This provision requires all shareholders to agree in advance to not withhold their approval of a future sale or merger of the company if the board and a specified majority of the shareholders (usually preferred and sometimes common) support this action. The minority shareholders would receive the same price, terms and conditions as the majority.

Pay-to-Play Provision

This provision ensures investors agree in advance how they will participate in future financings. To keep his preferred stock from being converted to common shares, an investor must keep participating in future board approved financings on a pro rata basis. If this condition is not met, the conversion may be applied to all his preferred shares, or to just the portion that fell short of the pro rata requirement.

Protection Provisions

Although VC’s fully expect company management to be ethical and responsible, they will retain the right to ensure all actions have a legitimate corporate purpose. Typical actions requiring VC approval include: amendments to the company’s charter and bylaws, issuing additional stock, the declaration and payment of dividends, changes to the company’s stock option pool, expenditures in excess of approved budgets, the incurrence or guarantee of debt, and the sale of the company.

A summary of the full article (available at http://www.growthink.com/content/top-seven-capital-raising-mistakes) is as follows:

1. Vastly underestimate time commitment necessary for fund-raising. Companies vastly underestimate the time commitment necessary to successfully complete a financing. We recommend that a company seeking financing budget between 500 and 1,000 work-hours to the capital-raising process, spread out over a 6 month time period.
2. Poor Presentation Skills. Far too often, investment discussions go astray because of poor oral presentation skills on the part of company management. Active investors across the risk spectrum (startup equity to secured debt) are literally inundated with investment opportunities. It is not unusual for a principal at a high profile venture capital firm to review dozens of prospective investments every month. As such, it is imperative that your investment presentation be extraordinarily brisk, to the point, and delivered with flair and great enthusiasm.
3. Non-Detailed Use of Funds Statements. We have spoken with countless companies that get stuck on the simple question, "How much money are you seeking and why?" Our experience is that the most credible and impressive operating executives present sober and credible use of funds forecasts based on multiple funding scenarios. These forecasts are built from "the bottom-up," with specific revenue and costs estimates garnered from the company's historical financials and from forward-looking surveying of vendors, salary bands, property leases, etc.
4. Poor Understanding of Cash Flow. Most operating executives have a relatively strong grasp of the marketing and operational components of their business, but tend to be weak in projecting and communicating the specifics of how they actually make money. And by making money we mean creating cash. Before an investor will place cash into a company, they must be convinced that this cash will be transformed into a company infrastructure that will eventually (and sooner rather than later) create much more cash than originally invested. Creating cash requires a rock-solid revenue and cost flow business model. Among others, key variables in the model include customer acquisition costs, pricing and gross margins, accounts receivables aging, realistic administrative costs, and taxation and depreciation.
5. Targeting the Wrong Investor Audience. We have seen countless companies waste precious time and money contacting unqualified and inappropriate prospective investors. Before an investment offering is undertaken, a comprehensive prospective investor list must be created, and all of the investors on that must be qualified as to track record of investing in financing stages (private, public, equity, subordinated debt, senior debt, etc.) and market sectors similar to the company in question. While there are always exceptions, contacting prospective investors that have not recently invested in a company "like yours" is, in our experience, almost invariably a losing proposition.
6. Accepting Too Much Feedback. Capital-raising is a long and arduous process. As discussed in bullet #1, the vast majority of investment presentations made will result in some form of rejection. But in addition to rejection, the company will also receive - either solicited or unsolicited - advice and feedback on the "flaws" of their business. While this feedback is sometimes valuable, it is critical to very carefully filter and evaluate this feedback before revising the business plan and presentation. By the time an investment offering is circulated, company management should be extraordinarily convinced and committed as to the validity and solidity of its plan. Be sure to measure all feedback, no matter how well-intentioned, against this conviction and commitment.

7. Going It Alone. Raising money is one of the most, if not the most, challenging undertaking an organization will ever make. The pitfalls and hazards are everywhere, and the consequences of failure are devastating. Capital is the fuel that drives business. And without fuel, your venture will sputter along, then stop, and most likely be eventually abandoned. With the consequences of failure so dire and the challenge so great, it only makes sense to seek out the absolute best professional assistance to maximize the probability of financing success. A quality investment banker, specifically skilled in equity and debt placements, is one of the most important advisory relationships a company can establish.

Although you will certainly want to optimize the value of your business, you do not want a situation where an unrealistic valuation set today will likely be followed by a lower subsequent valuation. This is called a “down round” and it should be avoided. Current shareholders (you and your investors) can lose considerable value because of dilution and new investors tend to shy away from companies with declining values. Although down rounds can be beyond your control (e.g., when a hot economy or business sector suddenly cools), they are most often created by impractical entrepreneurs, amateur investors, or overly zealous venture capitalists.

The best way to avoid a down round is to have a reasonable initial valuation and to raise enough capital to achieve the milestones required to have the next lead investor place a higher valuation.

Valuation also comes into play relative to your exit strategy. All investors have expectations regarding capital returns and might not be willing to exit the company for less. Reviewing your long term forecast and capital structure can provide an estimate of the proceeds from a future liquidation event. Investors will be pleased that you have reviewed this number to ensure it fits their objectives and that you appreciate the role their capital played in creating your wealth.

By maintaining an open and candid dialog, you should be able to negotiate a mutually acceptable number with the investor that can best help your company grow.

As you receive additional capital over time, it is virtually certain that you will lose controlling interest in your company. But, by trading equity for cash, your business can grow to a level well beyond what it could have done without the investment. Experience shows that a smaller piece of a successful venture funded business is worth more than 100% of a business that did not seek outside capital.

Another example is where the growth of the company could be optimized under someone else’s leadership. You may be a brilliant technician, but the skills of a new CEO are needed to take the business to the next level. Once again, relinquishing control yields better results.

Learning to let go may not be easy, but the rewards are worth it.

• Clarity of Purpose - Summarize the company's business on the back of a business card.
• Large Markets  - Address existing markets poised for rapid growth or change. A market on the path to a $1B potential allows for error and time for real margins to develop.
• Rich Customers  - Target customers who will move fast and pay a premium for a unique offering.
• Focus  - Customers will only buy a simple product with a singular value proposition.
• Pain Killers  - Pick the one thing that is of burning importance to the customer then delight them with a compelling solution.
• Think Differently  - Constantly challenge conventional wisdom. Take the contrarian route. Create novel solutions. Outwit the competition.
• Team DNA  - A company’s DNA is set in the first 90 days. All team members are the smartest or most clever in their domain. "A" level founders attract an "A" level team.
• Agility  - Stealth and speed will usually help beat-out large companies.
• Frugality  - Focus spending on what's critical. Spend only on the priorities and maximize profitability.
• Inferno  - Start with only a little money. It forces discipline and focus. A huge market with customers yearning for a product developed by great engineers requires very little firepower.

1. Don’t wait for a revolutionary idea. It will never happen. Just focus on a simple, exciting, empty space and execute as fast as possible.

2. Share your idea. The more you share the more you get advice and the more you learn. Meet and talk to your competitors.

3. Build a community. Use blogging and social software to make sure people hear about you.

4. Listen to your community. Answer questions and build your product with their feedback.

5. Gather a great team. Select those with very different skills from you. Look for people who are better than you.

6. Be the first to recognize a problem. Everyone makes mistakes. Address the issue in public, learn about and correct it.

7. Don’t spend time on market research. Launch test versions as early as possible. Keep improving the product in the open.

8. Don’t obsess over spreadsheet business plans. They are not going to turn out as you predict, in any case.

9. Don’t plan a big marketing effort. It’s much more important and powerful that your community loves the product.

10. Don’t focus on getting rich. Focus on your users. Money is a consequence of success, not a goal.

Although you may feel that your story deserves more slides and time, it doesn’t. It is important to keep your slides simple and uncluttered because you need to be the center of attention. You should use your narrative to keep people focused on you and to control the timing of your presentation. As a rule of thumb, the information on a slide should be covered in no more than two minutes. If 15 slides have an average of six bullet points each, you will be presenting 90 data points about your opportunity. That is a lot of information for anyone to remember over 30 minutes. Limiting your presentation to half of your allocated time will also leave sufficient time for questions and answers.

The 15 topics listed below are similar to the content of an ideal business plan and should enable you to communicate your message clearly and confidently. Your audience will appreciate the timeliness and relevance of your presentation, and that should make it easier to get invited back.

1. Introduction – Your most important slide. In one sentence, describe what you do. Next, provide a high level overview of the current status of your venture (stage, noteworthy clients or prospects, testimonials, funding, etc.).

2. What Makes You Special – Summarize the strength of your management team, patents or unique technology, market size, trends and growth rates. What makes you unique?

3. Problem or Pain – Describe the problem you’re trying to solve, or the pain you’re trying to relieve. Validate how big of a problem it is. Mention why it has not been solved before.

4. Solution – How does your venture solve the problem? How are you more effective than current solutions (if any exist)? What is your unique selling point?

5. The Product or Service – Describe it in just the right amount of detail. Focus on the magic or technology behind it and if it is patented (or could be). What are the important features that will address the pain you talked about? Use simple illustrations.

6. Testimonials – Investors need proof about how effective your solution is. Why do your customers or prospective clients love you? Can you include brief endorsements?

7. The Market –Describe how big the market is and how fast it is growing. Describe your target market and the profile of a typical customer. How much of this market do you plan to capture. What are your strategies to reach this market?

8. Business Model – How do you plan to make money? What are the economies of scale? Will you use distributors, or a direct sales force? Validate your pricing and use flowcharts and diagrams to illustrate your points.

9. Competition – Who else is tackling the same problem? Talk about direct and indirect competitors. Show how you are better by comparing features on a table or matrix.

10. Team –What are the relevant skills and experience for individuals running the company? What is their track record of working in companies at the same stage and industry? Describe other resources (advisors, lawyers, accountants, etc.) and who you may need to bring onboard.

11. Risks – What reasons could contribute to failure (regulatory, legal, pricing, competition, etc.). How do you plan to mitigate these risks?

12. Financial Summary – Provide a high-level summary of revenue growth, profits, ROI and cash flows for the next five years. Mention key assumptions and breakeven period. Avoid detailed spreadsheets.

13. Exit Strategy – Describe how and when you will provide a return on the investment. List potential acquirers and their recent history of buying companies like yours.

14. Funding Plan – Detail when and how you will spend the investment. What results do you expect?

15. Conclusion – What points do you want the investor’s to remember? Reemphasize your attractiveness and strengths.