When should you start negotiating during a pitch deck presentation?

Negotiating during your initial pitch is a sure way to turn-off investors. This stage of the process is all about finding Founder-Funder-Fit (FFF). Pricing, terms, and other features can all be solved for if there is an established desire to work together — you’re building a long-term relationship. Focus entirely on sharing your story, conveying your passion/conviction and why you’ve built the best team to solve the problem you’re tackling. Be direct with what you’re looking for in an investor— great investors will do the same. This will elevate subsequent conversations to not be about “if we’re going to work together”, but “how we make it a win/win”.

Startups should evaluate their preparedness for venture capital funding. If your team can swiftly develop the product and generate revenue in the range of six to seven figures, consider bypassing the earlier funding round to aim for a higher valuation. In the current bearish market, having a proof of concept for product-market fit, or even revenue, is crucial.

The goal of your initial conversation with a VC is to understand whether you can and want to work together. Both for the VC and for you. Make sure you're engaging with the right type of investor for your company's field and stage of development. For example, there is no point in pitching your pre-product company to a Series B investor, or a proptech solution to a healthtech fund. You should also research any fund you wish to engage with online and gather as much information about their previous investments and way of work before you request a meeting. Focus on the funds whose portfolio you would feel proud to join and the people you think you'd like to work with.

A founder of a SaaS startup once highlighted the importance of understanding an investor's "sweet spot." By digging deep into previous investments, he found patterns in the sectors and stages VC firms preferred, which allowed him to tailor his pitch and set realistic expectations.

You should not negotiate during a pitch presentation. Usually, a negotiation takes place at a later stage after or during a due dilligence. Unless the investor directly makes an offer I would refrain from negotiating anything. This is because if you start negotiating before the VC is convinced this will tell the investor that you are not informed about how fundraising happens. Negotiate once the investor has shown interest and brings this topic specifically. Don't make any assumptions, wait for the investor to lead this conversation.

Investors are keen to know market drivers for growth, so do spend some time explaining these too. Investors who may not yet be ready to invest in your current may still find your pitch compelling enough that they stay in touch and invest in your next fund.

Your pitch deck should assert dominance. As a venture capitalist, I am part of the chosen elite. If your pitch deck doesn't strike fear into my heart, I'm not going to respect you. Plain and simple.

The goal of your meetings with VCs is to give them an idea of why your business is worth doing and how big the company can become. You need to articulate the problem you're solving and why it is critical that this is solved. Then you should convince the investor that enough businesses or people are facing this challenge and that whatever you're building is the solution to it. If you manage to explain these things clearly, they will be interested to invest. Note: it is the investor's job to propose a valuation to you. You can expect that for any given round of funding you will sell approx. 20-25% of your company. The valuation then is a function of how much capital you're seeking and that average dilution.

Focusing on storytelling rather than jumping into negotiations during the pitch presentation can build a foundation of trust. One startup managed to secure an investment simply because they captivated the investor with their journey and potential, not necessarily their hard numbers.

You don't negotiate a deal in your first meeting, but you can make it clear why the investment is not to be missed and give a clear pathway to value generation Get the investor to present themselves first in this meeting, sharing their investment criteria and what they look for. This then gives management the chance to tweak the presentation to hit the marks put down by the investor. Makes sure your M&A/fund raising advisor does a good job of filtering so you're presenting to already motivated investors and not just tyre kickers.

The second an investor show's interest in your startup, hang up on them. Playing hard to get is the #1 to drive valuation & increase investor fomo.

The only successful negotiation tactic in VC is to convince more than one investor that what you are building is worth doing, this is the right time to do it and you are the right team for the task. After they have decided they want to invest it is relatively straightforward to agree on terms. And the way to get better terms is to secure more than one term sheet on the table, so you can have a wider choice of available capital.

A nod or positive feedback might not always indicate genuine interest. A founder once mistook a VC's polite interest for a sure-shot investment intention. It's essential to discern between polite gestures and genuine intent. Seasoned founders advise looking for direct questions related to deeper business aspects as a more concrete signal of interest.

Make sure you make it as easy for them to say yes or no; a lot of founders push too hard for a yes and create a situation in which VCs are forced to say mmm, maybe, let's see, and 99% of those are no's. It also sends a great signal to VCs to see you are comfortable and confident with both answers and have an attitude that your goal is to explain yourself completely so investors who share your vision and company can join.

One founder recounted how waiting for the investor to present the first valuation can sometimes work in the startup's favor. When the VC presented a figure much higher than the founder's internal calculations, it provided them with a favorable starting point for negotiations.

Usually the due diligence phase requires the signing of some form of NDA which may not be ideal for those VCs interested but still on the fence. As such, it may be helpful to set up a Data Room Lite where you can provide a solid, but not complete, set of information to VCs that are warming up to you, without the need for them to sign an NDA. This approach can get "on the fence but interested" VCs over the hurdle to commit more resources towards a full due diligence.

It's not just about the startup being under scrutiny. A health-tech startup founder emphasized the two-way street of due diligence. While the investor was reviewing their operations, they were also evaluating the investor's involvement with their current portfolio companies, ensuring a good cultural fit.

Term sheets can often come with clauses that may not be evident upon a first glance. A fintech startup founder shared how they narrowly avoided a potentially unfavorable clause by consulting with a legal expert familiar with VC deals. The importance of understanding every aspect of the term sheet cannot be overstated.

The world of startups is filled with tales of both successful and unfavorable negotiations. While getting the funding is a significant milestone, ensuring that both parties are aligned in their vision is paramount. Remember, an investor is not just providing capital but is also becoming a long-term partner in the journey. Mutual respect, transparency, and shared objectives form the cornerstone of a successful founder-investor relationship.