Having recently participated in Montreal Startup’s first workshop day for the companies it has invested in, I wanted to share some of the input I provided. The Montreal Startup guys asked me to sit on a panel with serial entrepreneur, Frederic Lalonde and equally-experienced entrepreneur (and ex-VC) Marc Gingras. The panel was moderated by Mark MacLeod, a kickass CFO and startup guy in his own right.

When I look back at the feedback I provided, and the notes I had taken, it really boiled down to 8 tips for running successful meetings with venture capitalists. We spent a lot of time talking about the overall process of raising venture capital – but I think where a lot of entrepreneurs fall down is in those first few meetings.

1. Go in with your eyes open. This is a rather all-encompassing suggestion and idea, but it’s one of those things that’s hard for first-time entrepreneurs to do. When I first started raising money I had no clue what the process entailed. There’s no excuse for not knowing and there’s an expectation from VCs that you know what you’re doing. Read everything you can. And ideally, find a mentor with experience raising capital. A few “eye-opening” points:
   • It takes time – typically around 6 months, maybe longer now given the economic downturn. And market timing is critical.
   • Valuations are dropping. If it’s your first round of financing don’t expect VCs to value your company very highly. You’ll give up more for less, it’s just the reality of things.
   • The odds are very low to begin with. VCs invest in less than 1% of everything they look at. The odds are even lower now; lots of venture firms are holding onto cash or reserving more for their existing portfolio.
   • Anticipate the tough questions and have good answers for them. Some of the typical questions include, “Is this really a $100M dollar business?” And, “Do you really think the market is big enough?”
   • Defensibility and intellectual property (IP) still matter. Most Web-startups are execution-based – it’s about getting out there faster and executing more effectively than competition. And lots of execution-based businesses get funding. But venture capitalists will still ask about defensibility and intellectual property. So here’s another tough question, “Can’t a few guys just build this in a couple months and compete?”
   • Know the process. You have to understand the capital raising process – from first meeting to the very end. Not having done it before isn’t an excuse. LearnVC is a kick ass resource. So is Venture Hacks.
2. The pitch matters. I harp on the pitch a lot. And a great pitch doesn’t automatically close a deal. But it’s the critical first impression that you make. And you can never change that after. People often say, “raising capital is like dating” and no one doubts the importance of first impressions in dating.

   The pitch is what a venture capitalist uses to size you up. Most often it’s the CEO giving the pitch and they’re looking for personality, confidence, passion, knowledge, intelligence and more. They’re gauging – without really listening to every detail of what you’re saying – whether or not they think you can lead your startup to success.

   Although I don’t know of anyone that’s gotten a term sheet just from their pitch, I can guarantee you that if you bomb a pitch it’s almost impossible to raise money. And that’s why a lot of people harp on pitches and the need to improve them.

   David Rose, a serial entrepreneur and serial angel investor, gives a great presentation at TED about pitching. (Disclosure: David’s an investor in Standout Jobs.) I’ve included the presentation below:

   Quick Note: At the Montreal Startup workshop day each company (including Standout Jobs) was asked to do a 5-minute pitch. After mine, someone said casually, “Looks like you’ve done that pitch A LOT.” And I have, in numerous variations. It’s reasonably well polished because I’ve presented quite often. But that doesn’t mean I don’t practice and tweak. The night before the workshop day I spent 2-hours practicing my pitch and this was for a friendly, casual audience.

3. Be prepared to jump around. I don’t mean physically, I mean within your pitch. I have rarely been in a meeting with venture capitalists where I was able to walk through my entire presentation without them asking questions. And usually they’ll start peppering you with questions, which means jumping around and knowing your pitch so well that you’re not thrown off. If you have to look for a slide to answer a question, you’re toast. It’s important to practice the pitch through-and-through as if you were giving it on stage, but make sure you can also handle the flurry of questions and interruptions.

   That also means being able to manage the meeting. I’ve gone through a bit of PR/media training and what you learn in that process is something called ATM – Answer-Transfer-Message. The idea is that you answer a question by very quickly transferring the answer to the message you’re trying to give. A VC asks, “Why don’t you do X or Y?” You respond with something like, “Those are interesting ideas, but our core focus at the moment is to get Z done in the next 6 months. That will help us achieve a key milestone…” So you’ll be forced to jump around in your pitch, but work to keep the meeting on track with the message you want to deliver.

4. It’s who you know. You can reach out to a venture capitalist cold and get a response, but generally it works better through an introduction. And not just any introduction; you want an introduction from someone the VC knows and trusts. The better the introduction, the more likely you’ll get a response from the VC. So network. A lot. Don’t hide in your cave. And don’t focus only on introductions; once you’ve met a VC you want evangelists that can support you and back-channel communicate with the VC. Standout Jobs has quite a few investors, all of which we landed through great introductions, and all of which were heavily supported by our evangelists.
5. Know the VCs you’re meeting. Don’t meet a venture capitalist without knowing who they are and more about the firm they work for. You want to know the firm’s past investment history. You want to know the history of the individuals you’re meeting. And you want to know if they’ve invested in anything (past or present) that’s relevant to what you do. If there is any relevance you want to express that during the meeting; it adds context and shows that you’re committed to working with them.
6. Don’t be a know-it-all. No one likes know-it-alls. No one likes braggarts. Don’t try and act smarter than everyone else in the room. You might be, but it doesn’t matter. Austin Hill calls it “Smart Person’s Disease.” You do want to show VCs that you’re very well prepared, know your material inside out, etc. You want to be confident and prove that you’ve planned things out in considerable detail (even if everyone knows your plans are wrong.) But don’t be a know-it-all.
7. Get as far as you can on as little as possible. This is really advice on how to run your overall business, but it’s also something you want to focus on during meetings with venture capitalists. They’ll want to see how far you’ve gotten while bootstrapping or on seed capital (if you’ve raised any.) The farther you’ve gotten, the better.
8. Know who will buy you. Who is going to buy your company? The IPO market is non-existent, so the best chance of success is through an acquisition. And that’s how VCs will make their money – so they want to know who will buy you. And for how much? You should have comparable examples in your industry (as well as from other industries.) You should have some target acquirers that you think are good fits, with an explanation for why you think they’re good fits. And you may even get into a conversation on how you will strategically get on the radars of those acquirers going forward (i.e. What are you doing to get yourself acquired by those companies?)

And remember, all of this advice is relevant for angel investors as well. Some of the mechanics and variables differ between angel investors and venture capitalists, but don’t think that raising money from angel investors is easier. It’s somewhat different. But you still need to go in with your eyes open, network, pitch well and have all the answers.