One way to segment the world of VC is into two camps: (1) financial investors and (2) corporate investors. My guess is that a lot of the VCs lurking around here are what you would call financial investors; meaning, they take other people’s money, invest it in start-ups and try to make more money.
But there is the other type of investor, the corporate ones. These investors tend to work for a large corporation and invest the company’s money. Their goals are also to make a lot more money off of their investments but they are also tasked with producing a strange and esoteric thing called a “strategic return”.
In a nutshell, these investors have to invest to make money, and to make their company smarter by learning from you, the clever start-up.
For start-ups, having a corporate VC as an investor can have many benefits if the relationship is correctly managed including credibility, access to the corporations sales and engineering teams, access to go-to-market channels, and opportunities to conduct joint R&D.
So it is important that start-ups realize that pitching to strategic investors is not like pitching to financial investors. So here are a few ideas to get you started on your corporate VC pitch:
- Prepare a pitch: Sounds obvious, right? You’d be amazed at how many start-ups show up without a pitch. I guess they think they can come in and talk shop for 30 or 45 min and that will be enough to land a deal. It isn’t. Show up prepared and ready to go.
- Know the company’s investment thesis: Companies aren’t shy talking about their investments, so there should be a lot written about past deals. Don’t come in with a canned investor pitch, read up on past deals and come in with a pitch tailored to the company’s investment thesis.
- Tell them why you’re relevant: Corporate VCs often have to get support from a BU for a deal, so help them position your company with the BU. Figure out which part of the company will be most interested in you and explain that in your pitch.
- Better yet, have traction: Come in with a history of working successfully with a BU. Show how investing in you will help you scale/innovate and make the BU relationship even more successful
- Don’t come in as a competitor: If you’ve built a competitive product that is better than theirs (or so you think), don’t think you’ll get money from them to keep you off the market. They won’t invest in you. They’ll probably just try to crush you. It is easier.
- Come in as a partner: If you and the larger company are in the same space, it doesn’t mean they will necessarily be interested in you. “You do software, we do software” is not a compelling reason for a corporation to invest. Rather, tell them how your software (product, service) will help better position their software (product, service) in the market.
- Finances: Oh yeah, nothing drives corporate investors battier than being treated as dumb money. You’ll need to come in and talk strategic alignment, but very soon the conversation will turn financial. Remember, these people live and breathe your markets every day, so they can tell if your market sizes/growth assumptions are for real
Meeting with corporate investors can be a maddening, time consuming process. They will ask a million question not only about your business, but on how your business relates to their business. So you need to know your business cold and their business cold. But if you come prepared with insight and some existing wins under your belt, this crazy process may have a profitable outcome.