I cannot stress enough the need to understand and know your audience when you prepare a pitch for a Venture Capitalists or Banker.
A common mistake I see all the time is for entrepeneurs to pitch “Low Risk” to the VC’s and “Growth Opportunities” to Bankers.
VC’s are only interested in High Growth Opportunities.
A High Growth Investment Portfolio is what they manage. This is what they earn their management fees on and this is what their investors are looking for when they put their money into the VC’s hands. People who place money with a VC are prioritising Growth over Protection.
VC are looking to own a share in the opportunity and in doing so they are prepared to share the risk with you.
Bankers on the other hand are risk averse creatures. Their business is about managing the risk. People trust them with their hard earned money. People who put their money in a bank are seeking protection. Not Growth.
This why Bankers try to avoid or transfer risk (as much as possible) in any investment. - Note: This of course is one of the underlying structural problems of the current GFC.
If you want to sell to a banker you must emphasize both the risk of not doing what you want do and how you have minimised the risk in the way you have structured the deal.
The Banker is not in business to share your risk. The Banker is in business to receive a regular payment on their investment capital from you (i.e. Interest Payments) without putting their investment capital at risk.
The only question in a Banker’s mind is: Can I trust you to make the repayments on time and in full?
If you go into a pitch with a VC talking Low Risk they are thinking: “Then what do you need me for? Go see a banker!”
If you go into a pitch with Banker and start talking High Returns and they’ll “smell a rat”. Start talking High Risk and you’ll scare them witless.
The message is simple: Know your audience and learn to speak their language.
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Posted on October 24, 2009
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