Venture capital investors are attracted to compelling business concepts that attract new customers and create industry disruption. They also are quite fond of honesty, says Christopher L. Rizik.
“Founders are often afraid to show any weaknesses,” says Rizik, CEO and fund manager at Renaissance Venture Capital Fund. “They will oversell the quality of their marketing team or finance team or some other part of their business. Investors can see right through that. It hurts credibility and credibility is the key to getting investment.”
Rizik has a wealth of VC investing investment experience, in addition to being a 2017 EY Entrepreneur Of The Year. Here, he shares his insight on how to make a better pitch to investors, as well as the growth opportunities that exist in Detroit’s VC community.
Keep it real
Early-stage entrepreneurs seeking venture capital tend to get too fixated on the size of the check.
“Founders get too worked up about valuation and dilution rather than focusing on the business,” Rizik says. “If you can get the right investor, the chance of your success goes up dramatically as opposed to the investor who is willing to pay the highest price.”
Most VC investors have seen and heard it all throughout their careers.
“Sometimes there is a lot of smoke and mirrors in opportunities,” Rizik says. “The biggest lesson is if something doesn’t make sense, it’s probably because it doesn’t make sense. People can talk fast and claim a lot. But after a while, venture capitalists begin to understand that their instincts, while not 100 percent, are still pretty good.”
The bottom line is if you think you can gloss over a glaring concern and still win the investor support, you may be in for a big disappointment.
“When pitching investors, you want to have enough good things going for you that it’s interesting, but also be honest about your weaknesses,” Rizik says.
Rather than be turned off, VC investors will likely appreciate the opportunity to identify clear areas in which they could support your business.
“The key is being self-aware and understanding the strengths of you and the organization and comparing that to what you need to be successful,” Rizik says. “It may be approaching a potential investor and saying, ‘We’re really strong on technology. What we really need is marketing help and we’re going to use this investment to address that need. That’s a very honest answer.”
The good news for early-stage companies is there are plenty of resources available to lend their guidance and expertise.
The metro Detroit region has seen an increase in the number of organizations and locations that can help startup founders develop their company, including accelerators, university programs, mentorship programs and other organizations full of valuable knowledge, Rizik says.
There has also been an increase in the raw number of startup companies, which is another encouraging sign for the region.
“We’re seeing more venture funds from other parts of the country coming in to look at opportunities here,” he says. “Last year, by far more than ever, we were seeing funds visiting from around the country looking at opportunities. They are seeing the successes going on in Southeast Michigan.”
Additionally, major corporations are getting more engaged with the startup community.
“Some of that is through us,” Rizik says. “A big part of what we do is connect major corporations with venture funds and startup opportunities. Also Techstars Detroit has done a lot of that connection work. These factors bode well for startup and VC activity in the Detroit area.
“It’s grown quite a bit everywhere,” Rizik says. “If you look at Southeastern Michigan, Ann Arbor is still the center of the greatest activity. But downtown Detroit has established itself as a place where a number of startups are happening.”
Rizik has been working on a number of opportunities of late, including a recent investment of $26 million in Series B funding for Ann Arbor-based Strata Oncology. Renaissance Venture Capital Fund joined Pfizer Ventures, Merck Global Health Innovation Fund and Deerfield Management, as well as existing investors, to support the company.
Strata is building a network of trial-ready health systems that can provide a mechanism to rapidly and predictably enroll precision therapy trials.
“It’s a really precise activity they are doing that involves genetic sequencing to help find the exact right trial from the 200-plus trials that are out there for that specific patient,” Rizik says.
There is a lot of money chasing deals in venture capital, he adds.
“We have more than 200 venture-backed companies worth more than $1 billion each nationally,” Rizik says. “We have companies that have raised more than $1 billion each. How long will that continue? It’s tough to know.
“When you start raising that much money, the expectations get so high, there is a chance there are going to be a decent number of really well-funded large VC-backed companies that are not going to be financially successful for investors.”
Such a competitive environment creates an opportunity for those investors who are more capital efficient.
“There are a lot of buyers out there and a lot of opportunities to be financially successful,” he says, “as long as you don’t get too caught up in becoming a unicorn.”