Feb 06, 2013
A seasoned venture capitalist shares invaluable insights and tips.
I think I may have the best job in the world as a venture capitalist. Why you ask? Simple, VC’s spend most of their working hours working with entrepreneurs. What makes this great? Entrepreneurs are equal parts passion, optimism and dreamer. Entrepreneurs don’t take no for an answer and are willing to sacrifice almost anything to see their vision become reality. Finally, entrepreneurs are the engine that drives the economy as they are the job and wealth creators. From Thomas Edison to Steve Jobs and everyone in between, I believe the entrepreneur may be America’s greatest natural resource.
However, all of the qualities listed above that make entrepreneurs great may be their biggest inhibitors to successfully pitching an angel or VC for capital. Most start-up CEO’s have a hard time understanding that investors are also running a business. Our business happens to be delivering strong returns for our limited partners (our investors). We have to buy into your vision or strategy, but the road to get us bought in can be long and tedious.
Unfortunately what seems like such a no-brainer, de-risked investment opportunity to you is potentially the next great idea that never attracts a single paying customer. How can you successfully bridge this gap to ensure your first meeting is a success?
Be Realistic
1) The goal of the first meeting is to get a second meeting not to close the deal.
To an entrepreneur this may sound like low expectations. To a VC the first meeting is when we decide if we want to spend the next 4, 5, 6 maybe 10 years with you helping you build your business. The first meeting is just one of many meetings you will have on your way to a term sheet or investment.
Preparation
2) Do your homework. Knowing your audience and finding common ground seems so basic, but you wouldn’t believe how often the entrepreneur has not simply read my bio or looked at my firm’s website, let alone myLinkedIn page or Twitter feed. The ability to know something about your audience’s interests is easier than ever. Does your product fit have something in common with another investment we have done, we share an interest in sports or politics. That first meeting is the time to find a connection.
3) Trusted referrals move to the top of the pile. When I receive a business plan or Executive Summary from a lawyer, accountant or investment banker that I know the odds of me taking a meeting rise meteorically. Network, network, network to get that referral.
4) Traction is a must. The phrase, “are the dogs eating the dog food” is a popular one in our business. In my opinion the chances of having a successful first meeting with a VC, or angel for that matter, are slim to none if you just have a slide deck or summary. At a minimum get a proof of concept with a large customer if you are selling to the enterprise. If you are a consumer play, the customers are right there on the Internet. Even better for an enterprise solution is a pilot and better still is a few paying customers.
5) For your presentation, less is more. 20 slides max is ideal. Plan to get through your first meeting “presentation” in 30 minutes. If I am interested and you are getting my attention the meeting will last a lot longer as I ask questions and we have a dialogue. You are no longer presenting, we are talking about your business.
In The Meeting
6) Be compelling. Why should I believe you can make your vision a reality? Give me something to hang my hat on such as prior experience, customer testimonials, etc.
7) Uniqueness and innovation. What problems are you solving that haven’t been solved before? Why will someone part with his or her hard-earned money to buy your product? Simple questions, but lack ofinnovation is one of the most common reasons a second meeting doesn’t happen.
8) Yes, you do have competition. 99 percent of the companies I meet are not 100 percent unique or innovative. So tip #7 is irrelevant right? Wrong. Your competition’s product is not as good as yours—tells me specifically why.
9) Irrational Exuberance in projections is death. One thing we know with near certainty is that your business plan will be wrong, unless you have a crystal ball (in which case you probably don’t need my money). But are your projections grounded in sound assumptions? Have you tested your pricing assumptions with customers? Is your addressable market really $1 billion?
10) Know-it-alls not allowed. If you thought I was talking about my side of the table I don’t blame you. Too many on the investor (buy) side of the table are arrogant. You are doing the hard work and we should respect that. But, we might have a question or a suggestion that is useful. Go into the meeting with an open mind and maybe you will come out with a pearl of wisdom.
11) Learn something. Again, your business model will be wrong and likely you will modify (the team at Edison knows that I loathe the use of pivot in this context, this can be the subject of a future article) several times before you find the scalable business model. A great sign in a first meeting is an entrepreneur looking for a partner and ways to increase his odds of success.
After
12) No for now or no forever? VC’s generally invest in 1 percent of the businesses plans we review. Meeting one is not a failure if you are turned down. Try to get some reasons why. If I reach certain product or customer milestones does that change your opinion? Did my market analysis lead you to believe our target was too niche? Seek feedback, don’t just walk away. Take solace, we have said no after the first meeting or the entrepreneur has turned Edison down in more than half of our completed investments.
13) Ask for referrals to other investors. If a VC or angel likes what you are doing but the turndown is simply stage, industry or size of investment, a referral to other investors is nearly as good as your goal— get the second meeting—with another potential investor.
14) Gratitude goes a long way. Yes, it is my job to hear your pitch. However, the lost art of the thank you is a way for you to stick out. I am constantly amazed how few times a quick e-mail with a thank you and a couple of reasons why we should meet again is sent.
Think marathon, not sprint, when embarking on a mission to raise capital for your business.
