This week's 10th annual VentureNet conference featured the usual format for this type of confab - entrepreneurs presenting their business concepts to venture capilists in a panel session. The companies presenting were local to southern California and the VCs came from the area and Silicon Valley. Ten founders were selected from among hundreds of applicants and appropriately prepared to raise money for their innovative enterprises. At the end of the day the VCs involved then select from among the candidates and award the 'best' plan with a trophy.
Each presenter had 10 minutes to make their case. At this event, a moderator solicits observations from the panelists about the presentation process rather than about individual plans or presentations. There is no direct questioning of the entrepreneurs. There is nothing further heard from the presenters. The moderators did a good job with moving the discussion along and there was time for questions at the end of the session from the audience. 300 people were registered for the day long event.
Most of the feedback panelist provided when prompted was standard fare:
- know the market
- talk about the team and demonstrate domain expertise
- detail how you will make money
- VC's existing portfolio is best indicator of their preferences
- acknowledge there is competition and along what dimensions
- what makes the opportunity compelling
- be upfront, trustworthy; acknowledge gaps in resources or capabilities
- financials are realistic, not 'aggressive' or 'conservative'
- demos are good, sales are better; and,
- passion, leadership and risk taking.
Anybody paying attention over the last several years know that these items are the rudiments of any presentation in front of an investor. But to succeed in fund raising, entrepreneurs must go beyond the standard and position their business and prospects as unique and compelling. The VC panelists have some interesting suggestions and recommendations about presentations that are topical and instructive.
The high quality of the presentations and aplomb of the presenters indicates the firm's founders and executives understood and were prepared to address the standard talking points. But this is an artificial setting contrived to involve an audience which of course is not the usual case when founders appear before an investor. Some of the comments below may be appropriate to this venue and format rather than when actually meeting with a VC to pitch an opportunity. Nevertheless these observations and insights can be used to differentiate your presentation. And standing out may improve your chances of getting funded.
- Know the TAMs - Total Available Market and Total Addressable Market are key concepts that presenters need to demonstrate they understand and appreciate the differences. And then demonstrate that you can sell into these markets. Demonstrate the transaction process for one customer - the sales process, length of time, conversion rates, cost to acquire, cost to support and monetary value of an individual transaction. Show that you understand how sales will be made and what metrics matter to making the sale. Know the value of an individual customer and how you can increase their value to you as a customer. And show that you can increase the number of customers or expand the market, that you know how to reach and be effective communicating with the target market. Explain how and why you arrived at the price for your product or service. Never base price on cost + alone.
- The problem that is being solved needs to be identified but then presenters need to articulate what economic impact results from solving that problem. Presenters often neglect the opportunity to articulate the linkage between the pain killers or killer app and the range of economic outcomes that may result. What does this new firm or product or service do to an industry? What role or where in the industry will this company fit when fully realized? What consequences to industry economics comes from this company's success? What dynamics within the industry change if this company is successful? What competitors are likely to exit? What competitors might emerge as a result of industry alteration?
- Founders need to provide data to help the VC understand the start-ups role in the industry or the likelihood of building the constituency. Data that lends credence to forecasts are key to helping the VC understand the market, the approach and the levers. VCs know most forecasts are bunk. A founder helping the VC understand the industry environment and economic drivers convince them the opportunities are real - regardless of the forecasts.
- Know where the exit is and what it means. M&A is currently the most viable option for growing companies. A company is attractive to an acquirer when it has industry changing models or technology. The less frequent IPO option is for companies that have or can generate huge consumer markets. To build an industry changing company is very different than building a major consumer brand.
- Do not assume that the current situation that is still dealing with the consequences and memories of the dot-com bust will hold in the future. A lot of bad habits developed both within venture firms and by entrepreneurs following the meltdown. These impacts are beginning to abate but still influence choices made by both parties. Key to convincing a VC you are serious is to demonstrate that you are going forward with the business whether they invest or not. Note the paradox - ideas that are most attractive are large opportunities, audacious and needed. Those investments that are preferred are those that can be done by bootstrapping. VCs and especially those with larger pools of investment funds have a difficult time with prospects or opportunities that require amounts below $1 million. Smaller prospects don't meet their upside financial criteria.
- Even with venture funding, a start-up is limited and constrained in the choices it can make. By acknowledging and anticipating the consequences of trade-offs and opportunity costs of those choices demonstrates the founders and team have explored reasonable alternatives or options and can convincingly explain why they selected one alternative over another.
- Founders and company executives have to demonstrate they understand and appreciate their responsibilities to the VC once funding is secured. It isn't just the contractual agreement, the transaction or potential exit. It is a relationship built on trust and both the founders and the VC need to have their accountability and expectations aligned. VCs trade capital for expected reasonable exit. The relationship that develops between VC and founders is often essential to successful launch of a business or product. Trust on both sides is the foundation of that relationship.
- Overall growth prospects for a business are usually a top down forecast - extrapolated from existing performance, industry records or recent M&A/IPO activity of similar businesses. This is the common approach to modeling. It is also very useful to take a bottoms up approach to representing business operational processes. How much it costs to produce the product or service? How much does it cost to sell the service? Showing revenue (top down) against cost models (bottom up) are very effective means to convincing VC that you understand the market and the business required to serve that market. And the presentation must expose the sequences you follow to build the company, build the product, build the market, build the sales force or realize revenue. Sequences and process flows demonstrate that you have considered the linkages, relationships and actors involved in starting and growing a business.
- While it is expected for the founders to focus on economics of the firm, they should also demonstrate they understand and can leverage the economics of the others within the supply and value chains. Demonstrate that others will make money and the success of your firm, product or service creates opportunities to exploit inefficiencies, drive demand or reshape existing supplier/vendor relationships.
- Be able to express the value of relationships with partners or key suppliers. In many cases these relationships are nothing more than potential sales for larger partner and bragging right for a growing concern. But those have little intrinsic value. A relationship built on coincident economics is valuable. That is there are connections between the partners such that success or failure has material impact on both. Not realizing potential is not the same as losing actual money, time or a key customer.
- The best presentation when appearing before a VC is with a blank whiteboard and a marker. If the entrepreneur can fashion a coherent picture of the business on the fly it indicates that they really do understand how the business will operate, make money and grow. And it demonstrates a flexibility to convince and explain the business as if it were a blank sheet of paper. A characteristic that an entrepreneur will need when facing changes, challenges, new competitors or unanticipated problems. The ability to think on their feet is a key attribute investors look for in management teams and especially the CEO. And the CEO must be the presenter. Others may come along to answer specific concerns, but the face and promoter of the team appearing before VCs must be the CEO with a thorough grasp of the business and opportunity.
- If a PowerPoint presentation is used remember that it will be left behind. As such it needs to stand alone. It must be capable of conveying key concepts and extent of the opportunity without live exposition. The PPT must convey what is unique and important about the model, product or service as well as why your company is endowed to realize the opportunity. And it must generate sufficient interest to get another opportunity to discuss the business. Presentations to VCs need to be advertisements, not infomercials.
- Founders need to be able to cogently answer - Why now? What is it about the industry, the product or the service which makes it a compelling investment at this point of time? Is it on a trajectory to intersect an emerging trend? Has the level of pain within an industry or market risen to present an opportunity? Is the industry fragmented and a new process, technology or business model will set off a wave of consolidation? Will a new technology or mass consumer market stimulate entire new industries? Is a fundamental technology sufficiently mature to assure its commercial applicability? Are their government mandates, emerging demographics, social or economic events that compel an immediate response?
- Fund raising and investing is more art than science. The investors are presented with a much broader range of alternatives for their money than the founders have options for financing. Recognize who has the leverage and where it makes sense to position yourself and your company.
- Look at each round of financing as a risk reduction step for the investor. That is additional financing should be contingent upon reaching key milestones that effectively reduce the risk for the investor.