The Best VC Meetings are Debates not Sales

August 25, 2009

nixon kennedyThis is part of my blog series “Pitching a VC.”

I’ve sat through a lot of VC pitches and having been CEO of an enterprise software firm for many years I’ve also sat through many customer meetings with sales teams.

There is one classic mistake that I see across both types of meetings – “the tell & sell”  presentation.  This involves a person who leads a PowerPoint presentation in which the presenter feels more comfortable racing through pre-practiced slides and rattling off charts & bullet points than having a discussion.

The presenter comes out of the meeting proud at having gotten through all 30 slides (and maybe even a demo) with a bunch of smiling faces and nodding heads and no discussion.  After the sales meetings I would ask the exec afterward, “how do you think it went?” and always be surprised when they’d say, “great, I think they really liked it.  They seemed to agree with everything I said.”

In our internal sales training sessions I would always teach our young sales execs that this seemingly good meeting was probably not as good as they thought.  People are much more likely to buy into you as a person and us as a firm when they’ve been involved in a discussion with you about their problems, your solutions, who else has been using your product, etc.  They might even like to challenge some of your assumptions.

The advice I gave to my sales execs is the same advice I would give to you:  smiling, nodding heads are normally not a great sign.  In the best case they might prefer to ask you questions but you didn’t prompt them and they’re being polite (although this is less likely in VC who are not known for being wallflowers!).

The VC might have tried a few times to prompt a discussion and you didn’t take the cue but instead reverted back to slides.  This happens often and I bet most presenters never realize it.  Most worryingly, many times it means that they have decided that they are not interested in your product (or investing in your company) so why bother having a debate / discussion with you.

It is easier for them to finish up 45 minutes, politely shake your hand and say, “we’ll get back to you”  once they’ve had a chance to “noodle on it.”  Ever heard that?  Far better that you noodle with them.  I believe that the best meetings are debates.  The following are some tips for the discussion style VC meeting

UPDATE: My initial post talked more about a debate than a discussion.  David commmented here that the problem with my phrasing it as a debate is that I don’t want to encourage any entrepreneurs to think that they should try to “win” the discussion by proving they are right (as you might do in a debate).  So I’m softening my message to “discussion.”  See note at the end of the post for a funny story on this.

Tips in a discussion led VC Meeting

questions1. Tee up your slides to prompt questions – The best way to avoid racing through your slides in a tell & sell style is to tee up your slides to prompt questions.  We used to do this in our sales slides.  After walking through the “problem statement” slide, the build on the bottom of the slide would always say, “Have you experienced similar issues in your company?”

It was just a way to remind the sales rep to create a dialogue.  If you get nervous in meetings or have a hard time remembering to stop you can simply build the prompt into your slides.

2. Stop often and seek feedback on direction – In addition to asking questions to prompt a debate you should always check for feedback from the VC.  Examples are “would you like me to go into more details about how we calculated the market size?”, “would you like me to tell you more about the team members who aren’t here,” or “would you like me to jump into a product demo now or tell you more about our market first?”  Be careful not to jump into a long-winded discussion on any topic without seeking cues from your audience on whether they’d like to go deeper on the topic or move on.  I think this is one of the single biggest mistakes that presenters make.

3. Be careful about the way you ask questions – I’ve sat through many meetings with groups of people where the presenter would say something like, “Do you know what REST is?” or “You know the company Constant Contact, right?”  Questions like this in a crowd often elicit “yes” answers even when people haven’t heard of the technology or company.  Most people in general don’t want to admit in front of peers that they haven’t heard of something that they think they should know.  If your presentation requires an explanation of RSS vs. ATOM always best to say, “let me quickly state how RSS and ATOM are different.  I know you might be aware of the differences but let me quickly cover it and if you want me to go deeper I’d be happy to.”  If the VC knows the difference TRUST ME they’ll tell you.

4. Don’t be defensive – Don’t view any question by a VC as an affront to you.  I know that they could have worded it more politely and in a less condescended tone, but view the question as an opportunity to have a great discussion.  View the question as engagement!  Remember that a VC doesn’t always care that you have “the right” answer provided that you have a high quality thought process.

parliamentHaving a discussion is a great way to build rapport with the person asking the question.  It’s OK to say things like, “I could see why you might think that Google would go into our market.  It’s a valid concern and we worry about it, too.  Here’s why I think Google won’t initially be a threat to us and how we would respond if they entered our market …”. So the next time you get a zinger from a VC – be thankful.

5. Answering with a question – Another suggestion is the “answer a question with a question” technique.  First, you must actually answer the question that was asked with you before you ask a question back.  It’s really annoying in any meeting when you answer a question directly with a question.  But it’s OK at the end of your statement and it’s a great way to get people talking.

Example:

VC, “Do you really think that customers will pay $5,000 / month for your product when there are free versions of X,Y,Z on the market?

You, “We’re not too worried about the free products because they target a lower-end segment than we’re targeting.  We tested the $5k price point with a handful of customers and they didn’t seem price sensitive … From your experience do you think $5k price point will likely be an issue for us?”

6. Don’t be afraid to say “I don’t know” – I don’t think any VC is looking for the entrepreneur who knows everything.  In a way I think most VC’s want to see that you’re mentally flexible, sufficiently humble and not afraid to admit when you’re wrong or don’t know something.  For many difficult or unknowable questions don’t be afraid to say “I don’t know.”  Some obvious things that are not acceptable for the don’t know answers: “how will you spend the $2 million once you raise it?”, “Who are your competitors” or “Who do you need to hire first after fund raising.”  You’d be surprised how many people don’t answer these questions confidently.

7. Get back  with an answer – There are two great things about saying you don’t know the answer to a difficult question.  The first is that you have a chance to ask, “do you have any views on the topic?” and thus hit the goal of getting the VC talking.  Even more importantly you have the ability to say, “that’s a great question.  I’m not actually sure what the answer is.  I’ll look into it and get back to you.”  It gives you an opportunity to email the VC after the meeting with more information and the potential to continue the dialog.

UPDATE:  We once had a company present to us in a full partner meeting.  The presenting team had a partner champion at GRP that was advocating the deal so we were positively predisposed to seeing the pitch.  It mid 2008 and one of my partners asked what they were going to do about costs given the recession.  The COO of the company said that he had read some economic council’s forecasts and technically we weren’t in a recession.  My partner shot back with data of his own.  A real debate ensued.  It wasn’t pretty.  I kept wondering, “why would this guy want to have a debate over a topic like this that had no relevance to proving whether his business idea was sound?”  In the end we didn’t invest.  A large determinant was this gentleman’s lack of EQ in this situation.


WTF is Traction? A 6-Step Relationship Guide to VC

August 8, 2009

iStock_000009170146XSmallThis is part of my ongoing series “Pitching a VC” – the outline is here.

You’ve pitched several angels and VC’s.  Everybody seems to like you but nobody seems to be getting out their checkbooks.  Most of them are telling you that they just need to see a bit of traction before they’d be prepared to invest.

Your friends and advisers tell you that this means you need revenue because in this economy VC’s will only fund businesses with revenue.  Unfortunately your advisers are wrong.

The “more traction” feedback is a very typical scenario is a down market economy like the one we’re in.  Investors are giving you a version of the “soft no,” which basically means that they’re not prepared to invest now.

So if it’s not necessarily revenue that’s preventing an investment, then WTF is traction?  Unfortunately there is no real objective measure.  Traction can simply mean showing that you’re making progress with customers, product development, channel partners, initial revenue as a proof point, attracting well-known angel investors, winning industry awards / recognition.  It is code word for “I’m not ready to invest for whatever reason … I need more proof.”

Now there are some firms that have strict rules about not funding pre-revenue companies – that’s different.  But many Series A firms tell people they have a “revenue rule” and then you look at their portfolio and see many exceptions.

Traction really is about building a relationship with a VC over time and showing them that you can move the ball forward.  Many entrepreneurs make the mistake of thinking that funding is something you do in “funding season,” some mythical  2-month period when you’re ready with a great Powerpoint deck and you hit up all of the VC’s at the same time so that you can quickly raise money and get back to the job of building a business.

Fund raising is an ongoing process and not an event on a workplan.  You need to build a relationship with investors over a long period of time.  That is how you convince VC’s that you’re gaining “traction.”

6 Steps to Building a Relationship with VC’s and Solving the Traction Problem:

alec baldwin1. Always be Pitching (line stolen from my favorite scene in one of my all-time favorite movies. At 3:15 here if you’re interested).  Go see a few select VCs before you’re even ready for institutional money.  Tell them about what you’re up to in your business, show them your product or prototype, tell them your strategy, talk about the deals you’re working on and seek feedback.

If you wait until you’re “ready” to fund you’re too late.  Funding is about developing a relationship over time.  Most of us wouldn’t get married on the first weekend we met someone in Vegas.  And most VC’s wouldn’t fund the first time we meet you.  Given that many VC’s base their decision on the team, the longer they have to get to know you the better.

2. Over deliver – The people who get funded are the people who actually get things done.  They tell you that they’re working on biz dev deals with distribution partners and they get the deals signed.  They tell you they’re going to ship product and they do.  They get their widgets embedded or their products piloted.  They hire key staff.  They get positive product reviews on TechCrunch, GigaOm or Paidcontent.org.  They make progress.  You need to over deliver and communicate back with VC’s showing the progress you’ve made.

radarScreen-7194853. Keep on the radar screen – I know the VC’s seemed to love you when they met you.  The problem is that they see hundreds of pitches and they often don’t proactively step back and think about the companies that seemed promising but they weren’t ready to pull the trigger.

You should send “update emails” that are very short but highlight some of the achievements you made with the intro saying, “since you showed interest in my company I just wanted to provide you a brief update on our progress.” This is important because it keeps you at the top of the stack in their memory.  It’s marketing 101 for tech companies in terms of how you market to customers.  You have buyers who are ready now and those that aren’t.  Sales owns the former, the latter get marketing emails so you’ll be top of your prospects’ minds.  VC’s are the same.

4. Find ways of helping the VC – If as an entrepreneur you get to know other interesting entrepreneurs / companies it is a good technique to send intro’s the the VC and ask if they’re interested in meeting the company.  I usually recommend that you send the companies Powerpoint deck and ask the VC if they’re interested but don’t necessarily copy the company on the email until the VC says he/she is interested.  If they’re not at a minimum you’ve shown that you’re thinking of them and you’ve stayed on their radar screen.  It’s not required but I have seen this technique be used effectively by entrepreneurs.

5. Schedule a follow up meeting. Contact the VC again when you’ve signed a few more big deals. In your email to the VC tell them about the additional progress you’ve made and ask for a short, 30-minute session to update them on the business.  Don’t take no for an answer.  Show some chutzpah.  But be polite.

You might find that you get a “we’re really not interested” response.  That’s OK – at least you’ll know to cross them off the list.  When you do get a follow up meeting tell them about your new revenue model, ask to show your new demo, talk about the progress you’ve made and what has turned out differently then expected.  Update them on your fund raising progress.  Seek more input from them.

Stick to your 30 minutes so you build the trust that every time you come back you don’t abuse your time commitment.  Leave them wanting more.   Don’t come back with fake progress.  If the businesses isn’t getting “traction” then probably best not to come back with a bad impression.  Your time is better spent actually making progress.

lather6. Rinse and repeat – When you do raise a round, start immediately building the relationship with VC’s who do B rounds.  Some of the masters at this VC relationship business are Jason Nazar  (DocStoc), Jon Bischke (EduFire) and Ophir Tanz / Ari Mir (GumGum).  In the latter case, every time I saw them they had moved the ball forward and evolved their strategy.  After more than a year of updates I pulled the trigger and invested.

We all build relationships over time.  Doing an investment is more permanent then marriage – there are no divorces for irreconcilable differences.  I know that in a booming market people fund quickly.  And I know many stories of Benchmark or similar investors writing term sheets after the first meeting.  But I also read stories about people winning the lottery.  Neither is the norm.


Beware of Gym Salesman VC

July 29, 2009

gym salesmanThe post is part of a series called “Pitching a VC” – the outlines is here.

You’ve been trying to raise VC for months.  You’ve obviously talked with several funds to hedge your bets.  You finally get your first term sheet.  Time to celebrate!

But wait.  What?  They’re giving me 48 hours to sign the term sheet or it expires?  WTF?  What about all the other VC’s I’m talking with?  I can’t get them to close in 48 hours.  But I have a bird in the hand.  Will they really pull the term sheet if I don’t sign?

OK.  First, every term sheet has an expiration date in it.  That’s normal and no reason for alarm.  A VC isn’t going to give you an unlimited offer to stay on the table as you shop the terms around town.  But there is a difference between a term sheet with an expiration date and a VC that puts pressure on you to sign and alludes to pulling if you don’t close by the date.

The various excuses they will give you are:

  • I can’t leave an offer “hanging out there”
  • I don’t want you to shop my deal
  • If I’ve made you an offer and you don’t KNOW you want to work with me maybe there’s a problem here
  • Whatever …

Please read this disclaimer here before following any of my advice.   You need to make your own mind up regarding an offer and I accept no liability for your basing your decision on my point of view.

So here’s my view: it’s total bullshit.  Any VC that would try to turn the screws on you to try and pressure a decision is not the kind of VC you want to work with.  If they use these tactics when they “love you” imagine the tactics when you’re not performing as well as you would have liked.

It’s one thing if this term sheet is the only game in town.  You might NEED to take it.  But I like to say that “VC is more permanent than marriage.  At least in a marriage if you’re unhappy you can get divorced.”  Not so, VC.  So why should you be pressured to make a quick decision.  It’s unlikely that you’ve even had time to do due diligence calls on this VC – you wouldn’t be so presumptuous as to do this pre term sheet.

The only reason some VCs use these tactics is the same reason a gym salesman only offers you a discount if you sign up today.  Once you’re out of the gym they’re afraid someone else will get a hold of you and you won’t sign with them.  And you know damn well that when you come back to the gym tomorrow and ask for the deal that was only valid yesterday they’ll still give it to you.

One more reminder to read my disclaimer ;-) , but I highly doubt that any VC who submits a term sheet to you would really pull it because you politely ask for a reasonable extension to their deadline.  They’ve done all the work.  They’ve had the big debates at the partners’ meeting.  You partner sponsor is excited.  And lose it because you need 2 weeks rather than 1?  Really?

Don’t mistake eagerness for pressure.  I can understand a VC who tries to close you the way you would try to close a customer deal.  It’s OK for them to push for closure but if you politely request more time they should really be understanding.  And if there are threats, implied consequences for taking time to think about it or do due diligence then I’d give that VC a really hard think.  Caveat Emptor.

Next post I’ll talk about how to handle this awkward period of time when your first term sheet is in and you’re waiting for a few more potential ones.


The Dreaded Question of Valuation

July 28, 2009

coins chartThis is part of my ongoing series, “Pitching a VC” – the entire outline is here

Whenever I sit on panels and discuss the topic of fund raising the topic of how to handle the discussion of valuation (e.g. how much you’re worth) always comes up.

I have very fixed views on this topic although I’ve learned through these discussions that not everybody agrees with me.  Having sat on both sides of the table on many occasions – I’m pretty sure I’m right about this one ;-)  I know that the line of answering below mostly applies to 2009 (e.g. tough fund raising environment) but I think holds more generally.

VC asks the following line of questioning:

Q: What was your last round post-money valuation?

(translation: how expensive was this deal previously?  Do I think they’ll want an up-round, down-round, flat-round?)

Q: When did you raise the money?

(translation: if it was raised in the peak of the market and the price was high then I should be looking for a down round.  If you raised it 1 year ago, what progress have you made that would justify a flat round or an up round)

Q: What are your expectations on valuation? … or … What price are you raising at now?

(translation: based on my views of whether you’re over valued at the last round or not, please help me figure out whether it’s worth spending any more time with you now.  My scarcest resource is my time.  If you or your investors have unrealistic expectations on valuation I don’t want to waste my time trying to talk you down on price.  I’ll just move one.  There’s plenty of other “fairly priced” deals out there.  See here for an article in the NYT on this tension.

So what do you do?  My advice:

1. Be humble. I prefer the following line, “Listen, we know that it is a tough market out there.  We’re realistic about valuations right now.  Obviously we want to get the best valuation we can but we understand the current environment and what the normal valuations are at this time.”

(translation: we want a fair price but we’re not going to be difficult.  Spend more time with us.  Come on, you know you want to!)

2. Don’t name a number. It’s up to a VC to price a deal.  He/She knows that.  They don’t need you to tell them your asking price – they just need to know that you’re not on another planet.  We all had the pre-revenue companies in 2007 trying to get a $40 million pre-money valuation.  It took time for those people to realize that the market had changed so we want to be sure you’re not still one of those.

3. Don’t say, “we’ll let the market determine the price.” That’s everybodies’ favorite line.

(translation to us, “we’re going to run a competition and whoever pays the highest price will get the deal.”  I know that’s not what you mean, it’s just how it sounds in VC speak.

4. Don’t sound desperate. I know it sounds obvious but you’d be surprised that some people really come across this way at times.  I think some people are so beat up and tired of the fund raising process that they already are like dogs with their heads down expecting to be hit.  The number one rule of VC is to make it seem like you have other options and these are likely to yield results.  You’re looking for understated optimism.  Someone else is planning to ask you to the prom.

5. Make it clear that price isn’t the only determinant. My recommended line (and I hope you actually mean it!) is, “We obviously want a fair price but price isn’t the only consideration for us.  We want an investor who does A,B,C.  Ultimately financial success for us isn’t going to come from an additional 5-10% in this round.  It’s going to come from a thoughtful and hard working executive team & board.  We’re looking for somebody that can contribute to this.”

Final note:  Unfortunately many deals from 2005-2008 were overpriced or have investors no longer wishing to invest.  Most teams think the best way to fix all this is by bringing in a new investor.  I know that the easiest way to get concessions out of your existing investors is to have a term sheet so I understand the sentiment.  But I recommend trying your best to clean up your Cap Table before fund raising.  It is hard enough to raise VC in this market with a “clean” deal that is doing reasonably well.  The odds are stacked against you if your deal “has hair on it.”  Go to the barber and clean it up.


On NDAs and Confidentiality

July 26, 2009

confidentialThis is part of my ongoing series Pitching a VC – the outline is here.

One of the most nerve-racking things for entrepreneurs is when they need to “open the kimono” and show their strategies, products, plans and financial projections to VCs.  This is especially true since many entrepreneurs know that the world of VC is very tight-knit and most VC’s know each other.

On NDA’s

Occasionally I’ll get somebody who asks me to sign an NDA (non disclosure agreement) and I have to tell them, “VC’s don’t sign NDAs.”  This topic has been so widely covered that I’ll mostly just link to the best articles I’ve read over the past couple of years on the topic and add my own quick words if you don’t want to link through.

– We don’t sign NDAs because it would be too time consuming to read and process them all, because we could never track all of the ones we’ve signed and because we see so many companies of which many are competitive.  If we signed NDAs we’d constantly be in a litany of accusations every time we funded a company.  It is highly likely that when we fund a company we saw some of the competitors.

– You shouldn’t worry about NDAs because they’re mostly unenforceable or unprovable anyways.  Paraphrasing Fred Wilson, “you’re far better off working with somebody of high ethics with no NDA then somebody of low ethics with a signed NDA.”  Confidentiality is our business.  If we had a reputation for sharing proprietary information we wouldn’t get too many entrepreneurs knocking on our doors.

Here are the links to the NDA articles if you’re interested in more reading: Startup Lawyer on NDAs (here), Brad Feld (here), Jason Mendelson (here) and Guy Kawasaki (here in the first paragraph).

On Confidentiality

secretThe broader issue that I see is one of confidentiality more generally.  Rick Segal does a good piece on Confidentiality here)

While most VC’s that I know wouldn’t forward your information on to competing companies it is true that the best VCs will likely be meeting with some of your competitors.

So if you send your deck to many VCs how do you protect your information from getting to your competitors or other VCs who may fund your competitors?

Here are my thoughts:

  • When you write your Powerpoint deck write it with the assumption that people you don’t want to read it will get a hold of it. It probably won’t get in the wrong hands but keep your information high-level enough that you wouldn’t feel compromised if it did.  The detailed information can be delivered verbally and/or in follow up documents once you know that they VC firm you’re talking with is more serious.
  • You shouldn’t be overly sensitive about your information.  It is surprising how many companies feel that their information is proprietary and that they are truly innovating in ways that others aren’t thinking about.  Almost all of the time there are 5-6 firms simultaneously working on similar problems in the same way.  I’m a big believer that often the winner is chosen by who executes best … not some grand strategy.
  • Most VC’s have very high integrity when it comes to the confidentiality of the materials they possess.  It’s the job of a VC to protect confidential information and the reputation of that particular VC wouldn’t be in tact very long if they were known for shopping information on sending out your Powerpoint deck.  I say most – I have seen some decks float around unethically.  That’s why I refer to point one above.
  • Some entrepreneurs are paranoid that a certain VC is bringing them in to gain competitive knowledge for an existing portfolio company or an investment they’re about to make in a competitor.  I’m sure that this does happen but as with the point above, I think it is the exception rather than the norm.  If you’re going to see a VC that has a competitive investment already then it’s worth being circumspect and perhaps pointing out that competitive positioning and asking why they are interested in meeting with you or skip meeting them altogether.  If a VC has a competitive investment it is highly unlikely they’ll invest in you.  On the other hand, if you think you’re doing better than your competition then meeting the VC really shouldn’t worry you.  If nothing else you’ll probably rattle the cage a bit ;-)
  • With regards to a VC that sees all of the competition, I have found that most VCs are very good at not leaking information across companies.  If they’re not seeing multiple players they probably aren’t a great VC … do you really want to work with them?  It’s their job to scout the industry and pick what they believe is the winner.
  • One side note that I know will sound mischievous.  If you really do shine more than the competition then sometimes seeing the VC’s who are looking at funding them can play in your favor.  We were looking seriously at a company and one of my partners was sponsoring us to potentially fund them.  I got a call from one of the competitors who already had 2 terms sheets but wanted to see us anyways.  We agreed to see this second company and we called the first company to let them know.  The second company was so impressive that we decided not to fund the first (the second company was too highly priced so we skipped both).  It is a bit Machiavellian, but it probably does work.

What Should I Send a VC Before the Meeting?

July 25, 2009

powerpoint presentationThis is part of a series I’m writing called “Pitching a VC.”  If you want to see the entire outline of the series you can click here.

When I was on the other side of the table (e.g. an entrepreneur) I had a fixed view on what to send a VC or a customer in advance of a meeting.  Now that I’m on the other side I’ve completely altered my view.

My initial point of view was that you send only an email (e.g. no documents) and that your email should contain a short-and-sweet description of what you do so that the VC would be aware of your business.  Your email would be sent from you to a person who knows the VC and that person would in turn forward it. (see how to approach a VC if you aren’t aware of how to get access in the first place).

I initially thought that you should NEVER send your Powerpoint deck in advance.  My rationale was simple: I believe that there is a certain magic in delivering presentations and leading a crowd through a storyline.  I figured that sending the deck in advance took away the punch line.  It meant that the guys you would be presenting to would already know all the details and it would take the punch out of the conversation.

The topic of what to send in advance is also covered in a Venture Hacks blog posting (see here) where they assert that a well placed introduction is more important than an elevator pitch (by elevator pitch they seem to mean a well crafted email) and an elevator pitch is more important than a Powerpoint deck.  Since they say that you should have both an elevator pitch and a deck I won’t say they’re wrong.  But as long as you are referred by someone credible and write a short email I believe the deck is more important than the email itself.

And you really must send the Powerpoint presentation in advance.  As a VC I am deluged with emails and with presentations from companies.  I have limited time in advance to grasp the nature of the many companies that I see each week.  Most companies (75%+) send their decks in advance. When I get a short email with a deck the first thing I do is fire up the Powerpoint deck and thumb through it quickly – probably even before I’ve read every word of the email.  If I agree to see the company then I usually thumb through them twice.  The first time is when somebody referred you through to me (or you sent it directly) and the second is 10 minutes before you arrive.

So why is it important that I have your deck before you pitch if I’ve already agreed to see you?  If you show up and I haven’t had a chance to process what your business does, think about competition, check out a few websites, look at your revenue projections, etc. then I’m doing it all in real time while you’re presenting.  Sometimes I know the business area well and it’s no big deal.  Other times my brain is going into overdrive trying to understand your business.  If I get a chance to process things before hand then I have more time for the following:

  • deep dive / more intimate questions about your business
  • more time for building rapport with you because I spend less time “getting it”
  • more opportunity to call a friend who works in the space and get his views before the meeting (happens on 20-30% of deals I see)
  • more time for you to show me product because I need less time seeing your deck
  • Sometimes I’ll ask an analyst or associate to dig a bit deeper into the business, product or competition before the meeting

So in summary it is way more impactful if you send your deck in advance.

Additional thoughts:

  • PLEASE do not send me Word documents.  If you imagine the 1,000’s of plans we see each year it would be way too time consuming to read through each one if I had to read all your text descriptions and try to process them.  Even a 3-page executive summary that most bankers like is a waste.  Most VC’s I know like to quickly flip through a visual deck to get the general idea of what you do.  If it interests the VC they’ll read through a second time in more detail – probably spending a lot of time on the financial projection slides.   I think most people are visual thinkers by nature so no matter how much people hate Powerpoint – it has its place.
  • I love technology products – at my core I’m a tinkerer.  So I love to play around with your cool new technology.  But don’t assume that I’ll come to your website.  I’m approached by many people after conferences and they always tell me, “check out my website, my URL is a,b,c.”  I really don’t have time to go to every website and play with every product.  I tell people to send me your deck.  If I thumb through it quickly and like what I see I’ll always go check out the product or website demos, literature, videos, etc.  But not before I’ve seen the deck and confirmed my interest.

Based on my last post saying that the CEO/Founder had to be the one pitching the VC I got a couple of less than pleasant responses.  So before I get comments on this post telling me I’m arrogant for not going to all your websites or not wanting to read your 3-page exec summaries let me say the following – I’m just trying to inform entrepreneurs how I believe many VC’s act.  If it is reality then you’re better knowing about it.  I’m not trying to be a dick.  In our job we have certain pressures that require us to short-hand certain decisions.  Knowing this should help you.


Who Should Attend Your VC Pitch?

July 24, 2009

board roomThis post is part of my series called, “Pitching a VC” (link here) that covers what to do before, during and after your VC presentations.

In this post I want to cover the topic of which members on your team should attend the first VC meeting.

Let’s call this the “screening” meeting since it will almost always have at most 1 partner and sometimes won’t even have a partner but instead an associate or principal.

Option 1.  CEO attends on his / her own.  For a first meeting I think you can get away with just the CEO attending.  The argument for just the CEO is that this is a chance for the CEO to build rapport with the partner and 1-on-1 is often the best way to do so.  Obviously the other arguments for just 1 person attending are that the other staff can stay focused on the business and it may be a case where travel is involved so you want to keep costs to a minimum.  Note that if your company has two founders the non-CEO founder could attend provided that this person is commercial and is good with people (as opposed to the deeply technical guy).

Option 2. CEO attends with 1 or more staff. My preferred option is that multiple people attend even the first VC meeting.  VC’s invest in teams not individuals.  Even the most talented individuals in the world need great teams surrounding them.  It is rare that you a single person who is excellent commercially, technically, product wise, is a “people person” / great leader, runs good internal admin AND knows how to make money.  So if you have a great team then getting them all involved in the meeting is a great way to show that you have “a deep bench.”  If the VC is fielding a  partner then I believe this even more so but if the VC is fielding an associate then you can use your own judgment.

If you bring the full team make sure that you construct the entire storyline in advance so everybody knows how you plan to have the meeting flow.  Who is going to cover which slides, who is going to field which questions, how are you going to answer difficult questions (which you should write down in advance and practice).  Definitely don’t “wing it” – have practice sessions to see how each member performs.  Honestly I would say a good 50% of team presentations that I see seem like they really haven’t practiced the flow very well amongst team members.

Here are some pointers from things that sometimes don’t go well.  Try to avoid the following:

  • Big disagreements in front of the VC – Believe it or not it is not that uncommon where I’ll ask a controversial question to see how the team responds and you’ll see team members disagreeing on a topic.  I know that it is important within your 4 walls to allow dissent but the VC pitch isn’t the time for it.  If somebody answers a question in a way that you think didn’t put your best foot forward find a constructive way of adding to the point rather than disagreeing with your team member.  It never looks good if it seems like you’re discussing the topic for the first time or you disagree on the answher.  You wouldn’t do it in a customer meeting – don’t do it in our meeting.  My rule for VC meetings was the same that I had for sales meetings that I would attend with the sales staff – if a tough question comes up and the point person assigned to the topic doesn’t answer leave a moment of silence.  This is a queue for the most senior member in the room to pick up the question.  Or the point person can simply say, “why don’t I let Mike handle that question.”
  • CEO talks over staff – Even more common than an argument is the domineering CEO that talks over his / her staff.  As the CEO you need to pre-agree which questions your team is going to answer and which slides they’ll cover.  Practice the questiosn / answers amongst your team members before you get to the VC but when you’re at the meeting consider it a “live performance” and live with the results.  Far better that somebody says something in the wrong way than to have a CEO who talks over his staff.
  • Company sends the junior staff – I recently had a very interesting company approach me.  I met with a guy at a conference and he told me about his company.  I loved the idea.  He didn’t immediately tell me that he was head of biz dev and not the CEO.  No big deal.  But when it came time for a web conference call (he was from NorCal) and he walked me through the Powerpoint deck I saw the CEO title in his org chart slide and it wasn’t him.  Then I was annoyed.  Why wasn’t the CEO on the call?  If I’m willing to take my time out of my busy schedule to hear about the company why wasn’t the CEO taking the time out of his schedule?  My perception was that they clearly didn’t see me as the most important VC they were pitching or how could the CEO not be on the phone?  I said so.  The guy did his best to respond by saying, “I’m leading the fund raising.  It isn’t the CEO’s forte and he’s asked me to handle it.”  Wrong.  A large part of being a CEO is the skills to persuade.  Persuade investors to give you money, people to quit their jobs for  company that isn’t well funded, business partners to do deals with a company that has a limited track record, journalists to write about the company and customers to pay for products.  If that’s not you and you’re the CEO … think twice about whether you really need a business partner so you can assume the role that you are good at in the company.
  • Bag carriers attend – Another very common mistake is what I call “the bag carrier.”  Last year I sat in a meeting with 3 guys who were building an early stage start-up.  Product was completed but no customers yet.  They point to one guy at the start of the meeting and say he’s our lead technical guy.  He didn’t say a word the entire meeting.  Cheeky guy that I am I finally asked the guy, “why did you come today?”  His response wasn’t that polished, which answered my question of why he did no speaking.  My rule: either practice something for this person to cover and accept that they don’t present well or leave them at home.
  • Part time staff attends -Last tip.  I have been at several meetings where a guy is running biz dev, finance, sales or whatever and during the meeting I ask him whether he’s full time and he responds that he is either: part time, consulting the company or planning to quit his job when the company is funded.  My view is that this person should stay home and not attend the meeting.  If he’s the finance guy and you’re worried about financial questions – don’t.  Study the numbers yourself.  If you can’t master the details of the financial projections ask yourself whether you’re really supposed to be the CEO.  If for some reason you’re convinced that this person must attend for credibility (again, I think it hurts credibility) then please make sure that you proactively point out to the VC that the person isn’t full time.  It hurts your credibility immensely if we only find out because we asked the question.