Dr. Earl R. Smith II
Managing Partner, The Federal Circle
DrSmith@Dr-Smith.com
www.Dr-Smith.com
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A while back I started a discussion about how to manage initial meetings with investors. The discussion was lively, informative and one of the more extended I have started. Thanks to all who responded publicly and privately. I want to extend that discussion if possible and focus on a few of the issues that investors focus on in those first meetings with a management team. Let’s start with an article that I’ve written on the subject – Presenting to Early Stage Venture Capitalists: A Few Things to Remember – http://www.dr-smith.info/venture-capital-%E2%80%93-the-first-meeting/ . With that as a starting point, what have your experiences been in either presenting or being presented to? (I hope some of the VCs and angel investors will join the discussion) what works and what doesn’t work?
© Dr. Earl R. Smith II
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Related Articles:
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The Money Chase: Breaking the Truce
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The Money Chase: Oil and Water
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The Money Chase: One Way to Avoid Being ‘Avoided’
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Angel Investors to Avoid
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Angel Investors – The Good, Bad and Very Ugly
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Presentations from the Investor’s Perspective
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32 Responses to “Managing initial presentations to venture capitalists and angel investors – the Repsonses”
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Alan, Thanks for the comment and kind words. I am glad that members have found the articles interesting and useful. As to the comment, it is good to remember that venture investment is by far the most expensive way to fund a start-up or early-stage business. As for funding people that investors already know, I’m not sure that the number is as high as 95% but I am sure that it is well over 50%. Most venture capitalists have relationships with CEOs in waiting – people they know and trust. I have known CEOs who have run serial companies funded by the same investor. That being said, I have not seen a higher success rate among these companies – and I have seen some real dogs that were a waste of money. One of the best hints for entrepreneur wannabees is to take a collaborative towards investors – build relationships of trust – and avoid the dogma that “all investors are stupid and all entrepreneurs are brilliant.” Just my two cents, Dr. Smith
Alan S. Michaels wrote:
Hello Dr. Smith,
Thank you for starting this Discussion; and I greatly enjoyed reading your article.
*** I also want to specially thank you for all the great articles you have been posting in our News Tab – your great content has made our News section valuable reading.
As for “things to remember when presenting to early-stage and angel investors”…. about three years ago I attended a major conference with a panel of Angel & Early Stage Investors, and the keynote speaker made a comment that surprised most of the attendees, myself included. He said:
“This is the last place you should come for funding because it is rare you will get any. And for the firms we provide funding to, over 95% of the money we collectively give is to people we already know. For the remaining 5%, the lucky 5%, the fees we require are far higher than what any bank or credit card charges if you could correctly compare the actual costs.”
Is the above true? (All seven of the expert panelists agreed with the above statement, and like most of the 200 in attendance, I accepted it as fact…. but would like your superior expertise.)
Agastus Naik wrote:
Thank you very much Dr. Earl, Your article is outstanding among those that I read in the recent time. It’s addressing the challenges faced by entrepreneurs to present their value proposition to VC’s.
I’ve a small group “The President/CEO Elite” exclusively for Entrepreneurs, I’m sure they’d really appreciate your artcle posted in the discussion board. I’d like to invite you to join our Elite group and have this discussion featured.
J, thanks for the rant – but you left out one thing in your list – results to date. A presentation that is built of the premise that ‘we will start the business the day after you fund us’ is dead on arrival with most investors. Investors want to see results – clients – revenue – business relationships that involve payment to the presenter. What they generally can’t stand is a laundry list of excuses why not. Entrepreneurship is first and foremost about an action oriented focus – getting things done. Writing a business plan and putting together a power point presentation do not qualify. In my experience, investors sort out teh two groups fairly quickly and show the non-entrepreneurs the door. Dr. Smith
Erick Chung wrote:
Wow, I like it.
Great Stuff … I will actually use this method and let you know how this goes.
Song Clash wrote:
Great article and post from everyone.
I would like to point out that Angels do have an Angle but I think he meant to type Angel.
Best to everyone,
Juan Carlos
Song Clash wrote:
Great article and post from everyone.
I would like to point out that Angels do have an Angle but I think he meant to type Angel.
Best to everyone,
Juan Carlos
Frank Bu wrote:
Maybe we can do some work together for your clients in great Nanjing region, Yangtze River Delta, China mainland.
Regards, Frank
J Roberge wrote:
One of the more common problems I see, is that many companies have a product plan and not a business plan. And often the reason for this is because that is what they have. A great product, but not a business.
In terms of the actually presentation, I recommend Guy Kawasakis’ 10-20-30 rule for a presentation. 10 slides > 20 minutes . 30 font point. This forces you to get to the core of your value proposition. An entrepreneur recently sent me a powerpoint presentation in a very interesting business… it was 59 slides. Our interest died right then and there.
For Guy’s 10 20 30 Rule of PowerPoint go here:
http://tr.im/ERxC
To see Buy present this on You Tube go here:
http://tr.im/wQGB
Quentin Parker wrote:
Sell the feeling, not the product.
If you sell yourself, you miss the point of gaining interest, because of the focus.
Take yourself out of the pitch as best possible.
Let the product or idea sell itself. Answer their questions, be patient, think about your reply first. There is no rush, no need to perform.
Your best replies are “Yes”, “No”, and “I don’t know, yet.”
Confidence is like laughter, infectious.
The fact that you are in this position with an angel means its yours to lose now.
No one wastes their time on things they are not interested in.
Be brief, succinct and confident.
Janet, Thanks for your comment – I am glad that you found the article useful. Many do not take the time to see the process from the perspective of the investor and that can cause all sorts of challenges. Investors are always impressed by the attitude which focuses on delivery – monitization of the value proposition – and the ability to turn markets into clients. Earl
Janet Nelson wrote:
As I am not an Angel Investor I cannot quote guidelines. But what I can quote from my years in strategy and market growth (from 0 – $100M in just over 3 years) paying attention to the risks and then putting the plans in place to offset or mitigate the potential bad-news is equally important as ‘selling’ the good news. I’ve found it the best way to 1) get my management to fund the activities and 2) deliver without failure.
J Roberge wrote:
One of the more common problems I see, is that many companies have a product plan and not a business plan. And often the reason for this is because that is what they have. A great product, but not a business.
In terms of the actually presentation, I recommend Guy Kawasakis’ 10-20-30 rule for a presentation. 10 slides > 20 minutes . 30 font point. This forces you to get to the core of your value proposition. An entrepreneur recently sent me a powerpoint presentation in a very interesting business… it was 59 slides. Our interest died right then and there.
Eric, Thanks for the comment – right on point. An additional comment on Google – almost every VC I know Googles a space well before each presentation – to see what companies are in it and how they might represent competition. They take key words from the value proposition descriptions in the submitted presentation. If during that face-to-face session, it becomes clear that the VC has done more diligence than the management team, the meeting can come to an end very quickly. I was in one session where the CEO stated that his start-up had ‘no direct competition’. The VC responded with a list of a dozen companies that seemed to him to be potential competitors. The CEO was familiar with none of them. You can guess the outcome of the request for funding. It’s OK to be wrong – we all are more than we would like to admit – but it is unforgivable to be ignorant on purpose. Dr. Smith
At some point you will need to lay the cards on the table and explain who can compete and what they will need to do once they have seen you do it once – the second company always has a shorter time to market as they have your idea to copy and you have educated at least a little of the market.
Look at Google, they were not first to market with search, but they came out with a better product than Yahoo and they now own search.
Ralph Mango wrote:
I have been involved in 2 such situations. In one, we were dealing with venture capital for a financial services venture. Among several mission-critical issues I posed to the two principals was whether they expected to start from a flat-footed start, ground zero, if you will, or was there any possibility that the investors could provide deal flow. In the first scenario, it could take as long as 18-24 months to reach break-even; in the latter, break-even could be reached as quickly as 12 months. Each scenario obviuously carries significantly different capital requirements. In presenting financial projections, I have always subscribed to a best-probable-worst case trilogy wherein the assumptions for each are accompanied by identified risks to each plan, as well as management’s proposed risk mitigants by which to compete. It is vital that management open their thought processes, conflict resolution, and problem solving approaches to the scrutiny of those who are writing the checks. Their survey of the industy, the comeptitve landscape, regulatory, if any, environment, are examples that cannot be understated.
Finally, the unexpected. In the situation I mentioned earlier, we were assured by a lead investor that they would provide deal flow from the outset. Accordingly, we raised $ 5MM. Subsequently, their executive team decided to withdraw from that commitment, ultimately sinking the enterprise before it really gained traction.
Brian Javeline wrote:
Well you are correct. I have seen some presentations where the person is so excited but really had nothing of substance to provide. Everything you said is so true. I guess another way to paraphrase my thoughts is, “even if you have a great model with all the unbelievable metrics and opportunities to present, never forget to ensure your passion shines through”. I have seen some rather successful people speak and I would begin to fall asleep since they are not that excited anymore. I have seen some other guys speak, and even knowing they have made tons of money, you would think that they are still striving for their first million based on how they express themselve.
Brian, You bring up a good point. My work with investors has given me a different take on the issue. Most of them are used to receiving passionate presentations. Most are very suspicious when passion overbears content, experience and results to date. In this current market, investors are looking for teams that have already implemented – generated revenue – developed customers. One investor recently made an interesting distinction that may bear further thought. He said that these was a difference between youthful exuberance and passion. May be an useful distinction. What do you think? Dr. Smith
Brian Javeline wrote:
#17 Present with passion should be item #1, especially if you are an early stage company. Investors know there will be a lot of maturing to go along with the investment and mistakes will be made, including you not being fully prepared to answer all the questions …. but having passion is something that will demonstrate your determination to fix all the other things. This coming from someone who has raised angel capital from more than six individuals in four states and two foreign countries. Brian Javeline, President & Co-founder of MyOnlineToolbox.com, a 2008 Dell Top 10 Innovator and 2009 Forbes Americas Most Promising AND STILL SEEKING A FEW MORE INVESTORS
Ann, Thanks for your comment. You picked out one of the most frequent errors that entrepreneurs commit. They approach investors because they have money – seeing all of them in the same light. The tragic fact is that, with just a little diligence, this mistake can be avoided. Most VCs and angel investor groups post their portfolio companies on their website. It is a simple matter to visit the website and look at the companies they have invested in – and measure the fit of your company against that standard. Investors who receive submissions that do not evidence at least this minimum level of professionalism will almost always refuse a meeting – and then tell their contemporaries stories about this band of amateurs. You brand yourself whether you are right or wrong – it is all branding. Dr. Smith
Anne Cull wrote:
Thank you so much for posting this article. I wish I had read it last month! Two days ago, I thought I had closed the deal on at least $100K of the $150K start up capital required but both investors opted out at the last minute 2 days ago. I have been over in my mind several times where I could have steered this in a different direction and after reading your article, I know exactly what happened.
Number 3: Avoid presenting to investors who lack a general understanding of your space!
Yep…a construction worker and an electrician are not exactly ideal targets for an internet/tech/semi-adult type industry! Lesson learned. Back to the drawing board. Thanks for the guidance.
Roland K. Orlie wrote:
Dr. Smith,
thank you that is a very good summary of the sanity approach. the only one I can add that there should be a solid plan as part of the presentation. Nothing is more annoying than a back of the envelope plan or none at all. A good plan has rhyme and reason and backs up the logic. One can disagree with the assumptions but reasons for thoughts have to be there.
Thanks again for the great checklist.
Bill, Thanks for the comment. I agree with you on both points. Lack of preparation is a terrible waste of opportunity – mostly driven by laziness and a lack of professionalism.I suspect that most people in these situations fail because they really don’t want to succeed. The tendency to skate on the surface and avoid the details is often a sign of shallow mindedness or the same kind of laziness. Taking for granted that they have got it right – not putting their ideas to the test in front of an independent and sophisticated panel are indicators that they are not really serious players. Dr. Smith
Bill Morrison wrote:
Excellent article. I would place particular emphasis on the idea of a thorough Red Team phase. Having sat through a number of pitches I was astounded at the lack of preparation and the failure of presenters to view their pitch from the recipient’s perspective rather than their own. Find a coach, seek clear feedback and take note that it is the audience who counts not the prestenter!
I would also say that people are have a terrible tendency to show a deep love for their concepts but a lack of concern for the more mundane business side – the go to market strategies I have seen proposed are often very poorly thought out.
Paul Christian wrote:
Thanks for posting this. I’ve read the blog post and it’s very informative and enlightening…
Gunther, Great comment and important observation. The investor community is so well interconnected that they tend to follow trends. This was particularly true during the prior decade when there was a rash of new founds and they all got into a bidding war over certain technologies. Things have gotten a bit better since then. A good rule is to do diligence on investors before your present to them. Most have websites with a listing of their portfolio companies. It is important to make sure you are presenting to investors who have a preference for your industry. It is a bummer to be ahead of your time – had that experience myself – but the profit is made by being there at the right time. Thanks again for the comment, Dr. Smith
Gunther Stur wrote:
Thank you so much, this is really helpful stuff! I wish I had had this advice a few years ago when I pitched my proposal the first time. But yet it probably wouldn’t have made a difference, as I found out, that back then, at least here in Europe, VC investors had a very narrow industry focus: if you had a whiff of high-tech, bio-tech, or alternative energy, they were lining up to throw money at it. But in the financial industry (I proposed to re-establish a European rating agency) there were only few and far between investors that we could pitch to and in the end didn’t get enough. NOW everybody is screaming for alternatives to the big3……….
J, thanks for the rant – but you left out one thing in your list – results to date. A presentation that is built of the premise that ‘we will start the business the day after you fund us’ is dead on arrival with most investors. Investors want to see results – clients – revenue – business relationships that involve payment to the presenter. What they generally can’t stand is a laundry list of excuses why not. Entrepreneurship is first and foremost about an action oriented focus – getting things done. Writing a business plan and putting together a power point presentation do not qualify. In my experience, investors sort out the two groups fairly quickly and show the non-entrepreneurs the door. Dr. Smith
J Roberge wrote:
Okay… here is my rant… further to my first point. Further to Guy’s 10/20/30 rule… make your presentation short and to the point. The ten slides should be as follow:
1. Problem
2. Your solution
3. Business model
4. Underlying magic/technology
5. Marketing and sales
6. Competition
7. Team
8. Projections and milestones
9. Status and timeline
10. Summary and call to action
Once you get into more detail, and assuming you have hooked some interest, there is another road block that entrepreneurs seem to miss. Founders and their shares. Try to keep this to two founders, perhaps three and that is it. Approximately 75% of the founders shares will be vested over 2-3 years. IOW, 75% of your equity will be earned out over this time while you build the business. If one of the founders quits on day two s/he forfeit 75% of their shares. The share capital of the Company (pre-money) should set aside ~10-15% as an option pool. Make sure what ever valuation you are aiming for it takes into consideration this option pool as it is dilutive to the founders obviously.
Valuation. Be realistic. You will find more and more VCs are investing less at lower and lower values. In tech, what use to take a team of ten can be done with a team of two; barriers to entry are coming down and in general so have first round valuations.
Its more about the terms then the money. Familiarize yourself on all the typical terms and conditions of a typical VC term sheet. Understand them clearly and what they mean to your company now and moving forward. It is better to accept a lower valuation, less money on preferred terms. (Two debated ones these days – and they go hand in hand – are participation and liquidation preference).
Last comment. Remember. You need to impress upon the VC or investor how THEY are going to make money. Your real objective once you take someone else’s cash is to make them money FIRST and foremost. Get yourself thinking like them and aligning your objectives.
Oh one more comment. Dont fall in love with your business. What I mean here is if you are a young entrepreneur dont get hung up thinking your company is the next Facebook or Twitter and you are going to become a multi-billionaire. Chances are its not. And chances are you have a number of start-up ventures in front of you. GET A DEAL DONE! Dont let your personal greed skuttle a financing and dont hold on too long thinking there is a better deal around the corner. Advance your project, get financed and build a successful business. Make some money and start another company. That’s how to do it. It builds your track record, credibility etc. And its good for the economy!
Sorry for the long rant… I could go on but we’ll leave it at that.
J, thanks for the comment – and right on point. I have also had the ‘massive slide stack’ experience. One reason I think that entrepreneurs do that is a misunderstanding of the process. They don’t understand that each meeting has a set of objectives and that those objectives are cumulative. Instead of focusing on the objectives of a particular meeting, they present as if all the meetings are taking place at once and the entire decision process for the investors is compacted into one one hour session. Dr. Smith
J Roberge wrote:
One of the more common problems I see, is that many companies have a product plan and not a business plan. And often the reason for this is because that is what they have. A great product, but not a business.
In terms of the actually presentation, I recommend Guy Kawasakis’ 10-20-30 rule for a presentation. 10 slides > 20 minutes . 30 font point. This forces you to get to the core of your value proposition. An entrepreneur recently sent me a powerpoint presentation in a very interesting business… it was 59 slides. Our interest died right then and there.
For Guy’s 10 20 30 Rule of PowerPoint go here:
http://tr.im/ERxC
To see Buy present this on You Tube go here:
http://tr.im/wQGB
Eric, Thanks for the comment – right on point. An additional comment on Google – almost every VC I know Googles a space well before each presentation – to see what companies are in it and how they might represent competition. They take key words from the value proposition descriptions in the submitted presentation. If during that face-to-face session, it becomes clear that the VC has done more diligence than the management team, the meeting can come to an end very quickly. I was in one session where the CEO stated that his start-up had ‘no direct competition’. The VC responded with a list of a dozen companies that seemed to him to be potential competitors. The CEO was familiar with none of them. You can guess the outcome of the request for funding. It’s OK to be wrong – we all are more than we would like to admit – but it is unforgivable to be ignorant on purpose. Dr. Smith
Eric Klein wrote:
Great article.
Your points about the management team being important is dead on.
And as you point out Biggest questions are who are the potential competiors and what are the barriers of entry for competition.
Most people seem to discount the competition, and try to downplay their skills while trying to find ways to say “we are so different that no one will ever be able to compete with us on this.” You know it is not true, the investor knows its not true, but getting a real view and answer is what they are looking for.
At some point you will need to lay the cards on the table and explain who can compete and what they will need to do once they have seen you do it once – the second company always has a shorter time to market as they have your idea to copy and you have educated at least a little of the market.
Look at Google, they were not first to market with search, but they came out with a better product than Yahoo and they now own search.