Dr. Earl R. Smith II

By Dr. Earl R. Smith II

The beginnings of a good idea

Recently I sat in on a presentation that two founders of a technology start-up made to a frontline venture capitalist. What was most striking about the experience was that, from one point of view, the founders seemed very well prepared. Their presentation was polished and contained all the usual sections, their slide show was professional quality, and they spoke with passion and deep knowledge about their space. The materials which they provided were all neatly and professionally packaged.

But early in the meeting it became apparent that the team was not prepared for what they were encountering. Their pitch was clearly more appropriate for a group of fellow technologists. They had not taken into consideration the predictable concerns and perspective of the person to whom they were presenting. The VC had interrupted the flow of their pitch with a couple of completely normal threshold questions and it went downhill from there.

After the session I asked the investor how frequently this kind of thing happens. He shook his head and responded “More often than I would like and far more often than needs be. The tragedy is that it doesn’t have to.” When I asked what he meant he replied “I’m probably the first outsider that they have ever given this presentation to. As a result their pitch comes to me without any real critical review. But what is most discouraging is that their entire presentation was not focused on my concerns as an investor but on a ‘preaching to the choir’ gathering of their peers. And what they don’t seem to realize is that mine is a very tight community and we talk to each other on a regular basis. What these guys did today was not only establish a negative brand with me but with any others that I end up talking to about them.”

I immediately understood what he meant. One of the services I provide to clients is the establishment of an advisory board designed as a high level, business development engine. I had built such a board for a company that is in the enterprise level software business. One of the company’s proudest achievements was that they had earned a high level of certification for their software development process. This certification was prominently mentioned in all of their promotional materials and on their website.

The senior management team was presenting during the first ever gathering of the board. The advisory board consisted of five very high-level individuals with an average of three to four decades of experience. Most had built businesses or run very large organizations. All of them had risen to the top of their profession. This first meeting was designed to bring the board members up to speed.

The software certification was prominently displayed on one of the earliest slides that the chief operating officer presented. One of the board members interrupted the pitch with a question, “OK, I’m one of your customers. Other than making your software more expensive, what is the value of this certification to me?” It quickly became clear that any answer which the team could offer was focused on the ‘choir’ – those individuals who had already bought in to the value of the certification process. They were not able to provide an answer from a client’s perspective. As a result, they lost the confidence of the board and had to work hard to get it back.

As I related the story my friend nodded and ruefully smiled. “I’m glad to see that this happens to other people. I had taken to thinking that mine was the only profession that encountered this kind of thing.”

As we talked and told war stories, a conversation with a former partner in the movie business came back to mind. Sy had been talking about how much more difficult it was for new talent to get experience since the demise of a vast network of performance venues that used to serve as incubators. Again, there was the pattern. People need a space where they can knock off the rough edges and focus their presentation.

What came out of this was a vision for a kind of ‘presentation boot camp’ – a space where founders could refine and focus their pitch without incurring the liability of having to learn under fire - and avoid establishing a negative branding in front of potential investors to boot.

Borrowing from another space

I first came across the idea of red-teaming years and years ago when I was working in the government contracting space. I subsequently learned that it is also widely used in the commercial sector. A proposal team will subject the results of its efforts to a panel of outside experts well prior to submission to the client. The process is designed to make sure 1) that the proposal correctly addresses the RFP; 2) that the solutions offered are ones that would likely be accepted by the client; 3) that the costing of the proposal has been done correctly and does not contain any extraneous expenditures and 4) that the team can present and defend the proposal in a highly professional and effective manner.

This process is standard procedure – in fact, widely considered an essential part of best practices – in the government contracting space. The danger of not following these best practices is severe. I know companies which, in the re-bidding process, failed to adequately challenge the proposal team and lost contracts that they should have won.

When you prepare a presentation for funding you run the considerable risk of becoming so close to the trees that you grow less and less capable of assessing the forest. A professional, independent review of your funding request, well before you present it to the first VC, could make the difference between being funded or wasting a lot of time – yours and the VC’s. With our knowledge of the investor’s decision making process and wide range of contacts within the VC and private equity communities, I can organize and facilitate a red team review that can significantly improve your chances of being funded.

Red teaming can be applied with considerable benefit to testing and refining presentations to venture capitalists. This process can assure that it meets the needs; adequately address is the concerns; is clearly and professionally delivered and definitively answers the threshold questions that the investor is likely to have.

Red Teaming a Request for Funding - the Dr. Smith Way

The best way (in fact, the only reliable way) to make sure your presentation is well focused and provides what a VC requires is to have it reviewed by an objective panel that sees it through the eyes of a potential investor. A red team looks at the presentation exactly that way. They evaluate the request for funding, projected use of proceeds, business plan, value proposition and management team as if they are being asked to invest in the company; looking for weaknesses and strengths and checking to make sure threshold questions are addressed in a way which will lead to the next level of discussions.

A red team review is arguably the most important step in the entire cycle of preparing for and delivering a presentation to potential investors. I have developed an approach which will improve chances for getting funded. The core of the process is a group of people who will evaluate your request for funding, and your company, from the investor’s perspective.

Red team members read your materials as if they were evaluating you for funding. This means that they will not be advocates for your company. Quite the opposite - if your presentation has serious problems or if they don’t get what you’re trying to say, it will more likely be, “This is not making sense as an investment!”

That in itself is more than a lot of VCs will do. They are in the business of finding opportunities and making investments – not critiquing your presentation. Many times all you will get is “Thanks for coming in – we will get back to you if we are interested.” But a red team goes the extra step – it is in the business of helping you improve your chances of getting funded. In that role they play hardball; team members can be very critical, step on your toes if necessary, and pull no punches. A red team member who holds back honest and incisive criticism because of a fear of hurting someone’s feelings is not helping the effort.

Red teaming can be a very unsettling experience for some founders – but the goal of each and every member of the team is to help improve the presentation, value proposition, business plan and chances of getting funded. Remember, to make a success you occasionally have to break a few egos!

Here are some guidelines we follow for forming and running a red team review:

• Because of their experience, members of our red teams emulate the process and mindset of the VCs that the company is going to present to.
• We pick at least three people to serve on each team.
• They are knowledgeable in the company’s space.
• Team members must have no prior connection with the company that is presenting.
• They must be willing and able to commit the necessary time and attention to the process.
• We insist that members are given at least two days to read the materials to be used in the presentation and do a bit of personal research.
• Team members must be committed to helping the founders improve their chances of getting funded.

Benefits of a Red Team Review

Our independent review procedure emulates the investor community’s initial-review decision making. We simulate first meetings with VCs and critically review the presentations. Our process delivers an in-depth, interactive debriefing of a funding request. The results will provide you with guidance and direction on what must be done to improve your probability of being funded.

1. Red team members read and research materials and discuss them among themselves prior to your actual presentation.
2. The team then sits through your presentation – a simulated initial meeting with a potential investor. The focus of the evaluation is on how well you presented your business plan, value proposition and answered the threshold questions that an investor is likely to ask.
3. Finally, the team delivers a thoroughly interactive debriefing. The focus is on specific recommendations for resolution of major issues. They also present recommendations and guidance on improvements relative to strengths, weaknesses, opportunities and threats.

Dr. Smith’s Red-Teaming Programs

My red teaming programs are designed to:

1. Help founders become familiar with the process of red-teaming,
2. Take them through a simulated initial meeting with a potential investor,
3. Provide a critical review and assistance in refocusing and refining their presentation, and
4. Guide them through the process of presenting to appropriate venture capitalists and private equity fund managers.

If you want to learn more about our red teaming programs and how they can help you improve you chances of getting funded, send me an e-mail and we will arrange a time for a free consultation.

© Dr. Earl R. Smith II