VentureStart » Pitching Investors

Video For All Startup Entrepreneurs

VStart — Wed, 20 Jan 2010 01:24:33 +0000

We saw a great video today that every startup entrepreneur should take a look at. It is an online interview by Jason Calacanis of Brad Feld. Jason is an outspoken entrepreneur who recently created a huge online discussion about entrepreneurs having to pay substantial dollars to present to Angel investors. Brad Feld is an entrepreneur, turned Angel and VC, who is very entrepreneur centric and has a widely read blog (that’s where we found this).

This video is 2 hours long but the first 90 minutes are really worth listening to. It covers these topics:

Types of Angel investors and cautions about the make up of Angel groups
Paying Angel groups to present
Building an entrepreneurial culture in Boulder (population 150,000) by importing entrepreneurs — thoughts for Sacramento?
How, in web-based startups, having geeks on the startup team is more important than domain expertise
Good tips on pitching with an entrepreneur pitching live over the phone
How investors in multiple rounds of financing can destroy a company with in-fighting to the detriment of the entrepreneurs
Passion and perseverance — with an example of one of Brad’s investments that took off after ten years!

Yes, it’s long but …….

Sacramento Region Startup ioSafe At CES — Fire, Water, and Crushing Fail to Stop Their SSD Drive

VStart — Fri, 08 Jan 2010 06:24:49 +0000

Robb Moore, CEO of ioSafe in Auburn, always does something sensational at CES in Las Vegas. This year, as he did last year, he subjected one of the company’s hard drives to fire, and water submersion, but this time he further ran over it with the tracks on a 20 ton backhoe. Take a look at the video to see if the drive survived. By the way. Robb has bootstrapped ioSafe from day one. Seems this video goes a long way to say a lot a pitch or executive summary would never reveal! Robb is a VentureStart adviser.

Negotiating with Investors; It Can Be Done, on TV!

VStart — Sat, 31 Oct 2009 20:52:11 +0000

It is always a challenge for entrepreneurs to negotiate a deal with investors but we found some videos from the ABC TV show Shark Tank. While the show is show biz and not very realistic most of time, it does have its moments and these videos have some lessons for entrepreneurs with some chutzpah.

Here is Part 1:

And Part 2:

Sacramento Startups — Join Investors and Successful Entrepreneurs

VStart — Sun, 04 Oct 2009 03:48:52 +0000

Coming soon, an organization dedicated to the goal of nurturing entrepreneurism in the greater Sacramento region. No dues, no fees, no sales pitches. Just real help and motivation for people who think they might want to start a company here in the region. This group is being formed by investors and entrepreneurs who want to help others start and grow successful businesses here, without having to move their company or raise their money in the Bay area. Click here to get more information when it’s launched.

What is an Angel or VC investor really looking for in an entrepreneur’s pitch?

Dan Koellen — Tue, 14 Jul 2009 21:44:45 +0000

Does anyone really know? Looking back on all of the pitches I have heard many entrepreneurs certainly don’t and probably many investors don’t either. Is this a Mission Impossible?

Should you decide to accept this mission your first task is to have the investors take notice by presenting a succinct summary of what problem you are solving, why it is important to solve, that you can make money by solving it, and you (and your team) will execute. This needs to be done in the first few slides or it is truly a Mission Impossible! Notice I did not say anything about technology, science, or software. These are means to execute your business model and to protect from competition; not a reason for investment.

So you have captured the investors’ attention, now you have to give them more reasons to spend their valuable time in performing in depth study of your company. On this site as well as many others you will find what elements need to be addressed in a presentation (e.g. market size, projections, team, etc.). Before you get into those details your mission is to answer the following questions about the basis for your business proposition. You don’t necessarily need to present in this manner but by honestly answering you will be better prepared to assemble your presentation and face investors.

Core competency: what is your company really good at, at a very basic level? This will help you keep the company focused on the appropriate market segments, determine how best to deal with competition, decide what business partners would be synergistic, and plan how to add customers.
What is the problem you are fixing and why it is important to fix: Investors want to invest in great businesses that solve a problem or pain. The pain has to be great enough to make customers be willing to pay for your product and take risk in using a new, unproven vendor. The risk in changing to a new supplier with a new product is much more of a barrier than most entrepreneurs realize. To be successful you have to convince customers that not making the change has even more risk.
How does your solution fix the problem, why your solution is unique, provides a high barrier to entry, and provides a path to future products: Obviously your solution has to work but investors are more interested in a business that has a solution that is innovative and difficult for competitors to replicate or supplement. Patents will help but a ‘secret sauce’ that only your business can produce is great. Investors want to invest in a business that has an exceptional growth potential so a roadmap full of products is great while you maintain focus near term.
Why you will provide a great return for investors: This is a widely encompassing question that not only covers the usual margins, future value, market size etc. but also, to what can be an early deal killer, the team. Does the team have passion for the business? Have they done it before: start up experience; market experience; intimate contact with potential customers, partners, and suppliers; past successful execution of business plans and a great dynamic among the team.

Think through these questions with your team and come up with honest answers. Now you will be equipped to develop a great presentation and be prepared for the questions that investors will ask. You will accomplish Mission Impossible!

Answering the Valuation Question

VStart — Mon, 13 Jul 2009 23:06:47 +0000

It’s easy for a startup entrepreneur to be trapped with the question “So what’s your valuation”. If you throw out too high a number that can be the end of the discussion; too low and you’ve left something on the table. The video below offers one answer: basically it suggests you say you’ll let the market decide.

That’s a reasonable answer since investors often have much more experience than the entrepreneur in knowing current valuation ranges. Yet, frequently investors will insist on an answer to better determine whether they should pursue further investigation of your company. So just in case the “let the market decide” answer doesn’t cut it, you’d better have a backup answer ready before you meet with investors.

You need to get some idea of current valuation for your company stage (pre-revenue, prototype, first customers, etc.). Where do you get it? If you are in VentureStart, then we can help you from our network of investors. If not, here are some alternatives.

If you have chosen the right attorney (by right, we mean all else being equal, your attorney should have plenty of current experience with startups raising money or access to expensive databases such as VentureSource), they will be able to give you some idea. Or you can contact other entrepreneurs who have been funded recently and ask them. You might get some idea from such free online databases as ChubbyBrain, CrunchBase, or TradeVibes, although exactly what you need is rarely given.

Angelsoft also publishes the valuation expectation of entrepreneurs that use their software to apply to Angels. You can see it in their learning center funding statistics. Remember this is the entrepreneur expectation! Deals, if done, will be at a substantially lower number, but it does give you a ballpark.

Once you get an idea bump it up some 60% or so to leave you room for negotiation; yes it is a negotiation but you need the “reasonable” starting point. Bottom line: your valuation is what someone will pay for your stock, nothing more!

You can see the video discussion of “let the market decide” by Jason Green of Emergence Capital Partners below and the original is at Standford ecorner.

Pitching Startups to VCs and Angels — David Rose Serial Entrepreneur and Angel

VStart — Thu, 09 Jul 2009 21:29:20 +0000

There are many sites, documents and videos on the web about pitching a startup to investors. Here is one video that stands out. It is by David Rose, an angel investor, and serial entrepreneur. He is also the founder of Angelsoft (the platform used by most angel groups to manage entrepreneur applications, and deal flow).

Hope you enjoy it!

Five Dumb Things I’ve Done While Pitching To Angels and VCs – Sacramento Entrepreneur Fundraising for Business

RobbM — Sat, 04 Jul 2009 01:25:24 +0000

by: Robb Moore, CEO of ioSafe

As the newbie entrepreneur on the SARTA VentureStart team, I thought it would be appropriate to help some of my fellow entrepreneurs learn from some of my mistakes while pitching my company to investors. Below are five dumb things I’ve done. I hope these nuggets will save you a little time in your path to financial freedom!

1. Pitching Approach: Pitching the Product vs. the Business
I’m an engineer to the core. I love technology. I love MY technology. I love MY ideas. I think MY ideas are fantastic! I think MY ideas are worth billions. Newsflash – there is no shortage of wonderful ideas. Ideas flow from everywhere from everyone. The investor drinks from a fire hydrant flowing with people and their fantastic ideas.

The investor wants to buy the “business” not the product or idea. The “business” is what you’re selling to the investor – not the actual product.

To an investor, you’ll need to quickly explain the elements of what you’re selling to them: the product, the market, how money is made and the plan. Music to an investor’s ears – “I sell patented software for $1000 at 80% margins to medical doctors. I’ve sold the software to 20 doctors in various medical fields who all love it. I need $1M dollars to properly target the 500K doctors possible and grow my team to reach cash flow positive in 9 months. Applications for this software exist in every industry with regulatory implications.”

Notice that the preceding description completely lacks what the software does or how it works. It almost doesn’t matter! It could be software to optimize the doctor’s toilet breaks. The investor cares more about the business than the product.

2. Valuation Expectations: Entrepreneurs on Mars
Setting a valuation is always tricky. You’re on Mars. The investors are Earth based creatures. You see your business as worth billions. An 8 figure valuation like $30M seems pretty reasonable if the business ultimately sells for $300M right? 1000% return on their money seems like a great investment. I thought so too. It doesn’t work that way.

The sophisticated Angel hears the valuations from naïve entrepreneur valuations all the time. The investors love us (for the creativity) and hate us (for our ridiculous view of the business world).

If you’re pre-revenue, your business is probably not worth $30M. The investor, in today’s market, can find public companies (i.e. liquid stock) which have $20M in revenues, $5M in profits, growing at 30% per year with a $30M valuation. Do you stack up against this? Why on earth would they invest in your company with no revenues, illiquid stock and negative cash flows?

Ultimately your business is worth what people will pay for it. Consider all the opportunities for the investor and set your expectations to be aligned with the investor’s expectations. Businesses that get funded by Angels or early stage VC’s typically fit into a pre-determined box. If you don’t fit in the box, you won’t get funded. Find out what the box looks like and pitch to the proper group. An Angel’s box might be $300K investment, $1,2M valuation to own 20% of the company. An early stage VC box is bigger. Many times the box only includes software businesses and not services or hardware businesses.

I didn’t get funded by an Angel or VC. I didn’t fit. Don’t despair though….there are other ways to fund the business if Angel/VC money isn’t right for you at this time. I’ll have to cover that in “Five Things I Did Right!”

3. The Valuation Trap: Answering the Question Wrong
A sophisticated investor will ask “What sort of valuation are you looking for?” It’s a tough question to answer and a potential trap! Tread carefully. While pitching in front of 50 investors, an investor asked me that exact question. I confidently answered with “$30M” and half the investors chuckled and the other half gave their buddy that “raised eyebrow what’s this guy smoking” look. Whoops. Answering with too high a number is an immediate turn off and investors will walk away. Answering with too low a number means you’re selling your fantastic company for peanuts.

The investor wants you to answer this question as soon as possible. I would too if I were the investor but I’m not…yet. Be careful not to push the investor away with a ridiculous valuation nor set low ceiling too early from where negotiations move downward. Build a relationship with the investor, get a second meeting – make them believe in you and your business. Then talk specifics about valuation. Do your best to get them to float their thoughts on the valuation first.

Here’s my answer to the valuation question: “I’m very interested in setting a fair valuation for my business. I have reasonable expectations and would love to talk to you more about your thoughts on valuation.”

4. If I Build It, Buyers Will Come: Wrong!
This is a classic entrepreneur fallacy and a mistake I’ve made many times over. Getting a customer to part with their money is always very hard. People are pounded with special deals and offers every minute of every day.

Understand your market and sales challenges better by actually trying to sell something. I’ve spent too much time and money on R&D before trying to sell it to someone only to learn that the product is wrong or the sales channel is broke.

While pitching your company, you’ll come from a much more powerful position if you’ve actually sold your widget for “X” dollars at “Y” margin to a scalable market target. Don’t fall into the classic thinking that customers will simply gravitate to you while throwing dollars your way.

5. Too Much Info: Worthless Power Point Presentations
95% of all presentations from entrepreneurs, including my own, have way too much info. Having more than 5 words on a slide will force the investor to read the slide instead of hearing you. Having 50 words on a slide will cause the investor to ignore everything on the slide. The slide will look like a panel of gibberish with too many words. Pictures are always good. Understand your goal when you’re pitching the business. Your goal is to get the investor excited about your business’ potential to make money! Lots of money! Make the investor want to meet you after the presentation.

For the record, my current slide deck still has too many words. I’m working on it – constantly. When I read from a congested slide deck, my presentations come off flat and uninspiring. When I talk about my company with no slide deck, the passion comes through and the response is always better.

Obviously there’s a balance of too little or too much information. Work hard to boil your presentation down to what excites the investor (the business) – not what excites you (the product). Set a goal of one word per slide and see if it’s possible. Watch a Steve Jobs presentation on YouTube to get the idea of what I’m talking about. Make this your goal. (Steve – if you’re reading this – nice work. Get well soon.)