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Pre-angel / seed / series A

Below are the different ways I've noticed to convince VCs to invest in your company, in descending order of desirability. It seems the higher you can get in this list, the better terms / higher valuation you'll get from VCs.

  1. A product / prototype with traction
    1. Examples:
      1. Facebook when they met with Peter Thiel (it had traction at Harvard / Stanford / Columbia)
      2. Oculus Rift when it raised money from Founder's Fund (it had traction on Kickstarter)
      3. Elon Musk when he raised money for Zip2 (he had 3 commissioned salesmen and a few local newspapers as customers)
      4. The Shark Tank contestants that get the best deals, with a bidding war between the sharks. (they all have demonstrated sales, preferably in the millions of dollars)
  2. Positive cash flow
    1. Examples
      1. Elon Musk - 2003.10.08 - Stanford University Entrepreneurial Thought Leaders Lecture
        1. There was an ISP on the floor below us. Just like a little tiny ISP. And we'd draw a hole through the floor and connect to the main cable. That gave us our internet connectivity like a hundred bucks a month. So we had just an absurdly tiny burn rate. And we also had a really tiny revenue stream. But we actually had more revenue than we had expenses. So when we went and talked to VP's we could actually say we had positive cash flow. That helps, I think.
  3. An impressive team with a product / prototype, but no users
    1. Examples:
      1. Jack Dorsey with Square (he and his cofounder paid some engineers to build a prototype)
      2. DropBox (they created a video showing what the final product would look like, and how it would work)
  4. An impressive team, but no product / prototype
    1. Examples:
  5. Conveying that you are going to work extremely hard.
    1. Examples
      1. 2015.12.26 - TC - How I Created A $350 Million Software Company Knowing Nothing About Software - This is the cofounder of Five9, John Sung Kim.
        1. Clearly, I needed help (therapy), so I asked my former boss at the discount brokerage firm if he knew of any angel investors.

          Thankfully, he introduced me to his favorite day-trader client and explained to him that I was a promising entrepreneur and that Tooter was an amazing engineer, which he absolutely was. I explained to the investor as passionately as I could that I was going to build a successful software company or die trying, and that I was into self-preservation, so…

          The day trader pointed to a picture of a small jet on his office wall and said, “I want you to help me buy this.” He then wrote us a check for $150,000 on the spot, and we were officially funded.

      2. Get the quote about Elon Musk pitching VCs for his company Zip2.

 

 


It may be better to NOT start with a summary of your idea, because people will immediately react to it without the benefit of the facts you have accumulated which support your idea. It may be better to strupture the pitch in this way:
1. About me / why you should trust me / things I have accomplished
2. Facts which are not commonly known and which, when considered together, suggest a particular course of action (business idea).
3. The idea.

  • 2009.03.19 - Travis Kalanick - Startup Seed Raising Skilzzz
  • 2013.04.22 - Mashable - 5 Practical Tips for Perfecting Your Startup Pitch
    • One of the partners at Founder's Fund (Thiel's firm) contributed advice
      •  Click here to expand...

        1. Start With a Great Company - "Having a great startup pitch has more to do with setting up and running a great company than optimizing some type of sales process to investors"
        2. Don't Forget the Basics - To put it short, the pitch should include details on the company overview, team, market, solution, business model, customers, competition, financial overview, funding, vision and of course, a demo — or at least a mockup — should be available for viewing. "Cover everything investors want, or you look like you're ducking the questions "Cover everything investors want, or you look like you're ducking the questions," Teten suggests.
        3. Razzle Dazzle 'Em - "Be human, entertain your crowd, and use your body and voice to help convey your message"
        4. Be Honest and Thoughtful - "Don’t massage your numbers, omit critical information that will impact the business or exaggerate the extent of your business partnerships"
        5. Do Your Research - "The best CEOs are able to get inside the heads of their customers, investors and employees and know what they are going to ask in advance. If you have good, well thought-out answers to our questions, it makes us believe that you’ll also have them for your customers and employees." While you're at it, make sure you've done thorough research on the people you're pitching to, says Howery. Who you pitch to is nearly as important as what you pitch. You should know why this specific investor would be a good partner for your company.

  • 2004.06.22 - Feld Thoughts - The Torturous World of Powerpoint
    •  Click here to expand...

      June 22, 2004

      The Torturous World of Powerpoint

      I've looked at thousands (tens of thousands?) presentations pitching new businesses since the mid 1990's. The vast majority of them suck. Unfortunately, it's not Powerpoint's fault (no - it wouldn't be better if Freelance has become the standard).

      It's the content creators fault. Edward Tufte - a master of The Visual Display of Quantitative Information, thinks Powerpoint is evil and corrupts absolutely. Blogs like Beyond Bullets help reduce the corruption, but given that I'm trying to get a very specific set of information in a short period of time (usually 30 - 60 minutes), more specificity about what I think is "good" is probably helpful.

      Several years ago, Chris Wand (one of the guys that works with me at Mobius Venture Capital) put together a list of questions that a pitch to a VC should address. The world would be a better place if all entreprenuers could automagically incorporate this outline into their pitches - at least to me.

      Following are the questions to address.

      1) WHAT IS YOUR VISION?
      - What is your big vision?
      - What problem are you solving and for whom?
      - Where do you want to be in the future?

      2) WHAT IS YOUR MARKET OPPORTUNITY AND HOW BIG IS IT?
      - How big is the market opportunity you are pursuing and how fast is it growing?
      - How established (or nascent) is the market?
      - Do you have a credible claim on being one of the top two or three players in the market?

      3) DESCRIBE YOUR PRODUCT/SERVICE
      - What is your product/service?
      - How does it solve your customer’s problem?
      - What is unique about your product/service?

      4) WHO IS YOUR CUSTOMER?
      - Who are your existing customers?
      - Who is your target customer?
      - What defines an "ideal" customer prospect?
      - Who actually writes you the check?
      - Use specific customer examples where possible.

      5) WHAT IS YOUR VALUE PROPOSITION?
      - What is your value proposition to the customer?
      - What kind of ROI can your customer expect by using buying your product/service?
      - What pain are you eliminating?
      - Are you selling vitamins, aspirin or antibiotics? (I.e. a luxury, a nice-to-have, or a need-to-have)

      6) HOW ARE YOU SELLING?
      - What does the sales process look like and how long is the sales cycle?
      - How will you reach the target customer? What does it cost to "acquire" a customer?
      - What is your sales, marketing and distribution strategy?
      - What is the current sales pipeline?

      7) HOW DO YOU ACQUIRE CUSTOMERS?
      - What is your cost to acquire a customer?
      - How will this acquisition cost change over time and why?
      - What is the lifetime value of a customer?

      8) WHO IS YOUR MANAGEMENT TEAM?
      - Who is the management team?
      - What is their experience?
      - What pieces are missing and what is the plan for filling them?

      9) WHAT IS YOUR REVENUE MODEL?
      - How do you make money?
      - What is your revenue model?
      - What is required to become profitable?

      10) WHAT STAGE OF DEVELOPMENT ARE YOU AT?
      - What is your stage of development? Technology/product? Team? Financial metrics/revenue?
      - What has been the progress to date (make reality and future clear)?
      - What are your future milestones?

      11) WHAT ARE YOUR PLANS FOR FUND RAISING?
      - What funds have already been raised?
      - How much money are you raising and at what valuation?
      - How will the money be spent?
      - How long will it last and where will the company "be" on its milestones progress at that time?
      - How much additional funding do you anticipate raising & when?

      12) WHO IS YOUR COMPETITION?
      - Who is your existing & likely competition?
      - Who is adjacent to you (in the market) that could enter your market (and compete) or could be a co-opted partner?
      - What are their strengths/weaknesses?
      - Why are you different?

      13) WHAT PARTNERSHIPS DO YOU HAVE?
      - Who are your key distribution and technology partners (current & future)?
      - How dependent are you on these partners?

      14) HOW DO YOU FIT WITH THE PROSPECTIVE INVESTOR?
      - How does this fit w/ the investor’s portfolio and expertise?
      - What synergies, competition exist with the investor’s existing portfolio?

      15) OTHER
      - What assumptions are key to the success of the business?
      - What "gotchas" could change the business overnight? New technologies, new market entrants, change in standards or regulations?
      - What are your company’s weak links?


      ----Comments----
      One other interesting point Bill Joos raised: he's always surprised that entrepreneurs never start off their presentation by asking *them* questions. In particular, he thinks entrepreneurs would be well-served by asking two questions before presenting: "What attracted you to our company/business plan?" and "What are the top three things you would like to learn about our company/business plan in this presentation?"
      [...]
      Tim Oren responded to this item on his blog (which doesn't have comments enabled for some reason):

      "One commenter suggests first engaging the VC in the meeting by asking their view of the market, and why the company was picked to pitch. I disagree on this one. I don't want my own views reflected back at me. I want to hear the entrepreneur's view of the market and the company's value add."

      I believe Tim misunderstood my comment - I don't believe Bill Joos was suggesting entrepreneurs ask a VC ask these questions to enable them to parrot the VC's opinions. Instead, I believe the purpose of asking questions before the presentation is to allow the entrepreneur to engage the VC early in the presentation, gain insight into how they might tailor their message to the specific interests of the VC, rather than just flip into "presentation mode", blast their message out indiscriminantly, and then leg it out of there.

      A presentation is like an accordian - you should be able to 'expand' or 'compress' the various sections according to your audience and their interests (expressed both overtly and implicitly through their questions, body language, etc). If, for example, the VC indicated that they were drawn to your business plan because they were quite familiar with the history of members of the management team, then you could probably compress the details of the management section of the presention and expand another area.

      Tim goes on:

      "The situation will get interactive soon enough if we're interested. At least at our place, it's a very bad sign to get through the first 15 minutes without being interrupted by questions."

      This echoes a pet peeve expressed by Steve Jurvetson at a recent panel - entrepreneurs who weren't prepared to interact as part of the presentation and who cling to their slides and presentation format. After all, this is supposed to be a conversation - how comfortable will a VC be if you, the entrepreneur, appear to lack the confidence, vision, or in-depth understanding of your business to depart from your "script"?
      [...]
      Brad -- This is good stuff.

      1. Although content is 99 percent of the game, tools do matter -- would you rather write a business plan in Word 2003 or Wordstar? Axon (www.axoninc.com) publishes a software package called Axon Solo that was designed for McKinsey and is a fantastic tool for creating presentations. PowerPoint's default templates are third grade at best, while Solo's templates provide the McKinsey look -- no 3D pie charts, just classic, basic, elegant design.

      2. I get really pissed when at the beginning of the presentation someone doesn't provide me with a copy of the slides. I want to take notes and write down my thoughts, and to do so on a piece of paper that shows what I'm seeing on the screen.

      3. In some cases it would make sense to have more detail on the printed copy. Every data should have a source and you might want to have the source on the printed copy but not the slide.

      4. I want to be told where you're going. At the beginning, I want them to say, "I'm going to cover 10 points." The first slide lists those ten points. Each point is then numbered on the corresponing slide, so I can always know where I am in the presentation (and get a sense for how much longer it is going to last).












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