Archive for November 2008
I spent the afternoon in Boston coaching entrepreneurs who are preparing investor pitches. I provided some tips to the entrepreneurs and want to share a few of them here:
Quickly describe what your business does and how it will make money: Within the first 30 seconds, it should be clear to your investor audience what your company does to make money. Investors tend to have a short attention span and so you want to get their attention quickly during a pitch. Another good guideline from Jon Karlen at Flybridge was to make sure you can get through your entire pitch, unrushed, in 1 hour.
Don’t spend too much time on the market size of the opportunity if you’re pitching investors who are intimately familiar with your market: If you are pitching a digital media firm who has made investments in the Internet advertising space, you don’t need to spend time telling the firm about the growth potential of online advertising. Use the time you’ll save by cutting out the market size discussion and spend it fleshing out other areas of your business.
Make sure the margins in your financial projections are realistic: Several times I’ve seen business plans that indicate a company will achieve a net margin of 25%+ at scale. There are not many businesses that I can think of that can achieve those margins. The two that come to mind are Google and Microsoft. Therefore, the logical assumption is that the author of the business plan thinks their business will be the next Google or Microsoft, but in actuality I think that people don’t bother comparing their predicted margins with comparables from their industry. It’s never a bad idea to spend time researching public market comparables, so when you do, make sure you check some of the key ratios and margins to make sure you’re relatively in line with the rest of your market.
Mark Davis spends a great deal of time discussing pitch do’s and dont’s on his blog if you’d like some more information on this topic.
If you have even a minimal interest in biz dev, please spend the 20+ minutes it will take to watch this video.
It’s a panel discussion hosted by the nextNY crew that has some high level business development folks from area startups as panelists.
I also think it has some great lessons for venture capitalists, as a big part of one’s job as a VC is business development (either developing business for portfolio companies or developing relationships with entrepreneurs).
Great tips, check it out…
If you ask someone if they are ‘above average’, ‘below average’, or ‘average’ in a particular area of their life (athletic ability, intellectual capability, physical attractiveness, etc) most often you will hear from that person that they’re at least average, and probably above average. After all, most (?) people tend to think well of themselves.
So where have all the below average people gone? They’re certainly not raising their hand to be counted as below average…
Let’s take that analogy and apply it to the VC pitch process. In some of the pitches I’ve heard over the last few months, the company will address the current market conditions and financial crisis by saying that the impending recession is actually a boon to their business. I’m not sure if these companies are just highly optimistic (a good trait for an entrepreneur to have, no doubt), or are just telling me what I want to hear.
In effect, these companies are saying that they will be ‘above average’ performers in this environment.
True, I am naturally going to be wary of investments in sectors that I think will be hit in this downturn, but frankly, it goes without saying most sectors will be adversely affected by the downturn. A large percentage of companies will see a negative impact due to the downturn, and there will be a small percentage that will benefit.
During a pitch I’d rather hear something to the effect of “This recession will create a challenging environment for my business, and here’s how our company will deal with it” versus “The recession is really good for us, and here’s why.” The former builds credibility while the latter makes me less comfortable with the company and the management, unless you have a really solid, provable case about why the market conditions play into your company’s favor.
It’s true, I always want to invest in an ‘above average’ business (OK, hopefully an outstanding business), but I’m also cognizant of the fact that in this environment there will be a very small number of startups that fit in that ‘above average’ bucket.
Today I was checking my credit card bill online and saw that my credit card company has begun to target promotions that are tied to specific line items on my bill.
For example, I had purchased something at Borders last month and now I’m getting an offer for free shipping for orders over $25 on BN.com. The promo shows up right underneath the relevant line item on the online statement.
I am contemplating asking the credit card company to turn these promotions off. It’s creeping me out a bit, frankly, especially since I didn’t specifically ask for them to do this targeting. But I’d also like to know if they built this technology themselves or if they’re using some off-the-shelf product. Cool, but a bit creepy…
Has anyone else had a similar experience with their credit card provider?
What Stu is saying in the post is pretty much the same thing I’m seeing in the market (except for the $0 pre-money valuations), and its the same thing that I’m hearing from other VCs.
My takeaway from the post is that portfolio companies need to become laser-focused on getting to cashflow breakeven with either a) the cash they’ve got in the bank now or b) with insider money (if the insiders have the money).
My guess is that if we fast forward 6-12 months, there will alot of carnage as startups who couldn’t accomplish a) or b) above will be sold at firesale prices or go out of business.