Category: Fundraising

Craft a sticky story of your company’s journey.

Photo courtesy of Christopher Michel.

Last week I had a Monday morning meeting with the founder of a pre-seed, self-funded company. We had been collaborating for almost a year and he told me that they had their first pitch competition in three days. He wanted to do a review of their pitch with me.

After a quick run through his pitch, I gave him my brutally honest take on it: “None of it was usable”

The deck would have been OK for an investor sit down, but it was not appropriate for a three minute pitch in front of an audience where the goal is not to attract investors but rather to win a competition – or at least to peak interest and to be memorable.  After all, win or not, you want them talking about you afterwards.  A totally different frame of mind is necessary in the prep and the delivery for an event like this.  You do not need to be a Ted Talk master, but you do need to tell an authentic story people will remember and connect with.

Unfortunately, they had already submitted the deck and could not make changes.  I pondered for a moment. The deck had one good slide so I advised them to just focus on that one slide and ignore the rest. As scary as it sounded, a good story focusing on one good visual was much better than a bad story focused on many bad visuals.

Here’s how we re-worked their pitch.

Make you and your story the focus of your pitch.  If your story is powerful when you sit down one-on-one, then it is simply a matter of figuring out how to translate it into one that captivates a large audience. So for my friend (founder), this meant it was time to break him down and build him back up.

We began by asking all sorts of questions….

  • Why did you start the company?
  • Are you really self-funded, what past success lets you do this?
  • Why should I invest in you.  What makes you special?
  • Who are you? What is your story?
  • What is your personal story that drove you to start the company?
  • What about your team, what makes them special?

Now, can you tell all this in no more than three powerful sentences?

Notice that not once did I ask about Sales Growth, Exit Strategy, MRR,  LTV or financial models, setting up the story is all about you and your story. If your story is compelling, the details can follow. It doesn’t work the other way around.

Here are my top 9 pitch tips that can help you weave a sticky story that is authentic.

  1. Watch Youtube videos of winning pitches:  Everything is online these days so watch past winners of this pitch competition and others of similar time criteria.  This was the aha moment with the company I was working with.  It is one thing for me to tell them what to do it is so much more powerful to see what successful peers have done.
  2. Be Memorable / Be Remembered: When 60 founders are pitching in one evening it is all about standing out from the crowd. Do something memorable, shocking but genuine.
  3. Tell your personal story:  Quickly let the audience know how you got here and why this is your passion and you are the one person in the universe that could come up with this product because of your unique background.  Let your personality come through.  Remember at this point they are investing in you as much as your product. Be Authentic, and true to self.
  4. Show, not tell: demonstrate your product:  Figure out a way to show what your product does even if it is software.  You need to have an aha moment with the crowd.  If they don’t get it nothing else matters.
  5. Tell them how big the opportunity is:  Revenue and traction is not necessary at this point.  That the market for your product is huge is mission critical at this point.  Get them excited.
  6. Practice the pitch so much that it seems like you are doing it off the cuff:  The 2 – 3 minute pitch needs to come off as if you are speaking to a friend telling then your companies life story for the first time.  Practice, practice, practice and edit, edit, edit always making the statements shorter, shorter and more concise.
  7. Have less content than time:  If it is a 3 minute pitch have no more than 2 minutes of material.  This way one is never nervous about running over and there is space to let your personality come through and add lib to the audience based on their response to you.
  8. Plan the transitions well: how smoothly one moves from one topic to the next is the mark of a good story teller.  If the transition is logical and seamless it feels more like a story to the audience and not a presentation / pitch.  The more story-like, the more entertaining, the more entertaining the more memorable.
  9. Prepare for Questions: founders often practice, practice, practice the pitch but forget to practice answers to questions.  Come up with a list of the most likely questions and a clear, concise and memorable response.

After considering these pitch tips, it was only a matter of weaving the the story in a sequence that made it progress. Here’s the outline we used:

Happy to report that being the amazing entrepreneur he is, he turned this advice into a pitch competition victory three days later.

We now serve over 100 clients! See who.

 

 

 

This curated selection of quotes from Marc Andreessen provides insight into how Venture Capital works.  Insights include:
– Almost all of a VC’s return comes from one or two disproportionate successes.
– The breakout successes are from areas that were against the grain of consensus.
– Success begets success as it attracts more capital, talent & word-of-mouth.  Also failure begets failure.
– VCs must go to meetings to learn rather than teach.
– Startup teams trump ideas because teams can adapt.
– Declining to invest in winners is a bigger VC mistake than investing in losers. Most VCs turned down most big successes.
– VCs spend most of their time trying to fix their losers and not on helping their winners [Should they change that? -Ed]
– The shift to software will accelerate innovation because it’s so easy to make & change.
And from the commentary:
– The benefit of disruptive technology is often in breakout value or dramatic cost decreases.  This is missed from measures like GDP (which may actually decline with cost reduction) because those measures only capture transaction value, not consumer value (consumer surplus).
Successful Founders of several marquee startups offered their historic pitch decks along with commentary.  Notice they span different stages & rounds.  Also, see how pitches have evolved reaching back to 2005.

Burkland Associates Principal Keith White conducted a series of two webinars on the basics of business funding & fundraising.  The webinars were produced & sponsored by Xero accounting software and the recordings can be found on their web site through the links below.

Peter Reinhardt, CEO and Co-Founder of Segment, recently wrote a blog post with some insightful tips for startup founders, including his selection of Jeff Burkland as part-time CFO.  Subjects covered:
– Customer Prepayment and its effect on cashflow
– Venture Debt uses
– How a “Shadow Budget” can aid planning without creating bureacracy

 
As each new generation of entrepreneurs emerges, there is a renewed interest in how venture capital deals come together. Yet there is little reliable information focused on venture capital deals. Nobody understands this better than authors Brad Feld and Jason Mendelson. For more than twenty years, they’ve been involved in hundreds of venture capital financings, and now, with the Second Edition of Venture Deals, they continue to share their experiences in this field with you.
 
Guest post written by Sean Jacobsohn
Venture partner at Emergence Capital Partners.
FORBES
I regularly get asked by entrepreneurs about how valuations are derived by venture capitalists for recurring revenue businesses. While many entrepreneurs are seeking a specific formula, in reality, valuations are a mix of art and science.

Based on my experience as both an entrepreneur and investor, there are six primary components that impact the venture capital valuation of an early stage technology company: market dynamics, company metrics, future funding needs, team, comparable transactions, and VC ownership targets. I will provide some detail on each in this article, though the relative importance of each category will vary by deal.

Market dynamics: Factors that impact valuation include the size of the total addressable market (TAM) and a company’s potential to become the market leader. Industry focused solutions should be pursuing at least a $300 million market size, while horizontal solutions that solve pain points across industries, need a $1 billion market size. Investors also want to think that if the company executes well that the upside scenario in each company has the potential to return 50-100% of the entire fund. Companies get a valuation bump for market leadership: the #1 player tends to get at least a 1.5 multiple premium over the #2 player in the space.

Company Metrics: VCs like to invest in companies that have a chance to go public. Today the minimum bar for a business cloud company to go public is $50 million in revenue growing at 50% a year. In the early stages (Series A & Series B), a company should demonstrate an ability to achieve 2-3x annual growth consistently. Valuations are most generous when enterprise companies can keep churn under 10% a year, otherwise growth can be constrained by just trying to replace lost customers. In addition, VCs look for unique leverage in the sales model allowing for capital efficient customer acquisition. This will impact the need to raise more capital in the future, often leading to a higher valuation today.

Future Funding Needs: Virtually every company will need to raise another round. A key aspect of the valuation is whether it is reasonable to believe the valuation of the next round will be at least 1.5-2X the current value. Founders never want to tell their teams that all the hard work they’ve done between rounds isn’t worth a higher valuation. Thus, does the executive team have the money it needs to meet key milestones before the next round of funding? If the answer is no, then the VC will likely discount the current valuation. Although most investors allocate 50%+ of their funds for follow-on, investors need to believe the company will be relatively capital efficient so their ownership stakes aren’t diluted significantly by the time of an exit.

Team: Investors tend to pay a premium for repeat entrepreneurs or super-star entrepreneurs who are motivated for a big outcome. Most VCs expect to find holes on the executive team – the question is whether the initial team can recruit the best people in the world for this opportunity.

Comparable Transactions: In order to settle on a valuation, investors look at comparable public companies as well as the revenue multiples of recent acquisitions. Most venture investors focus on comparable transactions above $100 million as those transactions are more likely based on business fundamentals than those below $50 million. Other key data points include the revenue multiples the potential acquirers are trading at and the revenue multiples paid on prior acquisitions.

VC Ownership Targets: Series A and B investors often have a desired ownership target of 20-25% after the funding round, which can impact valuations. For example, if a Series A company wants to raise $7 million, and the VC wants to own 25%, it would be difficult to settle on a post-money valuation of more than $28 million without raising more money or reducing the percent ownership for the VC.

These six categories are meant to be a guide, but in reality there are often other factors that come into play. For example, in competitive situations, a venture firm might stretch on valuation to “win” a strategic deal. In addition, venture valuations are cyclical, and they often track behind public market valuations. Two companies with similar metrics might end up with very different valuations based on market timing.

Finally, valuation isn’t everything when selecting a venture firm. Entrepreneurs and investors are building a long term relationship, and entrepreneurs who are fortunate to have multiple term sheets may opt for a lower valuation if it means having a certain partner on board. The key is starting the relationship with a valuation that feels fair to both parties, and sets the company up for long term success.

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