When does the clock start at a VC Pitch Event?

Too many startups stress about how to get their whole story into a five minute pitch and they don’t think enough about how to cheat time a bit to get the most out of the five minutes (or two, sevenPitch Timer, ten, twelve, fifteen or whatever you’re given). This is the first to two blogs on the topic of how to cheat time — the first has to do do with the first slide and the second has to do with the last slide.

Ask yourself this – “When does the clock start at a pitch event?”

The answer is that it usually starts the moment you begin speaking. So you’re in control of when the clock starts. Now – what happens before you speak? The answer is that usually you are introduced by the MC or moderator and the first slide of your deck is queued up on the screen as you’re approaching the stage.

Here’s where many companies have a lost opportunity. Their first slide has mostly useless information that is already known to the audience. Why have a slide that has your company name, the date, the name of the event, the city, etc? Why not make sure, since your slide will be up on the screen for up to sixty seconds before you start talking, that the slide is doing a lot of work for you.

Your opening slide can:

Tell the audience about what market you’re in.
What is your product/service.
What is your primary value proposition?
And more!

At the very least, you should compose a tag line below your company name that is a tweet or less (140 characters) that describes your company, industry, and key differentiators.

If you do this, you’ll have the audience queued up and ready to hear a pitch for what you do.

I call this process “building a box”. When you do this, you’re developing a conceptual framework into which everything you say can be placed in context. People who don’t build a box early on in their pitch leave us guessing and ultimately uninterested in the pitch.  This is the way the human brain works – we have a hard time processing information that is out of context – yet inexplicably, over half of VC pitches leave out the context until we’re half way through the pitch or more!

Don’t keep the audience guessing until half of the way through your pitch about what you do.

If the audience doesn’t get what you do within the first thirty seconds of your pitch – you’re dead.

Why not use that first slide to make sure that the audience knows what you do BEFORE YOU EVEN START SPEAKING?

How to Cheat Time on Your VC Pitch – Part 1: The Last Slide

Too many startups stress about how to get their whole story into a five minute pitchVC Pitch Last Slide and they don’t think enough about how to cheat time to get more out of their pitch.

You can cheat just a bit to get the most out of the five minutes (or two, seven, ten, twelve, fifteen or whatever you’re given). This is the first to two blogs on the topic of how to cheat time — the first has to do do with the first slide and the second has to do with the last slide.

Ask yourself this – how long is the last slide up on the screen?

The answer is that in a five minute pitch event, the last slide is usually up for five minutes of Q&A. If this slide is up for five minutes, why do so many people waste this opportunity by having the slide say “Thank You” and their email. Most pitch events provide your email to all attendees, and it’s great that you’re polite with the “thank you”, but it would be much better if you could effectively use that time and that slide to reinforce the key points of your pitch.

A good last slide will reiterate the highlights of your pitch.

You can have the team, product, market, traction, the deal, or whatever you like. I have seen slides broken up into as many as six sections with key elements reinforced in each. Since this slide is up for so long, the twenty five word limit for slides in a pitch event is waived! Go ahead and toot your horn.

The kiss of death for a pitch is when nobody has any questions for the presenter. This means that either people didn’t understand your pitch, or that they understood it well and had absolutely no interest. The last slide will help clarify key points, but most importantly, it will provide key points that people can ask questions about. Sometimes people are shy to ask a question and sound dumb if they didn’t understand something. Sometimes in a big pitch event, people may even get confused and ask a question that doesn’t even pertain to your company, but might have been from one or two pitches prior. Having your key points up on the screen gib vets them the confidence to ask questions.

Of course – the other great solution to silence during Q&A is to have Back Pocket Slides that you can draw on to effectively extend your pitch if nobody asks any questions!

VC Pitch Trick – Back Pocket Slides

Giving a VC pitch to angel investors or VCs can be nerve wracking for many startups, but one technique that can Venture Capital Back Pocket Slideshelp startups regain control and confidence is to have a full suite of Back Pocket Slides.

Back pocket slides are slides after your final slide in your deck that contain details about items you might not have had time to cover in your vc pitch, or that you anticipate might come up during Q&A. Examples of these things might include a competitive matrix, an outline of your IP strategy, or some detail on your go to market strategy and key metrics. These are all optional items in the typical pitch, but could be of interest to investors and are things that often come up during Q&A.

Imagine that you’ve just given your VC pitch, and you’ve got a great final slide that summarizes all your high points, but you still don’t have any questions. The audience is totally dead – what do you do?

A good presenter will wait about 10-12 seconds and if there are no questions, then they’ll say “one thing a lot of people ask me about is … Our competitive matrix. You’ll then shift to your competitive matrix slide and continue presenting with the same cadence and timing you used during your pitch. I.e. If your average slide time is 20-30 seconds, then you should maintain that same cadence with the back pocket slides. After you’re done with the slide, then pause to ask if there are any questions. Wait for up to five or six seconds and then start in with “another thing a lot of people ask about is…..” And start on another slide. I’ve never seen anyone need to use more than two slides in this way before the questions start rolling in.

Of course if there are questions, then you can also use the back pocket slides to reinforce your answers. It will make you appear much more in control if you have anticipated many of the questions and have pre-prepared detailed answers for them.

A good number of back pocket slides is five. Two or three can work, but you’re not as likely to get a hit during Q&A as if you have five. Some people have ten or more slides, but I find that they often have difficulty fumbling through them on stage in order to find them quickly, that this can sometimes backfire.

Finally, one more benefit of the back pocket slides is that if you’re invited to another venue that offers a ten minute pitch format, then you’ve already got your extra slides all put together and they become your primary slides instead of your back pocket slides!

Why Venture Capital may not be a Silver Bullet for Startup Funding.

alternatives to venture captialVenture capital is a great solution to many startups’ finance problems, but it’s often not the best solution and, even when it is the best solution, it often works best as a part of a suite of financial solutions rather than a silver bullet that solves everything in one move.

Venture capital, including angel investment, is the most expensive type of capital out there. So why would so many people be intent on going for the most expensive option when others exist?  A typical VC is looking for a return of 60% or greater on their investment – compounded annually.  That means that at three years they want 4X. At five years it’s 10X. At seven years it’s 25X and at 10 years it’s a whopping 100X return on investment.  All of these are 60% compounding returns.

Venture capitalists need big returns to help offset their big risks.  About half of their investments might result in a complete loss of invested capital, so they need to have investments capable of being home runs in order to pay for all the losers.

There are different ways to create a capital strategy for startups who want to both grow fast, but minimize dilution and reduce the cost of capital.  Rather than using just one very expensive type of capital for their startup, they may use a suite of different sources that are appropriate to the phase of development.

Early Stage – Before VC

Early stage companies have many sources of capital available to them, even if they don’t know it.

SBIR (Small Business Innovation Research), Advanced Industries Proof of Concept and many other federal and state grants are available for early research and proof of concept.  Often these are expensive research projects whose risk is much greater than can be justified even for venture capital.  Startups that use these sources of funds can increase their value and decrease their technical risk without any dilution to the founders.

Another source of early stage funding comes from specialty service providers.  Attorneys and CPAs will often defer compensation or work out an equity deal in exchange for early work.  You might be able to get your patent filed for zero out of pocket costs using this kind of deal.

In Revenue

Companies that are in revenue have lots of new non-VC sources of funding available.  Consider accounts receivable finance to cover your rapidly growing need of cash to carry AR through thirty to ninety days before it gets paid.  Some lenders will even lend on purchase orders so you can get the capital you need to buy the components you need to build your product.

If your product is a SaaS (Software as a Service) platform, then your cost of goods is going to be people, not product.  Consider using Equity Compensation for all or part of your payment to your developers.  There are both individuals and development companies who will swap a portion of their compensation for equity.  You’ll need to have a good handle on your valuation, but why not give equity directly to your developers rather than give it to VCs who give you cash which you then turn around and give to developers?

So, there are many more types of finance options available to you than can be described here.  The main point to remember is that you are not required to use just one mode of funding.  Look at all of the available sources and design a suite of solutions that provides the best solution to your situation.

To learn more about how to use creative funding along with venture capital, or instead of it, consider attending the RVC’s Colorado Capital Conference November 15-16, 2016.  If you’re not in Denver on those days, you can register to participate in the conference via live-feed.

More information and registration at www.coloradocapitalconference.org

Colorado Capital Conference

 

 

 

Peter Adams

 

Peter is Executive Director of the Rockies Venture Club, Managing Director of the Rockies Venture Fund and teaches in the Colorado StaVenture Capital for Dummieste University MBA Program.  Peter is co-author of Venture Capital for Dummies, (John Wiley & Sons 2013) Available at Amazon, Barnes and Noble and your local book store.

 

 

 

How does a co-investment Leveraged Venture Capital Fund Work?

To understand how a leveraged venture capital fund works, you first need to understand some basics of how a traditional VC fund operates.Leveraged venture capital fund

VC funds collect capital from Limited Partners who invest in the fund.  The fund then invests this capital, assists the companies in growing and working towards a liquidity event and then returns capital and profits to investors.  The fund typically charges a 2% management fee and 20% carried interest to compensate them for all the work.  This means that after an investor receives 100% of their investment back, they also get to keep 80% of the profits.

A leveraged fund works just like a regular fund, except that it works double hard to benefit Limited Partners by creating “syndicates” or groups of investors on a platform like AngelList which then charges a carried interest to those platform investors.  The AngelList carried interest is also 20% and the platform keeps 5% and the syndicate lead, who in this case is the venture capital fund, gets to keep the 15% carried interest which it then distributes to its Limited Partners.How venture capital works

So how does this work?

Imagine that the VC is going to invest in a company that is looking to raise $1 million.  The VC may invest $500,000 of its own money in the company and then act as syndicate lead on AngelList for the remaining $500,000.  If the company was selling 20% of its equity, then the VC would own 10% and the AngelList syndicate would own another 10%.  Now imagine that the company has a 3X exit, so the VC gets $1.5 million and $1.3 million is distributed to Limited Partners.  (LPs get their original $500,000 plus 80% of the $1 million profit)  The AngelList investors get $1.3 million too.  But now, the VC also received another $150,000 in carried interest from the AngelList syndicate which is also distributed to its LPs (less the 20% carried interest), so they receive an additional $120,000.  The LPs thus had only an 8% net carried interest on the deal thanks to the leverage strategy and they put an additional $120,000 in their pockets which they would not have seen from a traditional VC fund.

For a leverage fund to work it has to have all the elements of a great Venture Capital fund in the first place.  They have to have a lot of deal flow and have the ability to pick the best opportunities and coach them along the way to a successful liquidity event.  They need to have a solid portfolio of companies that would provide excellent profits to LPs without the leverage.  But if all these things are in place, and then a leverage component can be added, then Limited Partners can see a significant benefit.

To learn more about Rockies Venture Fund and leveraged VC fund investing, visit us at www.rockiesventurefund.com

 

Venture Capital for DummiesPeter Adams is Executive Director of the Rockies Venture Club, Managing Director of the Rockies Venture Fund and teaches in the Colorado State University MBA Program.  Peter is co-author of Venture Capital for Dummies, (John Wiley & Sons 2013) Available at Amazon, Barnes and Noble and your local book store.

 

How a Venture Fund Capital Call works

Many angel investors who are actively considering becoming a Limited Partner in a venture fund have questions about how capital calls work.  Angels are used to making a commitment to fund a deal, then writing a check or wiring funds and they’re done until the deal exits.

Capital Calls Maximize Investor ReturnsYellow phone icon Free Vector

Venture capital funds are designed to maximize investor returns, and have an investment period of up to four or five years, so rather than take all the money at once and literally have millions of dollars in an escrow account, the fund uses “capital calls” to collect money from investors only as it is needed.  This way an investor can keep their funds in a liquid investment vehicle such as a mutual fund or 401K retirement account that is hopefully appreciating or earning interest until the capital call occurs.

When the fund is preparing to make an investment, it issues a capital call to its Limited Partners.  The LPs then typically wire funds to the VC escrow account and when all funds are collected, the fund then closes on the investment and wires funds to the portfolio company.

What all this means to the Limited Partner is that they will not need to remit their entire commitment when they join the venture capital fund.  They may have an initial capital call for 10% or so of their commitment, and the rest would be allocated over a three to five year period.  So, someone who invests $200,000 in a venture capital fund might only be investing $50,000 per year for four years. There are two things to think about in terms of fund strategy that LPs should be aware of in order to plan for their investment.

  • Most funds invest in 15-30 companies, although there are some that invest in significantly greater or fewer numbers. So, you should plan on about 20 investments for a typical fund that is diversified across multiple portfolio companies.
  • Most funds retain 25-50% of the fund for follow-on investments. This allows the fund to participate in second and third rounds and maintain their pro-rata investment percentage in the companies.  If the fund invested in twenty companies in the first round, it may double down on only four or five of those for the second rounds to profit from the companies that look like they will provide the greatest returns.

The Capital Call Spreads out the Investment Over Several Years

So, if you’re thinking about becoming a Limited Partner in a fund, understand that capital calls are a good thing that are designed to maximize your return on investment and spread out the requests for funds over a period of multiple years as the fund makes its investments.

Happy Investing!

To learn more about the Rockies Venture Fund, I LP, please contact us at peter@rockiesventurefund.com (720)353-9350
To schedule an in person meeting to learn more, visit www.rockiesventureclub.org/peter
Also, visit www.rockiesventurefund.org

 

 

Venture Capital for DummiesPeter Adams is Executive Director of the Rockies Venture Club, Managing Director of the Rockies Venture Fund and teaches in the Colorado State University MBA Program.  Peter is co-author of Venture Capital for Dummies, (John Wiley & Sons 2013) Available at Amazon, Barnes and Noble and your local book store.

Startups without an Exit Strategy are not committed to their company.

fire_exit-svgI heard it again this week.  The lame startup who answered that they didn’t have an exit strategy because they just wanted to create value for their customer.  I’ve heard this so many times by CEOs who think they’re being noble by focusing on their passion and commitment to the company and not to an exit – but what I hear is that they are NOT truly committed to their business.

  CEOs who don’t have an exit plan are limiting the potential for their business.

The fundamental lie of exit denial is in the belief that creating value for the customer is the same as creating value for the business.  Think about it – if you do something really well and create value for a customer, and you’re passionate about carrying out that mission to the greatest extent possible, then wouldn’t it be a good idea to identify larger companies who shared your values and could carry out the mission to even greater extents with their additional resources, capital, sales channels and expertise? Creating value for the acquirer means creating value for the customer as well – it’s rare that anyone wants to acquire a company with no customers.

But no – you’re just creating value for the customer, and then if you do that, acquisition offers will come along….eventually.  Yes, offers will come along, but they may not be from companies that share your values.  They may be from companies that want to shut you down.  They may be from companies that want to exploit your product or customers.  Just passively waiting for a suitor to come along is a cheap cop-out for lazy CEOs who believe that uncertainty means that you have to wait for whatever the world brings you.

Companies who are truly passionate about their mission are working to develop two value propositions simultaneously – the value proposition for their “first customer” who buys their product and the value proposition for the “second customer” who buys the company. Wayne Gretzky Exit Strategy

CEOs who think about the second customer are the ones who get me excited because they exhibit deep knowledge of their industry.  Like Wayne Gretzky, the hockey player who famously said “I don’t go to where the puck is, I go to where the puck is going,” these CEOs have identified a trend and they build value for companies in their industry who will be needing their innovation within a three to five year window.

To be sure, there is uncertainty.  You can’t just pick the acquirer, date and amount of acquisition.  This does not mean, however, that you can’t research comparable transactions and identify the key players and their behaviors.  You can create relationships with the companies who will be needing your technology so that when their board identifies a need for your product/service, they know that you are a key player in the industry that would be a good acquisition target and can reach out with an offer.

Identifying multiple bidders for your exit strategy not only allows you to select 6699678_sthe bidder who most closely matches your values and goals for the company, but also allows you to demand top dollar for the acquisition.

No, it’s not all about the money, but if you put your head in the sand and just wait for suitors, you will likely end up with a lower price for your acquisition and more importantly you may fail to truly carry out the mission of your company to its fullest potential.

Create a detailed exit strategy and show everyone your passion for the mission of your company.

Third Annual Cannabis Capital Summit

Meet Speakers and the Companies that will be at CCS 2016! Cannabis represents a new industry in Colorado and perhaps nationwide in the years to come. With new industries come new opportunities for business and for investors. The Rockies Venture Club presents the second annual Cannabis Capital Summit in celebration of these opportunities while also discussing the […]

Investing Across Multiple Industries

Rockies Venture Club invests in a variety of companies, not just one vertical. This allows for investments in different types of industries each with their own unique markets, experts, and strategies. Here are three of the top industries that are being invested in right now.

 

Healthcare – Digital access to health

The healthcare industry is is currently in a climb. With the integration of healthcare and technology, access, and ease of use are making old painful processes easier than ever. This telemedicine prompted the founding of CirrusMD. CirrusMD is one of the healthcare investments in the RVC portfolio. They give immediate access to healthcare providers to anyone that has text messaging, answering all your medical questions needs remotely and accurately. Its simple changes like these, along with others like new ways to track health and provide insight that are changing the landscape and making healthcare a top industry.

 

Fintech – New Access to Capital

Disrupting access to capital has been a trend in the recent past. With the emergence of crowdfunding, the old ways of getting money are facing some competition. Enter P2BInvestor. P2Bi is revolutionizing the way you get credit. By making a line of revolving credit that is secured by assets like receivables or investors, P2Bi can help improve the cash flow for small or big companies. P2Bi happens to be another RVC portfolio company, that is in one of the fastest growing industries today.

Cyber Security

Cyber Security is not stealing the thunder when it comes to trending industries, but is one of the most important. With the integration of technology into almost all other industries, the risk of security becomes even higher. Just take a look at all of the security breaches in the news. Swimlane is an RVC portfolio company that helps combat security fatigue. With the constant attempts to breach security, there are a lot of false alarms that are time consuming. Swimlane works to automate that process freeing up time and resources. Cybersecurity is a big industry and is going to continue to grow as the other industries incorporate technology into their models.

 

RVC’s Portfolio- 55% Female and Minority Led

Rockies Venture Club has funded 14 deals in the past year, bringing its portfolio mix to include 55% companies which are female and minority led vs. the national average of just 14.4%. Read more