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Marketing Dilemma: Time and Capital is Key

The marketing dilemma in todays start-up world can be defined by the need for capital to increase marketing, but also the need for marketing to gain capital. Read more

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!

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.

 

 

 

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.

“And we have NO competition”

Please, do not ever say these words to an investor. You are essentially telling them to run. It is heard over and over, but it is never true. Maybe no one is doing the exact same thing, but someone is doing something similar and needs to be acknowledged. Read more

RVC Announces Partnership with Japan’s Future Venture Capital

Rockies Venture Club (RVC) is excited to announce an entrepreneur and investor education program partnership with one of Japan’s most prestigious early stage venture capital firm, Future Venture Capital (FVC). Read more

Venture Capital for Dummies Book

Seriously easy reading for those on the go and what to get the most of what they are going for.

 

Tax Breaks Every Angel Investor Should Know About

Angel investors take risks in backing startup companies – but recent tax breaks make it a lot less risky than you may think!

Experienced angel investors know that to get a 3X return on their portfolio over five years, they need to shoot for 10X on each deal they do.  With recent tax breaks, angels can do a lot less well on their investments and still put more money in their pocket at the end of the day.  Angels who are a part of the 1% everyone is talking about now have tools to make sure that they stay in the top echelons of the wealthy. Read more

What you need to know about Angel Investor Syndication

There’s a lot to know about angel investing, but the one thing most people miss is how to syndicate a deal.  Almost every angel investment deal in an entrepreneur’s company is a syndication and there’s a lot more to it than just getting a bunch of investors together.   Read more