Using Warrants Helps to Close the Deal

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Investors are always concerned about balancing risk with potential rewards when making angel investments.  Recently P2Bi was able to close their deal quickly by adding warrants as a “sweetener” to the deal for early first round equity investors, resulting in a quick close to their deal minimum and the early round warrant deal closes on August 8th.  

The Deal

Early investors who committed to the first round of P2Bi’s Series A funding received warrants for up to 50% of their investment amount with half expiring in December 2013 and the other half expiring in June 2014.  The warrants allow the investors to purchase additional shares at the original offering price of $1.50.

So, what does this look like to an individual investor? 

Someone investing $50,000 would have the option to purchase up to $25,000 worth of additional shares at the original offering price of $1.50 up to December 2013, or if that was not exercised, they could purchase up to $12,500 worth of shares by June 2014.

Why is this beneficial? 

In every deal there is an execution risk.  The deal looks great, but investors wonder how the company will do once the investment has been made.  The warrants allow investors to observe how well the company performs against its benchmarks and to decide whether they want to make an additional investment at the same rate once the company proves itself and the risks are reduced.  This is always attractive to an investor since later stage funding rounds where risk is substantially reduced typically will have a price that is as much as double or triple the original investment cost per share.

For more information about how this deal was structured you can contact Bruce Morgan at P2Bi (bmorgan@p2bi.com)

Investing in Tech Companies – RVC Event

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title picPost by:  Adam Holcombe

On July 9, another strong showing from the members of Rockies Venture Club appeared at a monthly RVC event in downtown Denver. The discussion included a number of the startup community’s elite members to include: Erik Mitisek – CEO of Colorado Technology Association moderated the event which featured Chris Onan – of Galvanize, Andrei Taraschuk – of Boulder and Denver New Tech, and Jenny Slade – of National Center for Women & Information Technology (NCWIT).

Chris Onan opened up by defining Denver’s current grow engine as more arriving millennials than in any other US city. This growth in the city will ultimately lead to increased quality and quantity of ideas going forward. Chris also mentioned that a potential problem facing Denver is that there is a lack of strong tech bellwethers to build the community around. However, in his own words “money finds good ideas”. This challenge goes out to those looking to pave the way from idea creation to the launch of a new value-creating venture. Chris also highlighted a key point that leads entrepreneurs to success “you must give to get”. This important concept highlights the importance of patience as yet another virtue necessary for entrepreneurial success.

Andrei Taraschuk was next to speak about the business ideas that have been most prevalent in the local community as of late. Andrei has seen more hardware along with Smartphone related devices recently due to the increased usage. These “small screen” devices are rising in popularity across the globe, and “growth is expected to continue at a 10% compound annual growth rate through 2016”1.  Andrei also highlighted that it takes a long time to build a community for start-ups and explained the importance of fostering the relations between entrepreneurs and venture capitals. Andrei highlighted an interesting dynamic between himself and Chris Onan, as Andrei had pitched a business idea to Chris as a potential investor about six years ago and Chris didn’t invest at the time. Andrei’s key point was to focus one’s efforts on building a business and don’t worry about the cash. He, along with other members of the panel, went against the conventional wisdom of viewing the attraction of capital, as definite start-up success by describing, “Don’t celebrate dilution”.

Jenny Slade gave the closing comments. Her data driven comments were core to what drives her decisions to play a significant role at NCWIT. She forecasted significant growth in tech jobs in the next 10 years with only 18% of current computer science majors being female. This undoubtedly leads to her next point that “we are missing half of the good ideas”. Her true goal is to ensure the startup community leverages diversity and all that women bring to an organization. Many tend to agree as the change in business dynamics lend more favorably toward collaboration and multi-tasking, women are viewed as more equipped to keep pace than their male counterparts (For More). One key point Jenny made was that women tend to await an invitation versus interject themselves into a start-up. In her words, one clear way to keep women from applying to a job is by putting “ninja” in your job description as women are generally less inclined to desire to be viewed as a ninja versus men.

This successful RVC event is yet another example of how a bonded community can truly leverage its strength in strong, local organizations to enhance growth and value creation. The key concepts included give in order to get, build the business and don’t worry about money, and finally don’t miss out on half the good ideas by not inviting women into your organization. I truly appreciate the “lessons learned” from a group of true business leaders in the community, and I wanted to share the insight gained from the event. I look forward to being apart of more RVC events like this in the near-term.

 

About the Author – Adam Holcombe is a partner of Cohort Capital, a Venture Capital Firm in Denver featuring a group of young professionals out of DU and CU’s MBA programs coming together to find and fund great opportunities. Although we source our deal-flow from across the country we have a love for Denver and the regions budding entrepreneurial ecosystem. We believe the city is poised to become one of the country’s top regions for start-up activity.

 

1: http://www.fiercemobileit.com/story/global-smartphone-market-growth-estimates-vary-among-research-firms/2013-06-03

1,000,000 New Reasons to Take Advantage of NREL’s Free Assistance for Cleantech Entrepreneurs

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Visualization Lab, ESIFSince 2010 the National Renewable Energy Laboratory (NREL) has offered up to 40 hours of free assistance to U.S. based small businesses with fewer than 500 employees through its NREL Commercialization Assistance Program (NCAP). The Program is designed to “help emerging companies overcome technical barriers to commercializing clean energy technology”, and it does so by providing limited free access to NREL’s facilities and the technical expertise of its scientists. With the imminent opening of NREL’s new Energy Systems Integration Facility (ESIF), the scope of capabilities available to participants in NCAP and NREL’s other industry partnership programs is about to take a giant leap forward.

At its most basic level, ESIF is a collection of 15 laboratories covering everything from power systems integration, to electrical and thermal storage, to smart power, to materials characterization, to manufacturing, and more. You really have to see ESIF in person to fully appreciate the scale of the facility, and during my recent tour I was struck by the huge amount of space available for equipment testing and systems analysis. The only facility in the U.S. equipped with megawatt-scale (1,000,000 watts) test capabilities, the space is designed for large scale equipment and big experiments. The labs are interconnected with two AC and DC ring buses that allow experiments to expand beyond the walls of a single laboratory, and the facility has a SCADA system in place to monitor and control it all. Petascale computing at the on-site high performance computing data center and powerful data visualization tools round out the facility’s capabilities. The image above shows NREL Senior Scientists Ross Larson and Travis Kemper examining a 3D molecular model of PTMA film for battery applications in ESIF’s Insight Collaboration Laboratory.

The best news is, these laboratories are not just for NREL’s scientists: NREL actively encourages partnerships with industry that provide access to the lab’s facilities and technical experts. If you are a cleantech entrepreneur and haven’t yet familiarized yourself with NREL’s capabilities and industry partnership programs, it’s time to do so. Colorado based startups would be particularly remiss if they didn’t explore NCAP, the free commercialization assistance program mentioned above. The idea is pretty simple: if you have a technical or market related challenge in an area where NREL has some expertise, and you have a project that requires 40 or less NREL labor-hours to complete, you may be able to get support for the project for free.

According to Niccolo Aieta with NREL’s Innovation and Entrepreneurship Center, about 40% of companies interested in an NCAP project actually undertake one. The other companies typically find that their challenges aren’t a great match for NREL’s capabilities, or they have an issue that is too large or complex to be resolved in 40 labor-hours. However, don’t rule out a project until you’ve spoken to Dr. Aieta about the details, even if you don’t see relevant capabilities on NREL’s website (which I’ve found a bit challenging to navigate). Also keep in mind that projects are limited by the amount of time NREL employees can spend working on them, not by equipment or lab time. So if you need to leave a piece of equipment in place to test for a few weeks, then want some quick help evaluating the results, you won’t be excluded automatically due to the long test time.
If NCAP doesn’t work for you, and you are able to pay for support, NREL also works with companies through technology services agreements (TSA) and cooperative research and development agreements (CRADA). These are flexible arrangements that are customized on a project by project basis, so the best approach is simply to contact NREL and start a discussion. One nice feature about these programs is that partners pay NREL’s costs with no markup, which helps keep out of pocket expenses in line.

Besides the obvious benefits of working with a local world-class laboratory, there are additional reasons to engage with NREL that may not be apparent at first glance. Venture investors are still skittish about cleantech, thanks to the industry’s capital intensive nature and the long, risky time to market for cleantech innovations (note the recent rebranding of the Cleantech Fellows Institute to the Energy Fellows Institute). Increased emphasis is being placed on the value that large, well-established energy equipment firms can bring as strategic investors in cleantech startups. Clearly, the more visibility a startup can get with these companies the better, and NREL’s laboratories are great places to rub elbows with their technical staffs. ESIF in particular, with its unique capabilities related to megawatt-scale equipment and grid-scale integration, will be a magnet for large energy equipment companies and should present great opportunities for small local companies to engage with them.

Yes, the cleantech industry is difficult, but that only increases the value of the deep technical and market expertise that entrepreneurs can find in Colorado. Investors and entrepreneurs alike should take notice as the state’s cleantech resources experience a major expansion when ESIF comes online.

Jay Holman is Principal of Venture to Market LLC, a Boulder based consultancy providing go to market services for new ventures in the cleantech industry.

The Guppy Tank: A Way To Swim Around VC Funding

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Guppy Tank LogoPicture this: Your company has a proven business model, consistent recurring revenue, and an obvious path to growth. You’re making money, but need a cash infusion to get to the next level. You aren’t poised to grow the 10-30X VC’s or angel investors might be looking for, and while you have money coming in you don’t have the balance sheet for a bank loan. What do you do?

Guppy Tank, coming to Galvanize in Denver on September 12th, might have an answer. Born from the idea of TV’s Shark Tank, Guppy Tank is a 1-day alternative lending/investing event to help companies that have revenue but need cash. I was able to talk with Founder and CEO Darrin Ginsberg on the phone, and then catch up with COO Jon Engleking after he was on the Venture Banking panel hosted by Rockies Venture Club that evening.

Alternative lending has a few advantages over more traditional methods of acquiring funds. While venture capital may be the sexy way to raise money, only around 1% of companies ever do, since most are outside of the growth potential VC’s are looking for. Even for the businesses in their target range, we’ve seen the Series A crunch, which can fall around the time that companies have proven their model but aren’t profitable yet. Angel investors as a group fund a wider range of businesses, but they’re looking for similar things as VCs. Bank loans mean the entrepreneur gets to keep their equity and upside potential, but they typically loan against either hard assets, or profitability with a strong balance sheet  – neither of which are common in a startup. While alternative lending may involve higher interest rates than a bank, it can fill a gap in the funding landscape for promising companies that are making money but couldn’t get loans otherwise.

The Guppy Tank team has seen success with this concept before. Their first company in the space, Super G Funding, provides debt financing for credit card processing companies (ISO’s), again lending against residual revenue streams. After getting that up and running, BizCash was next, operating on a similar model of revenue backed installment loans, and serving a wider variety of businesses than Super G Funding. 

Guppy Tank is a combination of the ideas from their other companies and the show Shark Tank. Although the events aren’t televised, they are similar in format, hosting 7-10 entrepreneurs to pitch throughout one day. Denver will actually be their first event open for the public to watch. There are a few differences from the show – Guppy Tank will make decisions as a group, so you won’t see them fighting against Mark Cuban for deals. Instead of having a set panel of investors, Guppy Tank invites local angels to participate in events for each city they host events. Although they’re primarily oriented toward lending $25,000-$500,000 per event, The Guppy Tank is also open to making minority equity investments. They’ve hosted events in both Newport Beach and Los Angeles, CA and now have plans to expand to the rest of the country.

“Denver has good vibes,” Jon said at the RVC event. Maybe that’s why they chose Denver as the first event outside of California, ahead of Chicago and New York. They have chosen Denver for investments in the past, as Darrin is an investor in INCOM Direct, SupportLocal, and Zen Planner. Since SupportLocal offices out of Galvanize, they had already had a good experience, and were excited to host the event there.

Applications are due no later than September 8th 2013, but space is limited so make sure to get applications in early. Since the event open to the public, (and just before Denver Startup Week) if you just want to watch, come by Galvanize on September 12th!

 

Article by Tim Harvey, Regular Contributor to the Rockies Venture Club Blog

 

 

A big problem launched a new company

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cancer center

Entrepreneurs John Slump and Jared Garfield have gotten it right. They founded their company for the right reasons and are holding fast to those principles. Many medical device companies have technologies that come out of the lab and go in search of a problem. Not these two. They identified a large clinical need and built their company to solve it. As the company evolved through a tough economy, changing investor environment, and development challenges, they maintained the focus of their efforts. Corvida Medical is dedicated to enabling the safer, more efficient, and user-friendly preparation, delivery, and disposal of hazardous pharmaceuticals. As John and Jared told me, “We are passionately committed to making cancer care safe for healthcare workers”.

Like many entrepreneurial stories, this one starts out with a personal ordeal and the persistence to do something about it. John’s sister who lives in Denver was diagnosed with melanoma, and he saw first- hand how dangerous the administering of chemotherapy drugs was to hospital staff. And like many entrepreneurs, John and Jared were not encouraged to create the company necessary to address this clinical need. They wrote their first business plan as students at the University of Iowa, receiving a B+ and “not viable”.  Undaunted, they pressed on with business plan competitions from around Iowa and then nationally. John told me, “The one thing you have to understand about us is that the best way to get us to do something is to tell us we can’t do it”. They researched the clinical need further, they talked to clinicians and hospital staff, they dug into the market opportunity, and they refined their business plan, which culminated in several awards totaling $100,000.

Here is where they realized they might have something. But it’s a huge step from there to start a company. Around that time, they held a focus group at a clinical pharmacology conference with the leading cancer treatment clinicians in attendance. The feedback was so positive and so unequivocal they took the plunge. They knew if they got the clinical need right, then the solution would follow. To get started, they secured funding from friends and family, the state of Iowa, and angel investors.  That is no small accomplishment for two students with no experience but what is really unique is that they submitted a grant to the National Cancer Institute (NCI, http://www.cancer.gov/) under the SBIR program (http://sbir.cancer.gov/funding/omnibus) only about a year after starting the company. NCI doesn’t care about what the business opportunity is, it cares about solving real clinical problems and sees small business as a way to develop innovative solutions to those problems.  They contracted an experienced grant writer, a pharmacologist to be their Principal Investigator, and built a scientific advisory board to assist them in preparing the application, but like most start-ups the majority of the work fell on them. “One of the most pivot events for us was being awarded the NCI grant. It validated the clinical need, and as the title of the grant indicates, it validated we had an innovative device to improve the safe administration of chemotherapy”. Two years later, Corvida Medical was awarded the Phase 2 grant.

With the Phase 1 grant and subsequent additional Series A funding, the two entrepreneurs built a team, further developed the device, and engaged many of the leading cancer centers in the US to test their device.  Since then they have brought onboard Kent Smith in 2012, a very experienced medical device executive as President & CEO, they have been granted 5 patents, and they are working on their FDA 510k submittal. But they continue to focus their efforts on getting the device optimized in the clinic. Asked what they are looking forward to in the near future, they said looking forward to the Phase 3 bridge award to complete their clinical studies.  Like I said, they got it right, and it looks like they continue to get it right.

You can learn more about Corvida Medical (www.corvidamedical.com) by contacting John Slump, at john.slump@corvidamedical.com, or Kent Smith at kent.smith@corvidamedical.com

 

ABOUT THE AUTHOR

Bob Luzzi is an experienced medical device R&D executive and entrepreneur. He currently is working on his own early stage venture, and consults for medical device companies in new product and intellectual property development.

Banking strategies for startups

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Article by Bryant Burciaga, Guest Blogger

Essential tips for budding entrepreneurs seeking funding

Despite banks inability to enter into a Series A round of venture funding, banks can offer the essential “make or break” capital needed during the Series B or C rounds for many early stage companies. The Banking Strategies for Startups event that the Rockies Venture Club hosted on June 11th featured an array of banking professionals’ give insight into how entrepreneurs should strategize when forming a relationship with a bank.

The panel format event featured Charlie Kelly of Silicon Valley BankKen Fugate of Square 1 Bank, Adam Glick of Vectra Bank, and John Engleking of The Guppy Tank.

The four panelists offered an interesting diversity in banking backgrounds. Both Silicon Valley Bank and Square 1 Bank are considered Venture Banks, while Vectra Bank is a more traditional commercial bank, and Guppy Tank isan alternative lender that provides equity investments and loans for select entrepreneurs.

Ultimately the goal of obtaining financing starts by finding what type of bank serves your startup best. As such, the questions were posed: How does your bank serve entrepreneurs? And how are venture banks different from commercial banks? “Square 1 Bank serves entrepreneurs better than traditional banks because our bank is focused solely on offering services to entrepreneurs and venture capitalist that may not qualify for lines of credit or SBA loans,” said Fugate, founder and Senior Vice-President of Square 1. “While investors can also help, one day they want to invest in cloud service technology, another day something completely different, we have the ability to raise money when angel investors and VC’s can’t,” he added.

Adam Glick, now Vice President of Vectra Bank Colorado, used to work for Silicon Valley Bank and made sure to counter by mentioning that despite venture banks having the ability to make loans for receivables and equipment, they still oftentimes command an interest rate on top of stock purchase warrants securing their risk. “We can offer SBA loans with a variety of packages that offer benefits like extended repayment terms on the loan covenant, plus a traditional interest rate and we sometimes will ask for personal guarantees,” Glick said, noting that it might serve entrepreneurs better to have this type of structure in their financing instead of yet another source digging into small companies ownership of shares.

Jon Engleking of Guppy Tank offered a third alternative. “We are not government regulated, we are private, we have higher interest rates, and our average loan size is $100,000,” he said, “But we offer ‘Shark Tank’-like program where you can obtain money when you don’t qualify for all other sources of capital, so you go to the other guys first then come to us,” he added. With this selected by application only program, Guppy Tank receives on average 55 deals a month, taking in 15-20.

Finally, the panel discussion led to dialogue on how to form a relationship with a banker. Adam Glick gave the advice of knowing several bankers—well in advance of asking for funding—to ensure that at least one will be willing to work closely with you when the time comes. “I want to learn the most I can about a person, to properly have a strong relationship,” he said.

As final words of advice, Charlie Kelly vocalized having cash and receivables on a good standing to ensure no problems arise and to keep things running smoothly, and as a tip to always keep in mind the ability to give out more shares to investors, “When investors want more shares it benefits the founder so that ownership percentage isn’t diluted.” Ken Fugate’s final words of wisdom where stating that Square 1, “Doesn’t want to be the largest equity holder,” and supplemented that by adding “ please ensure that you can at the very least pay interest payments.”

Ultimately the final verdict of the night was that entrepreneurs should closely examine their options and figure out what direction will be most beneficial for their company growth.

For those seeking more information on debt structures and convertible debt come meet Jennifer Rosenthal and Carlos Cruz-Abrams, Business Attorneys at KKO law at the RVC Academy: Convertible Debt event on Thursday, June 20th from 5-7pm.

5 Reasons Your Pitch Stinks (When Your Startup Doesn't)

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before and afterYour pitch is often the first impression your company will make with an investor. The company can be amazing and if your pitch is still rough, your company looks rough too.

When you are in front of VCs or angel investors you know it can make or break your fundraising efforts. Combining two of the most challenging things someone can take on (entrepreneurship and public speaking) your presentation can be anywhere between enlightening and embarrassing for both you and everyone in the audience. Here are some ways I see people screw up the pitch of otherwise good startups. This isn’t an exhaustive list, just the most exhausting things I see on a regular basis. 

I’m only talking about the pitch itself here; assuming that you have a company with a real product, a solid team, and traction in the market. You know what you’re asking for, your valuation is reasonable and defensible, and you don’t look like an idiot. Perhaps you even have over a million dollars in revenue and strategic partnerships in place – even those companies can mess it up. Whatever the case, you’ll probably have a short 5 -15 minutes on stage, and only a few slides (at most) to make a first impression.

Don’t blow it! Be mindful of what the audience is here for, and you have a much better shot at closing your round. 

Here are 5 ways to screw up your pitch: 

  1. Too narrow of a talk. Frame the problem you’re solving and why it’s important, and go from there. Hold off on the technical aspects – while they may be easy for you to talk about, it’s not so easy for someone who hasn’t heard of your startup to understand. Most of the time, scientific or detailed answers are best left to the Q&A, or (even better) one on one with the prospective investor after the pitch. Get out of you own head, and make sure you put your idea in context of the problem you’re solving and the ecosystem in which it operates.
  2. Forgetting what investors do. Keep in mind that they are investors, so they want to hear about the investment. Unfortunately, that sense in that isn’t as common as it should be. Know what investors want to accomplish, and learn from CEO’s who have raised and exited successfully before. Understand your valuation and think about the exit, because that’s how investors get paid, and many entrepreneurs forget that. Talking about the cool idea you have without any numbers to back it up might work with an unexperienced angel or a rich uncle, but it won’t work with people who know what they’re doing. 
  3. Acting like you’re in business class.  Avoid industry-specific jargon and MBA-speak. Your audience is smart, but it’s your job to make sure they can understand you. They may have already heard 20 pitches that day, with the same acronym in 3 different contexts, and once you lose their attention it’s very tough to get it back. Also, trying to appear impressive with something other than actual accomplishments may give the audience a signal that you’re not coachable, which is a big red flag. Investors also won’t care about your 50-page business plan like a marketing professor would – be concise (in large font) in your deck and save the business plan for due diligence.
  4. Not practicing enough. It’s okay to feel nervous about the pitch. It is not okay to ignore what makes you nervous. The single best thing you can do to reduce fear is by practicing what you’re going to say, many times over. Practice on your own, in the mirror, and in front of real people. I joined Toastmasters when my career led me to frequent public speaking, and it’s the best thing I could’ve done to improve my presentations. Public speaking wasn’t brand new to me (I had probably spoken to over 1,000 people in public at that point) but the difference I saw was dramatic. I’m still not an expert, but it was a steep and useful learning curve. Not all CEOs will have the time to join a public speaking group, but you at least need to dedicate ample time to practice.
  5. No feedback. Learn all that you can from your practice. Record yourself on video and watch it – it’s probably humbling. Feedback from other people is extremely valuable as well. Toastmasters does a great job of this (on the technical speaking points) and it’s one of the most best parts of the program. Rarely in life are we given honest, realistic feedback (even if it stings) so soak it up when you can. Ask knowledgeable people in the industry like angels or other CEOs to watch and critique both your business and the presentation. If you’re able to get a pitch coach to work with you through the process, be thankful and take advantage of it.

Overall, make an effort to be more aware of what your investors are looking for, and how you communicate most effectively on stage. If you’ve gotten to the point where everything else in your business is solid enough that the only thing holding it back is the pitch, consider yourself lucky. This isn’t an easy process, so learn as much as you can. Then go out, get more feedback and practice, and keep polishing!

 

Article by Tim Harvey, regular contributor for Rockies Venture Club blog. 

 

 

RVC Academy: Due Diligence

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RVC Academy – Due Diligence 

Register for Angel Capital Summit 2013

by Thought Leader: Lauren Costantini, Ph.D. from CID4

When: June 25, 5-7pm

Where: Shift Workspaces, 383 Corona Street, Denver

Investors,

  • Ask the right questions to uncover the risks that could jeopardize your investment.
  • Learn to devote a short 10-20 hours of due diligence and discover what you need to make a smart decision.

Entrepreneurs,

  • Empower your deal by gathering your due diligence materials before investors even ask for them.
  • Close your deal faster by supporting your lead investor.

Taught by Lauren Costantini, Ph.D. from CID4. CID4 is a not-for-profit organization committed to Economic Development Through Innovation Advancement in the life sciences industries, by providing investment capital and management assistance. Lauren also serves on a number of Advisory and Executive Boards for early stage companies.

 

 

Investor Pitch Deck Series #6 – Customer ROI Slide

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Dear reader,

This is the sixth of many blogposts in a series that I’m calling the Investor Pitch Deck Series. I am creating a post about each investor pitch slide, why it is important, the common errors, and how to communicate that you have what it takes to achieve your goals for this company.

Posts in this series

(note, this is NOT a suggested order for sides in your deck)

 

 

 


The mantra for this series is, “Above all, make sense.”


 

The Customer ROI Slide

The customer ROI slide is a new take on the old business model slide. By the end of this slide, your audience will feel confident that your user will use your product, and your payer will pay for it.

 

User: The person or business who uses your product.

Payer: The person or business who pays for your product.

 

With traditional consumer goods, the user and the payer are the same person. However, with many business models, the user and the payer are totally different entities and you have to acknowledge both for your investor to really GET your business.

Think about your toothpaste at home on your bathroom sinktop. It’s a simple product. It’s pretty basic. Do you buy the same kind every time you run out. Do you switch between brands? Why? Your investors will need to know why potential users will switch from whatever they are currently using (or not using) and start using your product. This value to the new user is called the User’s ROI or Return On Investment. Users are not investing capital; they are investing the energy required to make a change in their habits. Identify the User’s ROI and your venture capital or angel investors will feel much more comfortable with your product.

Now about the Payer’s ROI. It’s graduation season so I’ll use a college analogy about parents who send their kids to college. Parents are paying for the education, but not directly using it. Of course there is a benefit for Mom and Dad. By paying for college, their kid is more likely to get a degree thereby lowering the odds that they will move back into Mom and Dad’s basement bedroom. How do the parents choose which school to send their child to? The Payer’s ROI often a complicated answer when they are not also the User. The Payer wants a good deal financially, but they also want a perceived value for their dollar that has nothing to do with direct use of the product.

Other examples of payers who are not users:

  • Insurance Companies
  • Companies that pay for advertisements
  • Companies that purchase the data collected from free software
  • Governments who provide free public services
Your goal with this slide is to uncover who your users are, who your payers are, and why these entities are willing to use and/or pay for your product.

Cringe Factors

Cringe Factor #1 – You have a few paying customers and they aren’t increasing in number over time.

Why this makes us cringe:  Status quo, apathy, and disuse are the reasons that products die.

How to do it right:  Your investors want to be reassured that you are a realist. A realist knows that a new product, no matter how sexy, inexpensive, functional, or perfect, will not become instantly adopted by the world. There are plenty of products out there that consumers are happy to use for free, but will abandon when a financial transaction is required. If you are in revenue, you must show your potential investors a trend of increasing paying customers over time. If you cannot show this positive trend then you must have a good reason for a lack of increasing adoption. Alternatively,  you can devise a way that you can monetize your product without the user having to pay.

 

Cringe Factor #2 – You aren’t clear about WHY people will pay for your product.

Why this makes us cringe: Investors are afraid that no one will be willing to pay for your product.

How to do it right: Make the Payer ROI very clear in your pitch. If your product is faster to install and cheaper to run than the current solution, then you have a great argument. Visually show your audience that a payer can currently expect to pay $2000 a pop for the current solution and would only have to pay $800 for yours. Further, you can install yours in minutes instead of days.  We want specifics with the Payer ROI description. Beat us over the head with your Payer ROI.  Don’t leave it to the imagination.

 

Cringe Factor #3 – You aren’t clear about WHO pays for your product.

Why this makes us cringe: Many products are free to users these days. (Thanks, Google!) So, who are you planning to get your revenue from. It’s not always obvious.

How to do it right:  Even if you are selling a product directly to users, be explicit about who pays for your product. You can go one step farther and discuss your price point. It’s a lot easier for investors to picture a successful transaction when they understand whether the cost of the product is reasonable.

 

Example Customer ROI Slide

 

One of the simplest ways to show customer ROI is to create a graph of potential savings that a customer might experience if they were to switch to your product.

If your user is not going to pay for your product, you will need to describe a non-financial ROI. It’s not enough to have a better product. People need a very compelling reason to change their habits.

 

 

 

Article by Nicole Gravagna, PhD, Director of Operations for the Rockies Venture Club as part of a series on the elements of an investor pitch deck. The next in the series is ….


Colorado Angels Have Unfair Advantage Investing in Cleantech

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Colorado has a lot to offer cleantech entrepreneurs, from targeted grants, to easy access to NREL’s technology commercialization resources, to cleantech focused entrepreneurial programs at top research universities, to name just a few. There is no more supportive place in the country to launch a cleantech company, which gives local angels a distinct advantage when investing in this growing, and complex, industry. Colorado knows about investing in cleantech.

The only way the community could do more to support cleantech would be to scour the country for experienced, successful entrepreneurs, bring them to Colorado and immerse them in the local cleantech ecosystem, then provide guidance from industry experts as they develop business ideas around one of the numerous innovations emerging from local government labs and universities. Enter the Cleantech Fellows Institute, a Colorado Cleantech Industry Association (CCIA) program established to do exactly that.

The Institute kicked off in 2012, with a class of 5 Fellows who had considerable entrepreneurial experience outside the cleantech industry. The Fellows knew how to start a business, but they didn’t know cleantech, so they spent 175 curriculum hours listening to 160 speakers, and took almost 30 cleantech related tours, to come up to speed. Each Fellow undertook a capstone project centered on a new cleantech business idea, and in the Institute’s inaugural year this exercise led to the creation of two seed-stage companies and one non-profit.

Under the direction of Executive Director Steve Berens, the Institute is now accepting applications for its second class of Fellows. This year the program is undergoing some changes based on lessons learned from the first class, including an expanded international component. The program will include a week during which delegates from around the world descend on Colorado to participate in the Institute’s activities and make connections between the cleantech communities in Colorado and their home countries.

Clearly, Colorado is putting a lot of effort into stacking the odds in favor of the Fellows and the cleantech companies they hope will emerge from the Institute. The VC community has taken notice, as evidenced by the 19 venture capital partners the program has brought on board to date. However, there is room for additional engagement from Colorado based angels, who have an advantage in their ability to participate throughout the process since the Institute is based in their own backyard. Interested angels can send an email to mailto:info@cleantechfellows.comto learn more and sign up for regular email updates.

Even with all of the support Fellows will receive through the Institute, cleantech remains one of the most challenging industries in which to start a new venture. The Cleantech Fellows Institute provides access to critical knowledge and a great support network, which will reduce risks in my opinion but it certainly doesn’t come close to eliminating them. The real determinant of the program’s ability to spawn successful cleantech startups is underway right now: the Fellows application process. The quality of the Fellows accepted into the program will have the greatest influence on how successful it is, and the ability of local angels to get to know the Fellows over the course of the program is an opportunity that should not be missed.

Jay Holman is Principal of Venture to Market LLC, a Boulder based consultancy providing go to market services for new ventures in the cleantech industry.