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If you are a startup CEO, or work for a startup – these are challenging times. The world as you know it is on hiatus, and uncertainty reigns. I would like to share some wise advice from my friend and fellow board member at the Angel Capital Association, Pat LaPointe from Frontier Angels in Bozeman, MT. This is advice that I hope every startup CEO in our community takes to heart.
Best wishes, and be healthy,
Peter

Dear <CEO> –

I hope you and your families and friends are healthy and staying safe. There is no “sale” worth jeopardizing your health. No meeting is worth exposing yourself or your team to something for which there is presently no cure. Please be careful.

I was running early stage companies in both Sept 2001 and in March of 2008. This feels EXACTLY like those situations. Fear and uncertainty reign. No one person has a completely accurate view of the situation because it is SO complex and unprecedented. In case you care, here are a few observations on how I would apply my own experience if I were running an early stage company today:

  1. If I was selling to enterprise or government buyers, I’d expect everything to stall. Sales pipeline will get rigor mortis and nothing will move forward for months. That means any revenues you were counting on from companies not already under contract will NOT materialize anytime soon.
  2. If I had contracts with cancellation clauses, I’d expect to see half my enterprise customers exercise those clauses. Government buyers don’t tend to cancel in the near term, but commercial enterprises will start shedding expenses UNLESS I’d already been able to PROVE clear cost savings for them. If my value proposition was about generating more revenue for them, they will STILL cancel because many of their clients/prospects will not be buying right now.
  3. If I had less than 12 months of cash on hand, I’d start preserving cash NOW. TODAY. It is incredibly painful to have to lay off people who you worked so hard to recruit and train, and who have worked so hard for your shared future and vision. But you have to think about the business surviving first so you will live to fight another day and have any hope of re-hiring people later. I would triage my accounts payable and stretch my vendors to 90 days or more. I’d call and tell them I was doing that, but I had no choice if the business was going to survive.
  4. Even if I had more than 12 months cash on hand, I’d move to conserve cash immediately. I’d defer discretionary expenditures. I’d look for opportunities to reduce my non-strategic expenses like rent or other things where I may be able to renegotiate the deals.
  5. I would look for opportunities for “customer financing” – getting happy customers to pre-pay for the next 12 months of product/service and offer something special in return.
  6. If I had a revolving line of credit, I would draw it down NOW. The interest cost is small price to pay for the security of the cash.
  7. If I had a termsheet on the table or was in mid-raise with “soft circles”, I’d expect it will fail. Venture funds will continue to invest, but only after a few months go by to allow them to reassess the market dynamics and even then the valuation they offer will be much lower even if there is no apparent reason for that. Angels already have “alligator arms” and are fast shutting down all investing until they understand their own personal liquidity. They are thinking about their families and their own health since the majority of them are over 60. I’d expect them to be cautious and slow-moving for at least 6 months. I’d look to find capital from family and friends and credit cards and second mortgages to stay alive. Another option…
  8. I’d look for opportunities to sell services to customers/prospects for short-term revenue flows to keep the lights on. I’d think about where my expertise is and how I can leverage that near-term to create value for someone.

Bottom line: act fast to preserve cash so you have more options 6 or 12 months from now. Expect the situation to get far worse than you may initially think (e.g. 20% unemployment; 8-12 weeks of “social distancing”; a big viral rebound in the fall of this year; fundraising rounds taking 12-18 months). If it’s any better than that, you’ll be ahead of the game.

I will never forget how my first big exit completely fell apart in the fall of 2001 and took many months to put back together (at a lower price). Or how I had bankruptcy papers on my desk in 2008. Or the incredible pressure of having to keep my family afloat and protect my staff – many of whom had become close friends and all of whom had families of their own. In both situations, I acted too slowly, was overly optimistic about how soon things would turn around, and pushed the company too close to the edge. I was too optimistic and overly confident of my own ability to impact a market being buffeted by forces far larger than I could overcome – no matter how hard or smart I worked. 

But we adapted, learned, and thrived. You can too.

We (Frontier Angels) are huge fans of you and your team and want to help.  We are still investing. What we’re looking for are companies who A) have good market traction, B) have the ability to ratchet-down their monthly burn rate, C) are sufficiently well financed to seize opportunities in the market, and D) have CEOs who are not prone to mistaking hope for judgment. Call anytime we can help with anything.

Stay well; act fast. Remember, YOU are the core of your asset. Take care of YOU.

Venture Capital Funds all have a thesis about what makes them tick and why institutional and individual investors would join them as Limited Partners.  Social and Environmental Impact Funds often struggle to articulate their social or environmental impact thesis because of a variety of conflicts within the impact investing space – not the least of which is the false dichotomy of “purpose over profit”   while others struggle with being hyper-focused on one cause vs. taking a holistic approach.

Here is a chance to read an Impact Venture Capital Fund’s thesis that reconciles this dichotomy and offers a way for investors to make significant and measurable social and environmental impact while also achieving top quartile market rate returns.

The Fund is the Rockies Impact Fund, based out of Denver, Colorado.  The Fund is launching in 2020 with a mission to invest in the most innovative impact companies in the U.S. Led by an experienced management team with over a hundred investments, this new fund is pioneering a way to make the most impactful investments targeted at top quartile market rate returns.  Read on to learn how they do it.

Rockies Impact Fund Investment Thesis:

Our thesis is that we will achieve top quartile venture capital returns while focusing our investments innovative companies that are the drivers of human growth creating measurable impact in social and environmental sectors  such as healthcare and life sciences, education, food and employment security, and cleantech. 

The Rockies Impact Fund thesis unpacked.

Our thesis is comprised of five elements, each of which has deep thinking behind it based on our experience in the venture capital investing world, intensive work in social and environmental impact companies and our engagement in the world of impact investors and how they think about “impact”. 

We’re concerned about attitudes about “impact investing” and general confusion about what this means exactly.  We find little in common between early stage venture impact investing and public “ESG” (Environmental and Social Governance) companies.  The differences are far more substantial than just size and corporate structure. The “ESG” companies are rarely innovative in the way that startups are, and worse, their impact may actually be negative overall.  We’re skeptical of the greenwashing that companies like Exxon, ConocoPhillips, CocaCola, Nestle, Clorox and others use when they raise the ESG banner over their names. There is simply no way that the net impact of these companies is positive, despite their ability to comply with ESG metrics that somehow don’t take the massive negative environmental and social impacts these companies create into consideration.

The Rockies Impact Fund seeks to distance itself from these companies, and the disfunctional metrics that allow them to be considered “impact investments.  The Rockies Impact Fund is in search of high returns in truly innovative companies that are solving problems for the future of all of us, our children and our children’s children.

Please take a moment to consider the perspective of these five elements of the Rockies Impact Fund’s thesis to better understand where the leaders in impact investing are headed.

1. “Our thesis is that we will achieve top quartile venture capital returns”

Top quartile returns in the VC industry have ranged from 18% to 37% in annual growth over the past decade with an average across vintages of 25.59%.  The current investments in the Rockies Venture Family fall squarely within the upper quartile returns spectrum, based on year over year increase in Net Asset Value. Our experience has been that impact companies in our portfolio have actually slightly outperformed other sectors such as SaaS technologies, Artificial Intelligence and E-Commerce.  The surprising conclusion is that impact companies don’t need to have reduced expectations of growth or investor returns that many people in the impact world seem to expect. 

Our thesis is that if we’re investing in a company that creates positive measurable social or environmental outcomes, everyone involved should be working to grow this company as large as possible to create positive returns and exponential growth in impact and financial return upon acquisition.  The more these companies grow, the more good we create in the world. It’s that simple.

Many impact funds and investors believe that “zebras are better than unicorns” and focus on small business.  While there is a place for this, our belief is that it is not a place for venture capital. The concept of “concessionary” returns for impact companies which may seek to return only one to five times the investment is simply not necessary when companies that are creating true innovation and are driving human growth in so many ways, while also having the potential of returning 10X the investment or more.

Rockies Impact Fund has had a geographical secret weapon for creating better returns that other Funds may not have in their arsenal.  While the Fund may invest in the best companies anywhere in the U.S., its portfolio is weighted towards Colorado and the Rocky Mountain Region.  Companies here are valued at up to 30% less than similar companies in Silicon Valley or New York. Silicon Valley Bank has done research for us showing this discount is consistent over time, but that as companies move towards acquisition, their valuations converge with those of coastal firms, thus resulting in potentially higher returns for portfolio companies in our region.

The Fund also benefits its individual Limited Partners by primarily investing in QSBS stocks that qualify for Section 1202 tax free status for individual investors.  The Fund additionally passes through Colorado tax rebates of 25% on qualifying investments, also to individual Limited Partners who are Colorado taxpayers. These tax favored structures benefit individual L.P.s with increased cash on cash returns without detriment to institutional investors who may not qualify for these tax breaks.

To create top quartile returns, we have a portfolio strategy that includes diversification into approximately 25 portfolio companies.  We believe that smaller portfolios increase concentration risk to Limited Partners and defeat many of the reasons for investing in a managed fund.  We also believe that significantly larger portfolios suffer from a lack of the hands-on engagement with management teams and boards which has been shown to increase returns. The “spray and pray” method of investment does not foster best investment and portfolio practices and makes thorough due diligence and management difficult.

Our portfolio theory also holds that a significant portion of the Fund, ranging from 50-66%, should be held in reserve for follow-on investment.  Our first round investments typically include rights to participate in follow-on rounds. We believe that after investing and working closely with a portfolio company, we have better inside information than new investors, and we are in a better position to invest (or not) in subsequent rounds.  By continuing to invest in follow-on rounds, we reduce overall risk to the fund, by shifting a portion of the capital to increasing later stages of company development where many of the early stage risks have been mitigated. Additionally, this strategy allows for any of our portfolio companies to grow to the point that just one company can “return the fund”. 

2. “Focusing our investments on innovative companies”

The companies we invest in are truly innovative and are bringing new technologies, products and services to markets that don’t have the ability to develop innovation on their own.  We have a saying, “M&A is the new R&D”. Large corporations are no longer innovating as much as they did in the past, and they are using M&A to acquire innovation instead of developing it in house.  This simultaneously reduces risk for them, and creates opportunities for social and environmental impact companies that have created scalable impact solutions.

While R&D budgets have been on the decline, a combination of the 2017 corporate tax breaks, cheap access to plentiful capital, and large corporate cash reserves, have all led to an increase in acquisitions in recent years.

Impact investments in so called ESG companies in the public markets don’t provide the same level of impact innovation that early stage startups can, so Limited Partners in early stage impact funds can have a chance to support game-changing technological advancements rather than incrementalism of the incumbents.

As an example, one of our portfolio companies, PharmaJet, Inc. based out of Golden Colorado, is innovating in healthcare vaccine delivery in ways that create multiple positive social and economic benefits.  Their patented, innovative needle-free delivery system for both subcutaneous and intramuscular vaccines is game-changing in providing the following health care benefits:

  1. The needle-free system engages more members of the community who may have been needle-phobic, to get vaccinations, resulting in higher overall public health outcomes.
  2. The needle-free system eliminates needle-prick infections for healthcare practitioners, resulting in significant savings.
  3. The needle-free system results in elimination of needle re-use, especially in third-world countries where a single syringe may be used ten or more times, with resulting infection increase.
  4. The PharmaJet cartridges have zero waste vs. up to 35% vaccine waste in traditional needles and vials.  This makes a huge community impact for vaccines such as polio which are currently in a world wide shortage.
  5. The PharmaJet delivery methodology pierces the skin, and also the cells below the skin.  This makes delivery of new DNA based vaccines extraordinarily more effective because of the need for these vaccines to interact with the DNA within the cells.  Traditional delivery methods require much more of these expensive and difficult to manufacture vaccines to achieve the same results.

3. “Companies that are the drivers of human growth”

A unifying theme of the Rockies Impact Fund is that the companies we are investing in are all driving factors of Human Growth in one way or another.  Right now we are facing an unprecedented number of global challenges to human growth, despite exponential technological advances. 

We are investing in a portfolio of companies that look at human growth from many different angles rather than a hyper-focused impact theme.  We believe that a holistic approach is necessary to tackle the complex, multidisciplinary challenges that the world is facing.  

Human growth is a multi-disciplinary area that moves through Maslow’s Hierarchy from bottom to top including decent standards of living, housing, availability of healthy food and clean water, education, smart cities, reliable clean energy systems, equality of opportunity, and communities that foster freedom and dignity for their members.

The concept of human growth is one that has expanded significantly in the past decade.  Social OR Environmental concerns were previously articulated by many organizations. Today we need to think of Social AND Environmental concerns as it becomes clear that environmental change IS social change.  We are on the brink of seeing massive social change, migration, shifts in wealth, previously unseen environmental health impacts, and battles for limited resources – all caused by changes in environment. 

Human growth is the most important theme for all of us in the coming decades, amidst massive change and a comprehensive approach versus point solutions is the way we must be thinking about how to solve the complex problems the world is facing.

4. “Creating Measurable Impact.”

There’s no sense in creating impact if you can’t measure it.  

The Rockies Impact Fund has been a student of Impact Measurement over the years and has evolved from rejecting the one-size fits all “metrics” that really don’t measure much at all in a way that investors can usefully compare investments to generally adopting the  processes and standards as described in the Impact Measurement Project. www.impactmeasurementproject.com  The IMP provides general guidelines which ultimately lead to metrics that are targeted to the core impacts of the portfolio company rather than generic metrics, that even when modified to be sector specific, never seem to adequately measure what the company really does to create positive impact.

Our interest in impact investing is to invest in “Primary Impact” companies who create positive social or environmental impact through their primary business model.  These companies are doing good every day and by measuring their corporate output, we can also measure their social and environmental impact. Some measurement models focus on Secondary Impact which measures “how” the company operates vs. “what” the company does to create impact.  We support the measures that secondary impact metrics support such as supply chain transparency, recycling and energy use, fair pay, and more, but these are good guidelines for all businesses vs. metrics that track true innovation. For example, we can calculate the positive social impact of PharmaJet based on some of the criteria listed above.  The more PharmaJet sells of their product, the more positive measurable good we can find. We happen to know that they recycle and have fair employment and supply chain practices, but we invest because they are creating massive improvements in healthcare delivery.

Measuring positive outcomes is a good idea for impact investing, and this includes having a clear framework for measurement of a company on a pre-investment basis to determine if it is sufficiently impactful to call it an impact investment.  We’ve found in our own portfolio, that impact comes in shades of gray and some companies are more impactful than others. Without a pre-investment impact criterion, an impact fund could consider every potential investment to be an “impact” investment.  We have seen this happen and have developed a point system to help us to determine how impactful our investments will be, and reserve only the most impactful for our fund.  

The Rockies Impact Fund measures three criteria to determine impact before investment.  1) Depth of impact – how much of an innovation is this company producing? Is it a 10% improvement, or is it game-changing?  2) Breadth of impact – how many people will be affected by this impact? Is it thousands, millions, or potentially a billion people?  3) Financial impact – will this company return 10X the investment or more on strictly financial terms?   

The Rockies Impact Fund requires a score of at least 19 out of 30 in order to meet all three of these criteria for impact before it makes an investment.  This scoring system helps us to calibrate impact compared to all of the investment opportunities available to us.

By going through this exercise we can create an “impact proforma” for each company we are considering adding to our portfolio.  Just like all venture capital funds need to analyze the company’s proforma to determine its investability, we can model the impact as well as the financial returns.  Using a Triple Bottom Line (Social, Environmental and Financial) analysis is a well understood concept, and by translating the triple bottom line principles into an impact proforma is not a common practice among impact investors.  The Rockies Impact Fund has studied the Impact Proforma concept in order to ensure alignment among investors and founders as well as to help it to prioritize the companies for its portfolio that provide both high Return on Impact as well as Return on Investment.

5. “In social and environmental sectors such as healthcare and life sciences, education, food and employment security, and cleantech.” 

The United Nations Sustainable Development Goals have become the lingua franca of the impact investing world.  We are in support of all seventeen of the goals and the Rockies Impact Fund can effectively address any of the goals via a direct or indirect investment thesis. 

While we believe that a holistic approach to impact is important, we also believe that nobody can be an expert in all things.  

The Rockies Impact Fund has a deal flow funnel larger than most Impact Funds.  We see about 1,500 deals per year and dig deep into about 250 of those in order to make about ten or twelve investments a year.  Having a large deal flow funnel allows us to be picky and to invest in the companies that we know the most about and that match our thesis.

The Rockies Impact Fund has a large set of hundreds of resources who help to source, diligence and manage our investments, yet like any organization, we have more strength in some areas over others.  Looking at our historical investment behavior, we have invested heavily in the life sciences and healthcare, education, agriculture and food tech, companies that provide access to capital, decentralized employment and employment security, cleantech, energy and water.  

The Rockies Impact Fund is perhaps one of the most exciting impact investment vehicles available for individual and institutional investors today. It is addressing an important gap that traditional public market focused ESG funds have missed – early stage innovation investments.  If most of our investments continue to go to these large ESG focused funds and ETFs, then true innovation in social and environmental issues will suffer.  

Capital in the impact world has become “gentrified” by moving upstream to bigger vehicles and publicly traded funds.  This “gentrification of capital” has left a significant gap in the most important sectors of impact – the early stage innovators who can take the risks to make a big impact in ways that the large public incumbents can’t.

If you would like to consider joining the Rockies Impact Fund as a Limited Partner in our mission to create True Impact, please contact us at:

info@rockiesimpactfund.com

Or

Peter Adams, Managing Partner, at (720)353-9350  peter@rockiesimpactfund.com

Or

Visit http://www.rockiesimpactfund.com

Most interns don’t expect to learn from the Executive Director or their CEO. Fewer get to. Fewer yet get to sit through a five hour seminar on financial strategy with said executive. This is what the analysts at RVC got on Tuesday as Executive Director Peter Adams walked a group of entrepreneurs and investors through a CFO’s role in acquiring funding. From how to build adequate proformas to when to schedule your raises, the RVC Financial Class Cluster threw us into the fire of financial strategy. Sitting in with a group of investors and entrepreneurs alike, here’s a look at what we covered.

Financial Strategy

Diligence is the name of the game at RVC, with every prospective deal getting a full diligence report drafted up for RVC members. For Peter, this means believability and accuracy in the numbers. In the case of financial strategy, this means clearly defining your major milestones, your key hires, when (roughly) you’re going to raise capital, how you’re going to raise it, and the nitty gritty of each of those things. Peter’s philosophy outlines all of these alongside clear exit modeling as fundamental to a success for prospective founders. What stood out in this densely packed granola bar of venture capital knowledge? The paradox of uncertainty.

Peter made clear that a company and its founders won’t have a clear date on which they will need to raise the next round, hire that new sales star, or sit down with their dream acquirer. Peter also made clear that a company needs to have an idea of what those events look like, and while precision is not present, they key came down to milestones. Bringing on new team members shortly after key product launches, identifying the scalability inflection point, and raising enough money to pave a long enough runway are his tips for a successful financial plan.

Valuations

Part of diligence is accuracy and reasonable goals, which for valuations means a lot things. One of Peter’s highlights is that while Angels would absolutely love it if their firms all became unicorns, unless that conversion happens in a fairly tight window, doing so isn’t best for the Angel. Rather than lofty goals that may provide a bigger sum after a decade, Peter instead argues for reasonable exit strategies. Acquisition by key distributors or large firms with histories of choosing the buy side of the buy-or-build dilemma, Peter argues, can result in faster turnarounds and safer strategies for both Angels and entrepreneurs.He defines clear ranges with key milestones for reasonable early valuations, and outlined a number of models used at RVC to determine those early valuations.

Peter also faced the audience with a thought challenge. Imagine an entrepreneur trying to raise their first seed round. As the omnipotent spectator, we know this company to have a specific valuation. The question at hand? Is it better for the entrepreneur if the company gets valued at double that valuation, or 10% less than its true value? While the company would be able to raise more money at the double valuation, the answer would be the 10% reduction. Less dilution and a slower, more controlled value inflation would prove advantageous for the entrepreneur.

Proformas

Proformas are integral to the other parts of this class. They are the bridge between your vision as an entrepreneur and the funding to get you there. It is the blueprint of your business and your plans, the pictogram by which you assemble a successful company. This means years of financials, forecasts, milestones and targets, key hires, and more. Good proformas are believable proformas, argues Peter, utilizing reasonable projections and honest numbers to justify their claims and valuation. He argues that VCs and Angels alike would rather see that entrepreneurs have reasonable expectations and goals they know they can reach. In other words, be honest. If your burn is running $15k a month, don’t try to hide it. Instead, highlight where that burn is resulting in growth and is driving value. Show how you can scale back to balance if you need to slow down while seeking funding. Tell prospective investors honestly whether or not you have plans for future rounds. What milestones lead up to it? There are no ruby red slippers to take you back to the quiet farm in Kansas, so build the yellow brick road that takes you to Emerald City of successful exit, no matter how treacherous it may be.

Rockies Venture ClubAs the cost of starting a tech company has gone down, VCs have moved upstream, funding bigger and bigger deals while angels and angel groups have taken up the sub-five million funding space. Meanwhile, accelerators and platforms have also taken a place with funds to jump start companies going through their programs.  MicroVCs are venture capital firms with assets under management of less than $100,000,000.  That sounds like a pretty big fund to angel investors, but in the big picture venture capital world, these truly are micro venture capital funds.

MicroVCs have taken on a huge role in filling the gap between seed and angel funding and big scale unicorn-track venture funding.  If you think about basic fund structure, a $100 million fund will invest about half of committed capital, or $50 million into its first round investments.  The fund will want to diversify to twenty or more investments, so you might see an average of $2 million for a first round.  Then they’ll have the remaining $50 million to continue investing in the top winners from the portfolio.  $2 million is a great amount for a post-angel round, but is far less than the $10 million that an average VC deal is doing today.

The MicroVC area is more understandable if we look at what kind of entities fill this space. There are sub $25 million funds, also known as NanoVC Funds which operate very differently than $100 million funds.  Then there are the accelerators which are actually MicroVCs.  Also, more and more angel groups are creating funds (Like the Rockies Venture Fund) and are moving upstream a bit to do larger deals.  Finally, angel groups are syndicating actively, so they can move into larger and larger deals.  Some examples of the power of angel groups leveraging their investments by working in syndicates include Richard Sudek’s work at Tech Coast Angels who syndicated a $10 million raise via syndication and similarly Rockies Venture Club Participated in a Series F syndicate for PharmaJet locally.  These are not deals that we would typically expect to see angels playing in.  This means that angels, when working together can start filling the space occupied by the MicroVCs.  Rather than competing, we’re seeing angels investing alongside MicroVCs at an increasing pace.

There are other considerations, however.  MicroVCs will typically hold back half of their fund for follow-ons, while angels are less predictable and many still use a “one and done” approach to their investments.  Even with MicroVC follow-on investment of up to $10 million, this is still not enough to propel some companies to the scale they’re shooting for, so they’ll still need to engage with traditional VC once they get big enough.

Angel investors should help startups to figure out their financial strategies so that they can work on building relationships with the right kinds of investors from the beginning so that they don’t paint themselves into a financial corner by working with the wrong investors.  Similarly, startups need to understand the goals of any type of VC so that they don’t waste their time barking up the wrong tree.

 

To learn more about the evolving role of MicroVCs, consider attending the RVC Colorado Capital Conference.  It’s coming up November 6-7th in Denver, CO.  Visit www.coloradocapitalconference.org for more information on speakers and presenters.  This event is on of Colorado’s largest angel and vc investment conferences of the year and there are great networking opportunities.   We hope that  the audience will come away with an idea about how all these types of capital are evolving and the different strategies that companies can take in choosing who they want to pursue for their capital needs.

Peter Adams

Managing Director, Rockies Venture Fund I, LP
Executive Director, Rockies Venture Club, Inc.
 Buy Venture Capital For Dummies on Amazon

 

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!

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.

It is almost deemed common sense to follow where the money is, but one must also consider where the opportunity is as well. This is where the thought leaders get a head start and  potentially receive better returns. The Rocky Mountain region is looking favorable for investing due to recent startup activity and a lack of access to capital.

Startup Activity in the RockiesScreen Shot 2016-07-13 at 10.25.26 AM

Recent startup trends are looking favorable for the Rockies. The Rocky Mountain region states are Colorado, Montana, Wyoming, Utah, New Mexico, Nevada, Arizona, and Idaho. All of these states rank high on the Kauffman Index Startup Activity Rank for 2015.

Among these states Montana ranks #1 for 2015, and Wyoming follows at #2. Colorado ranks #4, and Nevada jumped 11 spots to place it self at #10.Screen Shot 2016-07-13 at 10.30.43 AM

Fishing for Returns

Angel investors should always consider the water they are fishing in. The Rocky Mountain region is setting itself up to look like a stocked pool. With so much start-up activity, angels can afford to be picky while also diversifying their portfolio. Not to say angels should throw their money in the area assuming one will be a home-run type of investment. Yet, they have a bigger selection to compare and contrast similar investments.

Competitive Deals
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The 2015 Annual Halo Report shows that 3 out of 4 Angels invested within their region. However, less than 18% share of all angel dollars are within the Rocky Mountain Region (this yields higher competition among the startups). Therefore, with less money coming from out of the region, and only 18% of total money within, start-ups need to build a well rounded deal to stand-out and gain an Angels attention.

(I.e. More activity doesn’t necessarily equal better returns, but it does yield more opportunity and more investment options. Always do your due diligence/invest smart, but also consider regional activity or trends.)

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

This is a fast cool video for both angels and startups alike.  Read more

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