How VC's See You

Portrait of an Investor

But... Benefits of Pattern Matching

PORTRAIT OF AN ENTREPRENEUR

BUT A FEW OF YOU WILL BE VERY

What drives a venture capitalist to invest in a start-up?

Market?
Team?
Both?

One of the biggest reason VC's pass on investing is that a market doesn't "feel" big

VC's ALSO PASS DUE TO TEAM ISSUES

What does the ideal entrepreneur look like?

White, male, nerds, no social life, Harvard or Stanford drop-outs - John Doerr, 2009

Of course, looking for the next Mark Zuckerberg can lead one to miss the next great U of M entrepreneur... Or Diane Greene...

WHAT SHOULD A TEAM HAVE?

IF YOU DON'T HAVE THE WHOLE TEAM

MOTIVATIONS

• Equity
• Co-founder status
• Friends and/or former colleagues who want to work with you
• Timing can be everything
• Must read: "The Founder's Dilemma" by Noam Wasserman
• By the way, VC's try to figure out your motivations too

WHAT AN ADVISORY BOARD CAN DO

• Lend legitimacy
• Fill in holes: functional or industry knowledge
• Bring connections: customers, employees, investors
• But...

BIG NAMES WHO ARE WINDOW DRESSING

Case study:
EchoRank: Advisory Board
Met monthly! All attended.
Data science expert, eBay
Product/social media expert, Twitter
BD, financing expert, Almaz
Internet research expert, Experian
...business model advice, recruiting advice, GTM, customer intros, funding!

HOW DOES TEAM DUE DILIGENCE WORK?

• LinkedIn
• GitHub
• Portfolios
• Reference list
• Professors
• Sometimes none of the above

WHAT ARE VC'S LOOKING FOR?

• If it's an enterprise company, then...
• Expertise/industry understanding are critical
• Go to market understanding
• Management experience
• Functional experience (engineering and sales)
• Strong 24/7 work ethic
• Fearlessness

WHAT ARE VC'S LOOKING FOR?

• If it is a consumer company, then...
• No prior experience necessary: the numbers tell the story
• But before there are numbers: intelligence, ability to learn and change course quickly, great engineers, unique consumer insights, and drivers (personality description)
• See prior: 24/7, fearlessness, belief in oneself

A GREAT PITCH SHOULD

• Tell why the world needs what you have and who cares about it
• Explain what is differentiated
• Describe what is defensible
• Assert why you will win
• Describe what milestones you will hit so the next guy pays 2X today's price

MOST COMMON MISTAKES

• Product pitch vs. investor pitch
• Failing to do any validation
• Focusing broadly
• Forecasting CFBE on $2M round
• Failing to address GTM - also known as "if we build it..."
• Top down market sizing only
• Thinking the only milestone is time to being out of cash
• Failing to describe differentiation and what's defensible
• Focusing on valuation
• Forgetting the competitive landscape

WHEN SHOULD YOU RAISE VENTURE CAPITAL?

• When you really, really need it (it's expensive)
• When you think you can provide a return on their money and your time
• When you find a VC with whom you want to work (the partner matters, not just the firm)
• Note: raising money isn't the goal... Making a return on that money is!

CAUTION: "SEED" IS THE OLD A

WHEN AREN'T YOU READY?

• Idea phase: must have a product, some customers -) proof
• You don't have a solid plan for what you will prove once you raise the money
• Your market size is small (
• You're not really building for terminal value
• You're in a noisy market... more proof will be required

BEST PITCHES

• Local Ad Tech Co Series A: (went on to raise $111M)
• Social network Series A: was consistently doubling revenue
• Cyber Security Series B: many reference-able customers

WORST PITCHES

• Social Networking co: big expectations; small user base
• Social Networking co: tough premise - ex's
• SaaS company that never talked to a customer
• Too many to name...

YOUR MILEAGE MAY VARY

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