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How VC's See You 的副本

Talk for the University of Michigan School of Engineering. March 28, 2016

PRESENTATION OUTLINE

How VC's See You

UNIVERSITY OF MICHIGAN
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Portrait of an Investor

"Visionary Sheep"
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But... Benefits of Pattern Matching

1000's of companies over many years -) some wisdom
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PORTRAIT OF AN ENTREPRENEUR

CONTROL FREAKS WHO WON'T TAKE ADVICE

BUT A FEW OF YOU WILL BE VERY

SUCCESSFUL IF YOU DON'T LISTEN TO VC's
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What drives a venture capitalist to invest in a start-up?

Market?
Team?
Both?

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

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VC's ALSO PASS DUE TO TEAM ISSUES

WEAKNESS, PERCEIVED TOXICITY, TOO MANY TO LIST

What does the ideal entrepreneur look like?

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

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

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WHAT SHOULD A TEAM HAVE?

"A HUCKSTER, A HACKER AND A HIPSTER." DAVID MCLURE
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IF YOU DON'T HAVE THE WHOLE TEAM

HOW CAN YOU ATTRACT THE RIGHT PEOPLE?
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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
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WHAT AN ADVISORY BOARD CAN DO

  • Lend legitimacy
  • Fill in holes: functional or industry knowledge
  • Bring connections: customers, employees, investors
  • But...
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BIG NAMES WHO ARE WINDOW DRESSING

WON'T HELP OR FOOL ANYONE

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
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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
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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

WITH A ROUND METRICS AND EXPECTATIONS

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
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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...
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YOUR MILEAGE MAY VARY

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