Stalking the Wily Investor
Working for a large advertising agency and then on ten startups, turnarounds and LBOs with a group of serial entrepreneurs, I've done a lot of pitching: advertising campaigns, venture investments, IPOs, debt financing, merger & acquisition transactions, debt financings and mass pitches at investor conferences. I've worked for many years with a master entrepreneurial pitcher and have also frequently been a "pitchee."
Through the years, I've noticed that pitching is sometimes agonizingly difficult, even for brilliant people who are passionate about their ideas. I think that's because pitching isn't just about the idea, the business model and the management team; it's about "them," the investors, the people with the power to make your idea a reality. The following observations and suggestions about just how to go about pitching come from fifteen years full of successful pitches--and some spectacular flops.
1. Be a smart stalker. The easy way to target investors is to be introduced to them by someone who knows them well, what you might call a "venture Yenta." In case you don't have someone like this associated with your company, you can use the internet as a direct marketing tool to find people who are most likely to give you some of their firm's precious time.
Smart investor stalking doesn't require scanning aerial photos of estates in Stamford, Connecticut, for un-gated driveways or lurking in the Kleiner Perkins men's room. Check out the websites of successful young companies in your industry to learn which VCs are on their boards of directors. Then go to the VC company's website and read through the bios of their partners and associates, looking for a connection with your team or idea.
The connection could be a school you both attended or a former mutual employer; it could be board service with a company that has a common target market or a technology adjacent to yours, a company that might benefit from whatever it is you're doing. If you're diligent and imaginative about potential business and personal connections, you'll identify a number of "stalkees," the persons in the VC firms most likely to be interested in your idea and you.
You should then send your stalkees a pitch letter, a brief and engaging explanation of your business idea, that offers a reason why you think that person and his or her firm would be the perfect partner for you. Ask for a meeting. If they're interested, a junior person will respond, asking for your business plan or to set up a phone meeting. If the idea isn't right for them, they may give you a lead to another firm. (Venture capital is a tough, competitive business, but there are actually a number of very nice people who do it for a living.)
If you're a serial entrepreneur with a new idea, you may think you can simply dial up the VC firms you've enriched in the past. This often works. But you may find that while you get a cordial response from your old pals and an immediate meeting with the principals, they eventually find some reason not to invest again. That's because many VCs have the belief that "lightning never strikes twice in the same place" when it comes to their chance of hitting another home run with an entrepreneur they previously invested with. Paradoxically, they may also believe that when investing with strangers, the likelihood of success is much greater when they work with teams who have successfully raised venture capital before. You have to understand that at heart, most VCs are deeply superstitious--they know a lot of luck was involved in every one of their "home runs." But never underestimate the power of superstition, especially when dealing with people who have to pretend that all their decisions are rational: You may be able to change the world, but you can't usually change a world view.
2. The vaults are guarded by children. The gold is guarded by gnomes. Your first pitch will probably be made to people who are good looking, well dressed, articulate and very young. They function as "angels with flaming swords," protecting the firm from lengthy dealings with people who are obviously insane. You can sometimes engage them by showing them bright shiny objects. But you should also study the firm's portfolio of investments and read the "What Makes Us Different" copy on their website. Try to identify a common theme behind recent investments they've made and subtly weave the company's investment philosophies into your initial presentation. Then they'll let you pass.
If the door to the vault cracks open, you'll see gnomes sitting on top of the pile of gold, creatures with graying hair and years of sorrow and disappointment etched on their faces. The gnomes may be less decorative than your initial acquaintances at the firm, but they're usually much smarter. Gnomes are the ultimate targets for your pitch; they are the ones who'll make the final decision.
3. Pray for a bobble-head. If you gain an audience with the gnomes, you should try to get at least one of their grizzled heads nodding within the first few minutes of your presentation. You can do this by basing the need for the idea you're pitching on a simple, universally acknowledged truth, that is, the aging of America. This can be more difficult than it sounds. We were once pitching the need for a life-saving, new technology to the venture arm of a major hospital company. Our introductory universal truth was "Killing patients is bad for business." The response was "Not necessarily."
4. Belabor the obvious. We all speak different work languages; we all work in different professional universes. So don't assume that someone with an Ivy League undergraduate degree and a Stanford MBA understands the role distributors play in your industry, what digital multiplexing is, or even how his or her heart works. During your pitch, if some members of your audience are wondering what a word means or are unaware of something you assume is common knowledge, you'll lose them. So think through your presentation and find a way to explain industry realities and define technical terms as a natural part of the flow--and make sure you don't sound didactic or patronizing. Only very confident people will admit they don't understand something you obviously consider basic.
5. Foil Doctor Evil. If there's anything technical about the idea you're trying to fund, you may run into an expert at some point, a specialist the investors use as a litmus test for feasibility or customer acceptance during due diligence. Some of these experts are truly currently expert; others have either stopped doing whatever made them an expert a long time ago, and some only did it for a few hours before they got involved in venture capital. Nonexpert experts can mean trouble. They're almost impossible to pitch because they're afraid to admit what they don't know. When in doubt, most nonexpert experts find it safer to be negative.
In case you run into a negative, dictatorial expert while pitching--whether it's a physician, scientist, engineer or chef--it's important to have your own panel of counter-experts ready, people who are not financially connected with your company. Even if you haven't yet introduced your product or service, you can still find friendly experts. When you're doing marketing research or beta testing, keep an eye out for intelligent, supportive customers, people who are demanding but fair. When it comes to dueling gurus, numbers and real world experience can usually trump the negative verdict of an in-house "expert."
6. Enthusiasm isn't everything. Don't assume your pitch has bombed if the investors you've pitched don't shower you with kisses and rose petals. The millisecond VCs have decided they may want to invest in your company, they start thinking intensely about valuation. It's very possible to lose money by investing early in an ultimately successful company, paying too much per share and being diluted to extinction in subsequent financing rounds. The polite, somewhat bored response you receive and the lackadaisical follow-up may simply be the venture version of a poker face.
Moving to the other side of the table, don't think that your passionate conviction alone can substitute for evidence of concrete efficacy or customer demand. For example, here's a supposedly true story told by one of the most famous VCs I've been involved with, an investor celebrated for his spectacular successes in biotech and information technology:
Somehow a rumpled entrepreneurial scientist had gotten past the angels with flaming swords to present his idea--a pill that could purify the most polluted water in a matter of seconds--to this highly experienced and skeptical VC. At the climax of his pitch, the inventor pulled out a glass of raw sewage, dropped the pill in and, before the VC could stop him, chugged the murky contents down.
The VC's response? "Well, I still don't know whether I believe. But I believe that you believe."
7. Remember, it's their money; it's always their money. Congratulations! Your pitches to the children and the gnomes were spectacular. You survived diligence, the negotiations were amicably concluded, and the wire transfer comes through. Resist the temptation to invite the investors to a lavish, blowout closing dinner. You'll be waxing emotional after the third glass of champagne and welcoming them to the DigiWoof family, while they'll be noticing that your CFO ordered the $18 sea scallop appetizer.
If you're a successful serial entrepreneur, don't treat the investors in your new venture to a Medieval Tuscan banquet at your winery in Sonoma, even if you make sure they know they're feasting on your personal dime. They are not beyond jealousy. And when the road gets bumpy, as it always does, some of them will start wondering whether the problem might be that you don't have enough skin in the game.
The most important thing to remember at every stage of pitching investors is that you're not only asking for lots of money, you're also hiring your ultimate bosses and defining your relationship with them. So be careful what you ask for--you might get it.
Jamie Fitzpatrick (a pen name) is currently a marketing executive with a highly successful, entrepreneurial technology company. Since he may be pitching to investors for many years to come, he thinks it's prudent to adopt the Zorro approach when writing about them. You can contact "Jaime" at firstname.lastname@example.org.