Stalking the Wily Investor
When it comes to pitching your company to potential investors, this venture capital straight-shooter offers seven wise suggestions.
Working for a large advertising agency and then on ten startups,turnarounds and LBOs with a group of serial entrepreneurs, I'vedone a lot of pitching: advertising campaigns, venture investments,IPOs, debt financing, merger & acquisition transactions, debtfinancings and mass pitches at investor conferences. I'veworked for many years with a master entrepreneurial pitcher andhave also frequently been a "pitchee."
Through the years, I've noticed that pitching is sometimesagonizingly difficult, even for brilliant people who are passionateabout their ideas. I think that's because pitching isn'tjust about the idea, the business model and the management team;it's about "them," the investors, the people with thepower to make your idea a reality. The following observations andsuggestions about just how to go about pitching come from fifteenyears full of successful pitches--and some spectacular flops.
1. Be a smart stalker. The easy way to target investorsis to be introduced to them by someone who knows them well, whatyou might call a "venture Yenta." In case you don'thave someone like this associated with your company, you can usethe internet as a direct marketing tool to find people who are mostlikely to give you some of their firm's precious time.
Smart investor stalking doesn't require scanning aerialphotos of estates in Stamford, Connecticut, for un-gated drivewaysor lurking in the Kleiner Perkins men's room. Check out thewebsites of successful young companies in your industry to learnwhich VCs are on their boards of directors. Then go to the VCcompany's website and read through the bios of their partnersand associates, looking for a connection with your team oridea.
The connection could be a school you both attended or a formermutual employer; it could be board service with a company that hasa common target market or a technology adjacent to yours, a companythat might benefit from whatever it is you're doing. Ifyou're diligent and imaginative about potential business andpersonal connections, you'll identify a number of"stalkees," the persons in the VC firms most likely to beinterested in your idea and you.
You should then send your stalkees a pitch letter, a brief andengaging explanation of your business idea, that offers a reasonwhy you think that person and his or her firm would be the perfectpartner for you. Ask for a meeting. If they're interested, ajunior person will respond, asking for your business plan or to setup a phone meeting. If the idea isn't right for them, they maygive you a lead to another firm. (Venture capital is a tough,competitive business, but there are actually a number of very nicepeople who do it for a living.)
If you're a serial entrepreneur with a new idea, you maythink you can simply dial up the VC firms you've enriched inthe past. This often works. But you may find that while you get acordial response from your old pals and an immediate meeting withthe principals, they eventually find some reason not to investagain. That's because many VCs have the belief that"lightning never strikes twice in the same place" when itcomes to their chance of hitting another home run with anentrepreneur they previously invested with. Paradoxically, they mayalso believe that when investing with strangers, the likelihood ofsuccess is much greater when they work with teams who havesuccessfully raised venture capital before. You have to understandthat at heart, most VCs are deeply superstitious--they know a lotof luck was involved in every one of their "home runs."But never underestimate the power of superstition, especially whendealing with people who have to pretend that all their decisionsare rational: You may be able to change the world, but youcan't usually change a world view.
2. The vaults are guarded by children. The gold is guarded bygnomes. Your first pitch will probably be made to people whoare good looking, well dressed, articulate and very young. Theyfunction as "angels with flaming swords," protecting thefirm 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 investmentsand read the "What Makes Us Different" copy on theirwebsite. Try to identify a common theme behind recent investmentsthey've made and subtly weave the company's investmentphilosophies into your initial presentation. Then they'll letyou pass.
If the door to the vault cracks open, you'll see gnomessitting on top of the pile of gold, creatures with graying hair andyears of sorrow and disappointment etched on their faces. Thegnomes may be less decorative than your initial acquaintances atthe firm, but they're usually much smarter. Gnomes are theultimate targets for your pitch; they are the ones who'll makethe final decision.
3. Pray for a bobble-head. If you gain an audience withthe gnomes, you should try to get at least one of their grizzledheads nodding within the first few minutes of your presentation.You can do this by basing the need for the idea you're pitchingon a simple, universally acknowledged truth, that is, the aging ofAmerica. This can be more difficult than it sounds. We were oncepitching the need for a life-saving, new technology to the venturearm of a major hospital company. Our introductory universal truthwas "Killing patients is bad for business." The responsewas "Not necessarily."
4. Belabor the obvious. We all speak different worklanguages; we all work in different professional universes. Sodon't assume that someone with an Ivy League undergraduatedegree and a Stanford MBA understands the role distributors play inyour industry, what digital multiplexing is, or even how his or herheart works. During your pitch, if some members of your audienceare wondering what a word means or are unaware of something youassume is common knowledge, you'll lose them. So think throughyour presentation and find a way to explain industry realities anddefine technical terms as a natural part of the flow--and make sureyou don't sound didactic or patronizing. Only very confidentpeople will admit they don't understand something you obviouslyconsider basic.
5. Foil Doctor Evil. If there's anything technicalabout the idea you're trying to fund, you may run into anexpert at some point, a specialist the investors use as a litmustest for feasibility or customer acceptance during due diligence.Some of these experts are truly currently expert; others haveeither stopped doing whatever made them an expert a long time ago,and some only did it for a few hours before they got involved inventure capital. Nonexpert experts can mean trouble. They'realmost impossible to pitch because they're afraid to admit whatthey don't know. When in doubt, most nonexpert experts find itsafer to be negative.
In case you run into a negative, dictatorial expert whilepitching--whether it's a physician, scientist, engineer orchef--it's important to have your own panel of counter-expertsready, people who are not financially connected with your company.Even if you haven't yet introduced your product or service, youcan still find friendly experts. When you're doing marketingresearch or beta testing, keep an eye out for intelligent,supportive customers, people who are demanding but fair. When itcomes to dueling gurus, numbers and real world experience canusually trump the negative verdict of an in-house"expert."
6. Enthusiasm isn't everything. Don't assume yourpitch has bombed if the investors you've pitched don'tshower you with kisses and rose petals. The millisecond VCs havedecided they may want to invest in your company, they startthinking intensely about valuation. It's very possible to losemoney by investing early in an ultimately successful company,paying too much per share and being diluted to extinction insubsequent financing rounds. The polite, somewhat bored responseyou receive and the lackadaisical follow-up may simply be theventure version of a poker face.
Moving to the other side of the table, don't think that yourpassionate conviction alone can substitute for evidence of concreteefficacy or customer demand. For example, here's a supposedlytrue story told by one of the most famous VCs I've beeninvolved with, an investor celebrated for his spectacular successesin biotech and information technology:
Somehow a rumpled entrepreneurial scientist had gotten past theangels with flaming swords to present his idea--a pill that couldpurify the most polluted water in a matter of seconds--to thishighly experienced and skeptical VC. At the climax of his pitch,the inventor pulled out a glass of raw sewage, dropped the pill inand, before the VC could stop him, chugged the murky contentsdown.
The VC's response? "Well, I still don't knowwhether I believe. But I believe that you believe."
7. Remember, it's their money; it's always theirmoney. Congratulations! Your pitches to the children and thegnomes were spectacular. You survived diligence, the negotiationswere amicably concluded, and the wire transfer comes through.Resist the temptation to invite the investors to a lavish, blowoutclosing dinner. You'll be waxing emotional after the thirdglass of champagne and welcoming them to the DigiWoof family, whilethey'll be noticing that your CFO ordered the $18 sea scallopappetizer.
If you're a successful serial entrepreneur, don't treatthe investors in your new venture to a Medieval Tuscan banquet atyour winery in Sonoma, even if you make sure they know they'refeasting on your personal dime. They are not beyond jealousy. Andwhen the road gets bumpy, as it always does, some of them willstart wondering whether the problem might be that you don'thave enough skin in the game.
The most important thing to remember at every stage of pitchinginvestors is that you're not only asking for lots of money,you're also hiring your ultimate bosses and defining yourrelationship with them. So be careful what you ask for--you mightget it.
Jamie Fitzpatrick (a pen name) is currently a marketingexecutive with a highly successful, entrepreneurial technologycompany. Since he may be pitching to investors for many years tocome, he thinks it's prudent to adopt the Zorro approach whenwriting about them. You can contact "Jaime" at firstname.lastname@example.org.