January 11, 2005
Commandment #4: Know Your Audience
So…you’ve obeyed the first three Commandments:
· Commandment #1: you’ve contacted the right partner in the VC firm,
· Commandment #2: you’ve arrived early to make sure you’re ready to roll when the VC (who will usually be late) shows up, and
· Commandment #3: you’ve tried your best to carefully crafted your pitch so that it “teases, but doesn’t overwhelm”.
Now, you’re about to start….but, who are all these people?
Typically, your initial meeting with a VC firm will have 1-3 people in attendance (see more below). But even if the only person there is the partner whom you originally contacted, make sure that you spend a minute or two at the beginning of the meeting understanding how his background relates to your startup idea. At the very least (Commandment #1), you should have read the partner’s description on the firm’s web site, and googled him or her.
Here are a few suggestions:
· Ask how any of his relevant portfolio companies relate to your startup idea (and make sure that you’ve visited the web sites of those relevant portfolio companies).
· Ask what other startup deals in this space has he looked at,
· Where does his interest in the space come from,
· What does he see as the major problems facing any startup in this area, etc.
· Listening carefully to the answers to these types of “range-finding” questions will help you make sure you don’t inadvertently head off in the wrong direction – which many entrepreneurs, believe it or not, do.
VC’s will often have other people attend even the initial meeting (BTW, it’s always a good idea to contact the VC’s admin prior to the meeting to find out who else will be there – in which case you can read about the other attendees on the VC firm’s web site (if formally affiliated with the VC firm) or find out about them through Google or a service like Linked In).
These other people usually fall into one of the following categories:
· Domain experts: No matter how hard one tries, the VC cannot know as much as the entrepreneur about the specifics of the entrepreneur’s business (Note: I did not say that the VC realizes or recognizes this…..only that it’s true). So, all successful VC’s have developed networks of friends with domain expertise in areas of mutual interest. It’s quite common for a VC to invite one or more domain experts to sit in on the initial (or a subsequent) meeting.
· Venture Partners: Venture Partner (“VP”) is a category sort of like “Other”. A non-exhaustive listing of categories of “Venture Partner” includes:
· someone whom the VC’s would like to have as a general partner, but who wants to, for whatever reason, maintain more of an independent role (or not commit to full-time work with a VC firm);
· a “friend” of the firm who has some domain expertise (or a business contacts network) that is of ongoing interest to the firm’s investment strategy (e.g., an electrical enginerring professor with an expertise in, say, the CAE area or materials science who helps a firm look at semiconductor startups); and
· someone who used to be a General Partner and is cutting back on their workload
· EIR’s: “EIR” usually stands for either “Entrepreneur-in-Residence” or “Executive-in-Residence”. An Entrepreneur-in-Residence is usually someone who has previously started a successful company with the VC firm, and who is using an office at the VC firm while exploring company ideas for his next startup. But there are a range of variations on this theme. Executives-in-Residence usually, but not always, are operating executives who are “on call” for a VC firm to step into a role at a portfolio company when a management role needs to be temporarily filled. But again, roles with this title vary greatly.
· Associate: How VC firms treat the title of “Associate” varies widely. In some firms, it is the first step on the “tenure track” to becoming a General Partner. In others, it’s much like the job in an investment bank: two years after college or a job to learn something about the venture business, but at the conclusion of which the person moves on to something else.
Unless you know the people in the room already, (or know “of” them in detail), it can help your cause to spend 1-2 minutes on each person finding out about their background and the perspective from which they’ll view your startup idea. This can help you “tune” your presentation so it presents the appropriate information, and anticipates areas of probable concern.
As you do this, take notes (unless you have a perfect memory). This will help you, as you go through the presentation, refer back to comments made, or concerns voiced in the beginning of the meeting. To the extent you have material in the presentation that pre-emptively addresses concerns articulated in the early part of the meeting, you look more on top of things – and that can increase your chances for success.
January 11, 2005 | Permalink
I would add a couple of real-world caveats to Allen's "commandment."
The thing to watch out for that VCs will do, and feel entitled to do based on the fact that you are asking them for money, is bring a "domain expert" to the meeting who is perfectly capable of taking your idea and running with it.
In many cases, they won't tell you who's going to be in the meeting or in what the "domain expert" is an expert or what that expert is in the process of doing now. In some cases, the VCs might not even know themselves. Typically that won't stop them from inviting that individual to the meeting. I've been this "domain expert" before. Stuff happens.
Beware of this practice. Ask the VC who else will be in the meeting and if they have asked anyone to join who would be in a position to compete with you. Ask the VC if that person is required to be in the meeting for them to make a decision on the investment. Ask the "domain expert" to sign an NDA even if the VC firm is unwilling to sign one. Stay away from VC firms who need to have your competitor in the room to decide whether or not to invest in you. They are probably stupid.
The other thing VCs will ask you to do is send your presentation along ahead of time or following the meeting. I don't recommend doing this. Send along a one-page summary of what you are doing that you would feel comfortable having in the hands of your competitors. Or have a short list of customers or users who are willing to talk to the VC over the phone about you. That's going to go alot further with the VC and protect you at the same time.
You aren't signing an NDA with them and I have seen multiple liberties taken with a company's presentation across multiple VC firms, even the ethical ones.
Perhaps Allen can respond or comment on these practices. To date, it seems that he is just using his blog to broadcast his opinions without engaging in a dialogue. He might as well write for Time magazine if that's all the blogosphere is good for.
Posted by: Vanilla Chin | Jan 12, 2005 4:08:15 PM
Quite interesting and very useful postings there. Having been on the other side in a few telecomm deals throughout the boom and bust, I can understand why you believe that these observations must be made. Although they may seem obvious to many, they aren’t. Number 3 in particular is tough for many entrepreneurs. After all, this is their baby, and we all know how concise most new parents are about their offspring.
That being said, I think it would be very interesting to have a similar list of commandments posted for VCs to observe when talking to entrepreneurs. I’ve seen good, and I’ve seen very, very bad. The very bad seems to often come from (a) VCs who had a big hit during the boom and think that they are, therefore, smarter than the rest of humanity (when in reality, hamsters could have picked a winner during the boom); or (b) relative newcomers to the VC world who have never been on the lower end of the see-saw. (During the boom, we used to write our own term sheets and make the VCs come to our location. Imagine that!)
In general, it would be useful to occasionally remind the VC community that the humble entrepreneur at your conference table is your raison d’etre. They are why you exist. And the wheel will continue to turn, so the entrepreneur that you smack around today may be the opportunity that you miss tomorrow.
Some suggestions for commandments might include:
1) Limit the conversation about yourself. You’re only giving them an hour, 30 minutes of monologue about your resume is not a good use of time.
2) Tell them the truth. If you’re not investing in their space at this time, tell them that rather than giving them some story about another investment that does the same thing for half the cost. Likewise, if their idea just doesn’t seem viable to you, tell them that painful truth as well.
3) Don’t feel the need to be the smartest person in the room. Asking obscure questions that have no bearing on the business plan just to prove your intelligence not only wastes time, but often creates a musty odor in the room due to flop sweat on the brows and armpits of the entrepreneur. (Alternately, it might get them so excited talking about obscure points that they never get to the business plan.)
4) Try to remember common courtesy. Show up on time unless an emergency comes up, try to limit Blackberry thumbing during the meeting, etc. See “raison d’etre” above.
5) When and if time comes to pull funding, let them know why and let them know early. Sometimes these things happen – try to remember that putting people out of work is tough for anyone and don’t compound it with stale homilies and transparent excuses.
I’m not naïve enough to think that a majority (or even a minority) of VCs would try to follow most of the rules, but it’s not a bad idea to think about such things occasionally. Perhaps one of the blogger VCs who used to be on the other side of the table could come up with a better list?
Again, quite interesting posts. It’s interesting to read about the world on the other side of the funding system.
Posted by: Telecommedian | Jan 13, 2005 2:09:19 PM