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Commandment #5: Create the "Aha" Early

A long time ago (“last century”, as my teenage kids delight in saying), I took the California Bar exam -- along with 3,000 – 4,000 other applicants (as a probably not very good sign, last year over 8,000 applicants took it).  While studying for the Bar Exam, I received a helpful piece of advice that I offer up as the 5^th Commandment.

On the final day of preparations, my professor told a very nervous classroom:

“…remember the following as you start to write:  (1) your answer will be graded by a very busy practicing lawyer who makes about $3 per answer that they grade, (2) your answer will be graded on the bus, train or plane, or late at night in front of the TV, or when the grader is tired, and (3) your answer will be the 150^th answer to the exact same question that the grader has read in the past couple of days.”

“What does that grader want from you when your answer book comes off the unread pile and is opened?”

“Get to the point -- FAST!”

Having been on both sides of the table over the past 25 years, I can tell you that failure to heed this bit of advice is one of the leading causes of short, unproductive meetings between entrepreneurs and VC’s.

NOTE #1:  As I’ve posted numerous times (though some readers seem not to have noticed), this is NOT a defense or apology for VC behavior.  Having witnessed it from both sides, I know that VC behavior in meetings can be good (occasionally), bad (often) or ugly (sometimes).  That said, the goal of these 10 Commandments is to offer up some frank advice to entrepreneurs to help them do the best job they can when raising money from VC’s.

NOTE #2: Having represented entrepreneurs for ~20 years, I know that they pour their hearts and souls into their business plans and presentations.

NOTE #3:  I am not, myself, a good presenter.

Now, back to the action…

If you read Commandment #3, you know that the goal of the first meeting is to get the second meeting.  You probably also know that much of what VC’s do for a living is sit through presentations – lots of them.   Because of this, no matter how hard one tries, it’s easy -- just like the Bar Exam grader on their 150^th answer -- to lose interest in a presentation if it doesn’t get to the point – FAST.  This may be good, bad or ugly, but it’s a brute fact of life that entrepreneurs who want to optimize their chances for success should keep in mind.

When I practiced law, I used to tell my clients that, by the second slide, the VC should know what “it” is that their company is going to do.  “It” will be different for each startup, obviously, but the goal of the presentation should be to provoke an “aha” in the VC as early as possible in the presentation.  I know from my own experience that if I don’t understand what “it” is early, I get “stuck” trying to figure that out, and don’t pay close attention to the ongoing presentation.  This is not just me – it’s true for all VC’s.  Some of us are just more polite than others.

So, how does one do this? 

Having sat through my share of presentations, I can say there are lots of good ways.  In the next paragraph, I’m going to make a (not brilliantly original) suggestion, but the most important thing in a presentation is that it be in the presenters “voice”, not mine or anyone else’s.  So, find a way that’s comfortable for you, but DO find a way.

When sitting through a presentation, I find it quite helpful to have “it” explained as the answer to some variant of the following question:  “What problem is my startup solving?”

So to maximize your chance for a second meeting, do something that I know is really, really hard:  concisely and clearly answer that question.

You’ll be glad you did.

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.

Commandment #3: Tease, Don't Overwhelm

First he tells us to "Be on Time" (Commandment #2)....now, he advises: "Tease, Don't Overwhelm"...What the hell does this mean, readers (if any) will be tempted to ask.....But stay with me for a minute. There’s a subtlety here that might help you.

The goal of your first meeting with a VC IS NOT to get a funding commitment.  The goal of your first meeting IS to get a second meeting.  On extremely rare occasions, funding commitments are made in the first meeting, but only in very unusual circumstances: e.g., where the entrepreneur has worked (successfully) with the VC firm before, or where the proposing partner in the VC firm has been working with the entrepreneurs in the development of the startup idea, etc., etc.  In the vast majority of cases, I’d guess that the average number of meetings a startup has with the VC firm that eventually funds it ranges between 3-7 (but curious to know from any entrepreneur readers if their experience is, or data are, different).

So, what does this mean?  Here are a couple of thoughts:

·        Don’t try to cram six or seven meetings’ worth of information into one meeting.  Pique their curiosity, don’t pulverize their attention span.  More on this in the next few “Commandments”, but think of the initial meeting as a way to say: “I’ve got a very cool business idea that you should want to know more about.” – that is, almost more of a “teaser” than an overwhelming deluge of information.

·        That said, absolutely do make sure you obey the three “Uber Commandments” (see my post on Commandment #1) and tell why: (1) you have a great technology idea, (2) being implemented by a great team, and (3) attacking a huge market in the midst of a transition.

This is probably overkill (and I’m sure goes without saying), but just in case…..this is NOT to advise entrepreneurs to “hide the ball” in any way in the initial meeting.    If you want to “succeed” (remember: success in the first meeting is getting the second meeting), you absolutely need to do something that’s really hard: crisply and clearly reduce a complex business message into a short set of slides that intrigues the audience and makes them want to find out more.