« Commandment #4: Know Your Audience | Main | Intermission »

January 16, 2005

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 5th 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 150th 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 150th 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.

January 16, 2005 | Permalink



As someone who sometimes sits on different sides of the table in the same day, I have seen some pretty wacky behavior on both sides. One of the worst was a guy who was so rude, both sides walked out of the room 10 minutes into the meetiing. (funny thing was this Partner ended up asking the same entrepreneur for a favor indirectly 2 weeks later and did not seem to realize it was the same person)

I think your point here is on however, you have to start with a premise that the person on the other side of the table from you when you are pitching is a person not a firm. People like to engage in a dialogue. You have had some success if you get the venture guy to understand fast enough that you can spend most of the meeting having a rich dialogue about the subject. Then at least you know at the end of it you will have both learned something from each other, even if the deal is not right. If you have had a good enough conversation that the partner has learned something, then you are probably going to begin to form a relationship---it might be ten years before that relationship leads to a deal or 10 weeks..but a relationship has to happen.

I have interviewed around 1000 MBA candidates coming out of school for thier first job. The exact same thing applied those that engaged me in a dialogue- a rich give and take-- where we both learned something..not only kept me awake through my 8th Stanford interview in a day--they often started a relationship that mattered even if they never joined the firm.

Posted by: Ben Smith | Jan 25, 2005 10:10:54 PM

Um, Mr. Smith, one question: given that an MBA program requires 3-4 years of work experience before attending institutions like Stanford or Harvard, how could you be interviewing them for their first job?

I know that's not exactly on the point you are making but I think that your point would be stronger if it were in fact accurate.

Just a thought.

Posted by: Vanilla Chin | Feb 1, 2005 4:37:38 PM


How are you? I thought my exceedingly disruptive, MSFT-/VC-approved biz plan for a provider of customized lifelong learning & career services (CLLCS) might be of interest to you, not least because the centerpiece of our rollout strategy is a sitcom -- Land of OpportuniTV -- about making America the Silicon Valley of CLLCS, the global market that Peter Drucker says will be the biggest over the next thirty years.

Land will center on my comic plight (as CEO): like many men, I want to succeed in my professional life and also be the best boyfriend, and later husband and father, I can. In my case, achieving this balance:

* is complicated by the magnitude of the stakes in the early market for CLLCS

* will be further complicated by company-affiliated actresses, who will routinely seek to make a very favorable impression on me with their beauty, their charms more generally, and the latest innovations from the burgeoning sciences of enhancing desirability (including the underpinnings of the “mind games” described in Fisher’s Why We Love: The Nature and Chemistry of Romantic Love, Gladwell’s The Tipping Point, Cialdini’s Influence: The Psychology of Persuasion, etc.)

Details coming online at OpportuniTV.com.


Frank Ruscica

Posted by: Frank Ruscica | Feb 10, 2005 10:27:31 AM

The wireless blog, with paper. Bookthisblog.com.

Posted by: Matt | Feb 24, 2005 6:38:41 PM

To "get to the point FAST" is easy, e.g., "We see exit in year 5 at $100 M annual revenue and $40 M in annual earnings, both growing quickly." Such a company would be worth at least 100 times earnings, $4 B, and, thus, have to be counted as a successful exit for any VC in the US. Saying this, however, is not a good presentation but a poor one that commonly puts VCs to sleep because what is crucial and difficult is not that such goals are desirable but how to achieve them. Or, in the US, while everyone successful in business can have a chicken in their pot, only a very few can create $4 B in value in five years. Then, what is missing from the effort to "get to the point FAST" is enough detail and evidence to make achieving the goal believable.

For the example of the bar exam grading, the grader (1) knew the subject well, better than the 'presenter', and (2) had already graded 150 versions of answers to this one question. In the case of how to use advanced unique new powerful valuable 'information technology' to make $4 B in five years, necessarily, if the opportunity exists, then the 'grader' does not know the subject at all well and has never seen such a presentation before. So, to make the claims believable, the entrepreneur needs to provide much more explanation than the law student.

For "Because of this, no matter how hard one tries, it's easy -- just like the Bar Exam grader on their 150th answer -- to lose interest in a presentation if it doesn't get to the point FAST." This makes no sense. One of the nearly universal characteristics of VCs, apparently enforced by the more important limited partners, is that the VCs, for as far as they did go in school, usually did quite well which means that they listened to lectures of wide variety for hours and essentially always got "the point" even if it took a month for the professor to get there. In particular, US VCs are entirely capable of doing a good job of listening and understanding a relatively clear and polished serious hour long relatively self-contained technical presentation. If the VCs are not willing to invest the effort to listen, then they are just not trying very hard, and the entrepreneur should question if such a person should be on the Board of their new company.

For "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." So, let's see: The entrepreneur has (1) some plans to make $4 B in five years; (2) the VC has never seen this idea before and knows next to nothing about the prerequisites for the crucial core technical internals, and (3) the idea is so simple that it can be understood by the second slide. And if you believe that, then there is this bridge over the East River you'd really be interested in.

Or, we can check how efforts to "get to the point FAST" and "to provoke an 'aha' in the VC as early as possible" would have looked for some famous examples of the past: (1) Microprocessors will revolutionize the world. A few guys in Albuquerque, mostly a college dropout and a guy from P&G, are going to beat IBM, and everyone else, badly, and create one of the world's most valuable businesses and the world's largest personal fortune. As part of this, some hardware progress will be needed: A supermini computer that executes 1 MIPS sells for about $200,000, and there will be processors for about $100 that execute about 6 billion instructions a second for 6,000 times faster for 2,000 times less money for a 'productivity' ratio of 12 million, in inflated money. Also, main memory will go for $200 per GB, and hard disk will go for $1 per GB, in both cases, quantity one, retail. (2) UPS has sort centers and trucks, and one sort center serves an area the trucks can cover in one day. If the 'trucks' are 500 MPH Dassault Fan Jet Falcon DA-20 jets modified for cargo, then one sort center could be in Memphis and serve the whole US for 'overnight' delivery of 'time-critical documents', and the result will be one of the world's most valuable transportation companies. Part of this success will be that the US Congress will destroy the CAB. (3) The System R project at IBM Research published a paper on doing data base queries, and one guy will type code quickly into a minicomputer, create a version for 'decision support', beat IBM to market, and grow to one of the world's most important software companies, one of the world's largest personal fortunes, and a new 450' yacht. (4) In 1960, Kleinrock said that packets were important; in 1973 ARPA agreed with the importance; there is an opportunity to "network networks" and build the world's most valuable company. As part of this, the entire US voice long distance data rate is under 30 Gbps, but there will be over 1 Tbps on one optical fiber and 144 such fibers in one cable. (5) The Internet is a big place, and people need a 'directory' to find things. There are many such directories, but some better indexing ideas will create a company with market capitalization of $45 B quickly. The company founders have no business experience and will arrive at work on roller blades.

Problem is, no one would believe claims (1)-(5). It was all true, and some of the best that was true, but in each case there was much more crucial to the success than could be covered by the second slide. Indeed, the world's economic 'pie' is just not nearly large enough for making so much money to be easy enough to be explained by the second slide.

For "What problem is my startup solving?", this is not wrong but the real need is greater: In addition, it is important to understand (1) the context of the problem, (2) who has the problem, (3) why the problem has not yet been solved, (4) what the value of a solution is to the people with the problem, (5) how the solution works, (6) how providing the solution will generate a good exit. E.g., what "problem" did Cisco solve? They said that they would "network networks", but so what? When Cisco said this, mostly the networks did not exist, and it was not at all clear why people would want to network the networks when they did exist. Similarly for Microsoft, Oracle, FedEx (actually, what gets shipped has just overwhelming variety and is not nearly just 'time-critical documents'), Google, etc.

Commandment #5 asks the entrepreneur to be so brief and superficial that there is no way a VC could separate solid work from perpetual motion and asks the entrepreneur to sound like a big headline story in 'The National Enquirer'.

If a VC arrives late for the scheduled meeting, insists on a trivial presentation, refuses to pay attention, permits interruptions during the meeting, and at most is just willing to schedule another meeting, then the entrepreneur should conclude that the VC is just not someone to play a constructive role in building a valuable business. Readers in doubt can be reassured that serious business is quite serious; in particular, it is necessary for people to arrive on time and pay attention, and, when serious people ready to be successful are involved, this is what happens. Further, the purpose of the meeting is serious, and the coveted goal is to make solid progress as rapidly as possible and certainly not merely to schedule another meeting.

Clearly, mostly what VCs do all day is to say "No." Net, Commandment #5 is to ease the efforts of a VC to say "No", not to provide what a VC needs to say "Yes".

Posted by: Norm Waite | Mar 14, 2005 2:25:03 AM


do you have a blog of your own? seems like your comments have a place there.


Posted by: Ravi Dronamraju | Mar 31, 2005 5:46:02 PM

This advice is right on. If you cant get a VC excited right away about what you are doing - who is sitting across the table from you and solely focused on what you are saying - then what confidence does a VC have that you can get your market excited? Crowded media - tons of noise - non-existent attention spans - everyone competing for your attention...and you cant get someone who is locked in a room with you alone excited about what you are doing in 5 minutes. Chances are your product isnt great and/or you are not talented.

Posted by: Gator | Apr 23, 2005 1:57:02 PM

Norm is right that "it is important to understand (1) the context of the problem, (2) who has the problem, (3) why the problem has not yet been solved" etc. But I don't think that contradicts this 'commandment'. A presentation can get to the main point early, so that people understand the big picture, then go back to fill in details about who has the problem and why it hasn't been solved earlier, etc.

I also have the problem that 'if I don’t understand what “it” is early, I get “stuck” trying to figure that out'. This advice is excellent!

Posted by: Ann | Apr 24, 2005 5:41:13 PM

Post a comment