Tips for the first VC Meeting

I had a meeting last week where an entrepreneur insisted on showing me a demo first.  He was scrambling around asking for wireless keys and looking for ethernet jacks, while I sat there and tried to engage him in conversation.  He lost my interest right then and there.  As I started to think more about it, I thought it would be helpful to share some of my thoughts on how to make the first VC pitch a better experience for all participants.

1. Be flexible: Have an agenda but listen to and know your audience.  If the VC wants to run a meeting a certain way, be flexible, and go with the flow.  I have seen many a pitch where an entrepreneur comes in with an agenda and wants to go through each powerpoint slide in excruciating detail.  These meetings typically do not last very long as I wonder what it would be like working with that person or for that person.  Deal with questions as they come up, not later.  VCs can be impatient at times, and it really bothers me when an entrepreneur says, "Let’s wait until slide 15" especially when you are just on slide 3.  Meetings have a rhythm so be in sych with your audience.  Startups require entrepreneurs to be agile and adept to respond to quickly changing market needs.  If you are too engrossed with following every powerpoint slide, it makes me wonder how flexible you will be in responding to market conditions.

2. Have a well-honed elevator pitch: If you can’t explain to me succinctly what your product does, what problem it solves, and how you will make money then I wonder how you will explain it to your customers.  Don’t worry, I want to see your baby in action, but save the demo for later as I want to hear you articulate these points first.

3. The Slide Deck: make it short and sweet, 15-20 slides will do.  However, the best meetings happen when we never even touch the slide deck and end up in a free form conversation about the team, product, business, and market.  Many times, I have even found myself brainstorming with the entrepreneur about other revenue opportunities and go-to-market strategies – I just love those types of meetings.

4. Listen and ask questions: try to get feedback about your business and the opportunity.  The meeting is not a one-way street.  Make sure you figure out if you like me, my firm, and my style as much as I am looking for a similar fit.  Remember, it is a competitive market out there, and I need to sell my value add to you as well.  Asks lots of questions – be open to feedback but do not be afraid to respectfully disagree.  Not all of the feedback you receive will be right and many times it will be wrong, but take all the data you can so you can be better prepared for the next VC pitch.

4. The Demo: First, if you have any web-based business, I would hope that you have the wherewithal to have an alpha version running.  As we all know it is cheap to start a company, and if you have not taken the first steps to get a product/service up and running, I am going to wonder whether you have the technical know-how to make it happen or the passion and risk-seeking behavior to be an entrepreneur.  I love it when entrepreneurs have sunk some of their own money into their business or substantial amounts of time to turn their dream into reality.  This shows me a real level of commitment.  With respect to the demo, I like them live, but as Bob Rosenschein once told me, there are 20 things that can happen in a demo, 19 of which can go wrong.  So be prepared and have a cached version of your service to walk through.

5. Next steps: In any meeting, never forget to ask about the next steps.  What is the VC firm’s process, when will they expect to get back to you, is there any more information that you can provide, etc…

A couple of other points to add:

Pre-meeting: Research the VC, the firm and get to know the types of investments that he/she likes to make, that the firm likes to make, and what is currently in their portfolio.  Google is a great resource, look for VC blogs, and talk to others that may have pitched the VC and the firm recently.  We need to sell to you as much as you need to sell to us.

A couple of don’ts: don’t be late, don’t be arrogant, and don’t ask for an NDA before you start the pitch

Happy pitching!

iPod sucks

I decided to go for a nice run today in the 30 degree weather to get a little mental relaxation.  I was debating whether or not to bring my ipod mini and checked to see the battery life which showed about 3/4 full.  So I was in the middle of my run charging up a hill when my ipod just dies out.  I have to tell you that Apple has done a nice job with the iPod making it easy and user-friendly for everyone but the battery and hardware problems just bother me.  In our family, we have gone through 2 other iPods where the battery just dies out after a year, conveniently after the warranty is over.  If you want Apple to replace the battery it costs you another $59 (used to be $99 but it seems Apple has gotten a little smarter about not pissing off its customers) or if you want to do it yourself, you can go to places like Sonnet and buy a new battery for $29.95 which is what I am going to do now.  Another iPod generated significant feedback and did not play after about 15 months to which I would have had to send it to Apple and get charged $250 for a repair fee.  Why would I pay $249 for an ipod repair or $199 for an iPod mini repair if I can get a new one for $199?  All I have to say is that Apple better keep developing new products because it seems to me that one of Apple’s marketing strategies depends on customers upgrading to the new thing before they recognize or even care that their old ipod has a shelf life of 18 months.  I have to tell you I am starting to get tired of this!  With all of these problems on the hardware side, Apple is starting to lose my loyalty.  I am just waiting for someone, anyone to step up with a family of devices to rival the ipod with high quality as a number 1 priority!

The Importance of back channel reference checks

As an early stage VC, I spend a fair amount of time helping entrepreneurs build their management teams.  I have written about what we look for (read the A-Player Domino Effect), the hiring process, and other facets of recruiting talent in previous posts.  One area which I cannot overemphasize is the need for companies to do back channel references on candidates.  We were recently doing a VP of Sales search for a portfolio company and in the intial call with the CEO and myself, we found the VP of Sales to be talented and engaging.  A subsequent face-to-face meeting with the CEO and myself separately over the next week further bolstered our interest in the executive.  After a few more meetings with various members of the mangement team, we decided to begin the standard referencing process where we collected the candidate’ s list of published references and called to get a better understanding of the individual’s strengths and weaknesses.  Of course, the references all came back glowing.  If they did not, I would be a little concerned.  This is where most companies end the due diligence process and begin negotiating a contract. 

However, I cannot overemphasize the importance of getting back channel references (references that were not given by the individual on the official list) to get a real view of the candidate.  You need to look deep into your network and your VC’s network to reach out to investors, executives, peers, and direct reports who worked with the candidate in prior companies to get a complete picture and balanced profile of the recruit.  A wrong hiring decision for an early stage company can be a killer!  All too often startup companies want to run fast and furious and hire that killer executive candidate ASAP without doing the extra work required to determine the right fit. In this particular case, through the back channel references we were able to find a number of inconsistencies about a candidate’s effectiveness at a prior startup, his reasons for leaving, and his overall management skills.  While the references were balanced and fair, they were far from glowing.  In fact, most of the back channel references were consistently mediocre which for me was a vote of no confidence.  Sure, you should always expect to get a couple bad references if you do enough of them on someone, but if you see a consistent pattern of concerns or "areas that need to be managed" emerge from those references, it is time to move to the next candidate.  In fact, let me extend this message and state that doing back channel references should be standard business practice.  Why learn in 3 months that a particular executive, VC firm, or business partner was not a right fit, if you can piece together that information beforehand?  Just a little more work in the diligence process can save you lots of frustration in the long run.

Spinning your wheels – the new reality in enterpise sales

I was in a board meeting yesterday reviewing the sales pipeline for a portfolio company walking through the wins and losses.  As I wrote in an earlier post, it is extremely important (to the extent you can), to get good data on your losses. Many times you learn more from your losses than from your wins.  We like to know who we lost to and why.  We keep a running tab of these losses so we can figure out some key trends, how our competitors are selling against us, and determine what sales tactics we need to employ to reverse the losses.  Interestingly enough, over the last year a trend I have been seeing is the "do nothing" trend from enterprise customers.  We find out that the potential customer has budget, we are selected as the winner, and then they do nothing.  Obviously, the earlier you can identify a potential for spinning your wheels the better off you will be.  Mike Nevens has a great post on outlining this new reality and ways to determine if you are spinning your wheels early in the sales process or methods to make your project one of the 5 out of 30 projects that actually get implemented rather than just approved.

The CIO of one of the largest retail banks in the US recently told me that he has about 60 new projects under evaluation. About half of them will pass technical, functional and investment hurdles. He will then fund 4 to 6 over the next two years.

That means that 25 or so projects that meet all objective criteria will not go forward.

Software vendors and investors need to understand and deal with this reality. 

This is the new reality in selling to enterprises – doing nothing may be a bigger inhibitor to sales growth than your competition!

Your baby is ugly

I admire entrepreneurs for the risk they take and the unerring confidence they have in their product and market opportunity.  However, what separates some of the great entrepreneurs from the average ones is an ability to acknowledge your weaknesses.  As we all know, being an entrepreneur is a difficult job that is 24/7.  Creating a new product or service can be draining but also quite rewarding emotionally and financially.  Obviously, the last thing you want to hear when you get your initial first customers is to hear that your product has faults.  For some entrepreneurs, it is akin to saying "your baby is ugly."  Well, I have to tell you, I have seen a number of times where companies and entrepreneurs can drink too much of their own Kool-Aid and go quickly from product innovator and market leader to second place.  In a recent example, I heard a couple customers tell a company that our field guys were a little too defensive about the product and somewhat condescending with respect to a customer’s technical knowledge.  In fact, the problem was not the customer, but our product.  We made the requisite changes at the personnel level but it is obviously a more important issue reflected in the core DNA of the company.  So as an entrepreneur, I urge you to create a culture of questioning the status quo, of constantly reviewing your weaknesses and figuring out ways to improve yourself, your product, and company.  It can be very hard to do for an entrepreneur when your blood, sweat, and tears are in the product or service but it is always better for you to figure out how to make your company obsolete and thus improve it against competition rather than your competitors.  I mean, even a big company like Microsoft is making an about face acknowledging the missed opportunity on the web for the second time.  As a result, we spend alot of time pre-investment trying to understand the entrepreneur’s motivation and goals as well as getting a feel for the culture in the company.  Sure, we can always bring in a new CEO to fix the execution problems, but I am a strong believer that culture starts with the initial founding team and once it is embedded and institutionalized early on, it is very hard to change.  As an entrepreneur, think hard about the core values you want the company to abide by as these will be the principles that take your company years into the future.