Getting Past First Impressions

My last blog on first impressions matter focused on the Gust platform application process that most angel groups use. After loading information on Gust, you will receive a pre-screening call. With some Angel groups there is a presentation involved in the process. I have previously discussed the components of making a good pitch and here. However, in preparing your pre-screening or screening presentation there are a number of important elements upon which to focus.

Entrepreneurs first need to understand each Angel group’s process. For example, how they make decisions and how much money is provided per round is essential. However, of key importance is discovering your chief advocate in the Angel group. Remember that in most Angel groups, this is a competition with only one or two winners.

When making your presentation, always focus on the whole story of your company, from value proposition to target market and product market fit. Investors will also want to know whether there is a large market and a great, pressing need for your business or innovation and if you have evidence of good progress in establishing your business. There are other things Angels will be looking for:

Does your plan provide an exit and a reasonable return on investment?

Do you understand the industry and how your competitors fit in the marketplace? Do you know their strengths and weaknesses? Who are their customers and why do they buy from your competition? Why will customers buy from you instead? Have you delighted your current customers?

How will you use the funds? Do the funds you seek match your plans to scale the business? What will you do if our group is unable to complete the funding round with sufficient cash? Do you have a sound plan for the future? How do you currently make money?

Is there anything that might raise a red flag? Is there any criminal record or bankruptcies on the senior team? Any pending litigation against the company or key players? Are any of the co-founders in a personal relationship? Disclose early and don’t be afraid that these issues are deal killers. They are not necessarily. Disclosing the warts early only strengthen your position as an honest person and leader. Failure to disclose can and would likely be a deal killer.

While you present investors are watching to see whether you have the moxie to be an effective leader and have the ability to execute on your plan. This usually comes up during the question and answer time. Angels want to see how you respond to questions, how articulate you are in your response to posed questions, and how well you understand the ability to scale your business. Another principal concern Angels may have is whether the rest of your team is flexible and adaptable to changing market conditions. It’s your job to demonstrate that by showing their experience, savvy, and ability to engaged under changing conditions.

Tell your story engaging all of your pitch points. Using a customer’s point of view, talk about your company with a script format. Prepare it like the screenplay for a movie. One colleague of mine used the story arc ABDCE:

  • Set the Action
  • Build the Background – this is the setup
  • Develop
  • Climax – Why you are a winner (in the movies, the end of the second act)
  • Execution

Remember, this is showtime! Show energy and enthusiasm.

First Impressions Matter

We are in the process of evaluating the applications for Angel funding for our current round. Like most investor groups we use Gust as the platform for entrepreneurs to load their company information. Overall, I must admit I am disappointed in many of these applications. Many of the applications look strong in terms of idea or concept. Some apparently have traction. Some claim to have traction, but don’t support that claim. However, the real problem is that for more than 90% of these applications, it is the first time I am exposed to you. The application is my first impression. And first impressions matter! Here are a number of items that are problems.

Incomplete applications. Gust is a standard format platform. The executive summary, financials section, team composition are all fairly straightforward. Missing items or incomplete items leave a bad first impression on me. If an entrepreneur does not provide all the information by the deadline, then it requires substantial explanation. Leave a note somewhere on the document telling me when the document will be completed, and why you require the additional time. I understand, we are looking at a moving target, but at some point I need to review a snapshot.

Financials Section. On Gust, the financials section is where the entrepreneur asks for funding and offers a summary of projections. It includes a place to upload documents. Upload your documents. I expect to see a spreadsheet with details of the projections.

  • I don’t want to see a pdf file. With pdf I really can’t see the basis of your numbers. Load an Excel spreadsheet with assumptions and a polished look and flow.
  • One tab of sales projections is not enough. In addition to the assumptions tab, there should be at least tabs for a cover summary, a cash flow projection, hiring guide, balance sheet and revenue models. You need a minimum of five and don’t overwhelm me with 20. I don’t need that level of detail…yet.
  • Hidden tabs that include details I need to review are a minor inconvenience. Why should I work harder on your application? Make your data clear and easily accessible.
  • On the positive side, I have seen a few spreadsheets, that have a nice summary up front, a tab with an assumption table linked into the spreadsheet, a hire/HR table and clear, bottom up projections that go over time until past cash flow positive. The revenue projections are important and should not be overlooked.
  • Spreadsheets are a complete topic for another blog. For now, I will admit that spreadsheets are something of a work of fiction, because they are guesses. But the closer the entrepreneur comes to being correct about these numbers, the higher my confidence level in the venture.

Articulating the Value Proposition. Don’t make me guess what your real value is to customers. If you are not perfectly clear in articulating the product to the target market, then how will I know you will be able to effectively sell the product/service?

Proof Points – Gust does not ask for this, but it is important that you be very specific as to the stage of your venture’s development. This will come out in due diligence. But if you have a finished product or channel partners already lined up, that leads to a much better impression for investors.

Know the Rules of the Game. An understanding of how our Angel group operates will benefit the entrepreneur immensely. For example, if our average investment is $400,000 and you are seeking $900,000 then be certain how you can fill out the rest of the round. I don’t particularly like building piers. I want to build a bridge to the next round. If you have funding that supplements ours, then great. However, know that we prefer to lead rounds unless the terms of the other funding is sufficient. So, be careful uploading the other term sheet – know what we like.

Stage of Development. Don’t hide the point that customers aren’t paying or you don’t have any customers yet. Be honest and forthright and just tell us exactly how you will conquer the world. Make me take a bet on you through truth telling.

Traction. Traction is right. Traction works. Traction clarifies, cuts through, and captures the essence of the evolutionary spirit. Traction, in all of its forms …has marked the upward surge of saving the world (thanks to Gordon Gekko for the quote).

Traction is the basis of all that is good in a startup. Traction is the market validation of a value proposition with its target market. Traction shows proof points on its business model. Traction is based in real sales (not a give away product) and has evidence of other proof points – channel partners, a supplier base or existing value chain.

No Faith Based Entrepreneurship. I am really not interested in what you believe. Save that for church. Show me the proof. All that matters are evidence based startups.

Get these right and investors will be your friend.

Disclaimer: These are my own views and not those of any investor group that would have me as a member.

Pitching Dominates

Pitching Dominates In Baseball & Entrepreneurship

Successfully Pitching to Angels

Last year in baseball was called the year of the pitcher—and good pitching dominated the game. The same is true in entrepreneurship. A startup is always pitching—to investors, strategic partners, channel partners, in an elevator, to potential employees, etc. I previously wrote about pitching form and what makes your pitch stick.

Today we discuss content in the pitch and what will impress an investor. First of all, remember that the goal of any pitch is to get to a second meeting. Just say enough to get investors interested in your business. Enough to want more information.

If you are pitching before angel investors then remember three major points. The first is that you must have proof of concept. This is usually a technical point: The technology works, beyond paper theory, and you have developed a minimal viable product, in the form of a prototype. An even better situation is to have customers lined up willing to test and purchase the product, called traction by investors. The second point is to show proof of market: Does your solution show evidence of a large market? The third major point is you must show evidence that positive cash flow is easily possible within a reasonably certain time span.

Be articulate, short and to the point. Use the KIS (Keep it Simple) method, as you never know for certain who in the audience, and who understands the technical points of your solution. Keep the technology talk to minimum. With regard to technology, a good pitcher only needs to show that their technology works and has protectable intellectual property.

There are a number of other points that will score points in the eyes of investors. Does your current team, not those that will join after you are funded, have the horsepower to execute and scale the company? Investors usually bet on the jockey (team) and not the horse (technology).

Here are a couple of recommended slide decks and don’t forget to put in a title and ending slide along with your contact information.

  1. Problem/solution
  2. Market potential
  3. Team
  4. Channels and got to market strategy
  5. Competition
  6. Financial projections
  7. The ask and use of funds
  8. Always have backup slides (these are slides that answers the first few most likely asked questions)

And here is alternative, similar version:

  1. You address an important problem
  2. Your proof that this solution is complete and a magnitude better than others
  3. There is a large market for the solution
  4. The solution is better than others and why
  5. You have demonstrated good progress
  6. The team can execute on the company
  7. The investment provides a reasonable return to investors

What else might impress a potential investor?

  • You know the rules of the game. For example, you understand how the investor operates, the investor’s average investment, you have completed your due diligence on the investor or group, your average valuations to prior investments, and what excites them about an entrepreneur. In other words, you understand their process.
  • A flexible management team, good potential returns and an idea when an exit might occur
  • Good use of the proceeds from the investment
  • Good and frequent communications
  • Delighting early customers
  • You listen and learn well
  • Good qualitative and quantitative milestones
  • You measure progress religiously

What are some of the pitch or deal killers?

  • Lack of clarity and not being articulate
  • Demonstrating lack of leadership qualities
  • Lack of appreciation for the competition
  • A pitch long on history and technology but lacking an execution plan
  • Generic assumptions
  • Underestimating the barriers to entry, or overestimating those for your competitors
  • Weak marketing and/or sales plan
  • Unrealistic financials
  • Unrealistic view of capital requirements

Pitchers rarely hit it out of the park. But that is your challenge, and your goal.

The Champions of the World

Early in my career, I worked for a commercial bank. Most of the new Lending Officers hated the dreadful Wednesday morning Credit Committee meeting. There, the Officers presented client requests to the members of the Credit Committee, which consisted of the President, the senior risk officer, and a few other top lending officers, and hoped they were approved. But hope is not a plan.

The seasoned Lending Officers had a plan that was usually successful for their clients in these dreaded meetings. They understood risk and the likely questions that the committee members would ask at the meeting—and they always had an appropriate plan. Due to the limits of time during their presentation some item or characterization would be bypassed. They included anticipated questions in the lending documents. There may have been a request for additional collateral, a higher interest rate, shorter tenor or term or personal guarantees. The seasoned Lending Officers almost always had the client approval before the committee meeting and these additional requests were in their “back pocket.” As a result, when the conditional approval went through, the Lending Officer often had all the required additional documentation before the credit committee members returned to their office.

How were these lending officers so successful? Yes, in part due to experience. Mostly, it was that the loans were pre-sold (not in the mortgage way) to the credit committee members before entering the meeting. The deal was pre-shopped, and championed by one or two credit committee members. Walking in, the lending officers knew approval was in hand.

Entrepreneurs going to Angels also need to find their champion and pre-shop their deals. They need to find someone on the inside who will be the evangelist for the deal. Entrepreneurs need to get past the Angel’s investment committee. This is usually the investors’ spouse.  The pitch by the entrepreneur must be clearly articulated to ensure investors clearly understand the value proposition and can articulate how the investor can get investor committee approval.

If an entrepreneur can articulate their value proposition and demonstrate that their team is the best to execute on the new venture. Then go—and pre-sell the deal. The entrepreneur will appear confident, clear and worthy of investment of the Angel’s time and money.

The Entrepreneur as Magician

We want our startups to act convincingly with passion and a compelling vision for their invention or process. We want them to suspend our disbelief and stunningly convey the magic of their innovation. A magical story is the single best way a startup can acquire the talent required to build a successful company.

Passionate people join startups when magic is invoked. Good people want to work in great environments with great leaders who bring their magic to that business. This type of magic is an honest and creative vision of the innovation with a vision about how it can change the world.

Magicians tell stories during their performances. For both the magician and entrepreneur, story telling is about engagement. Magicians need a story to set up the trick; entrepreneurs use the story to bring relationships and talent onboard.

Sometimes, a magician undersells and overstates the difficulty of the trick. Similarly, entrepreneurs may under promise and over deliver. Entrepreneurs are very good storytellers. They tell stories about products that define a path to the future, a problem solved, and a job accomplished, or increased efficiency. These stories paint an exciting picture of the future and these stories are what it takes to make early sales possible.

Entrepreneurs use good story telling setups. They map the benefits of the product back to customer needs and mesmerize future customer while doing so. If you think about it, stories are much more memorable than statistics. Everyone remembers a good story or compelling image. Do any of you remember a statistic from a commercial for a product or service? I don’t.

Magicians use small props to divert attention away from the real magic. Similarly, startup entrepreneurs effectively use limited resources to magically pull a rabbit out of a hat. They know that if they can’t pull off that trick, there is always a plan B.

As Elmer Fudd will tell you, wabbits can be very, very rascally and… tricky. The startup environment is tricky as well. Entrepreneurs need to learn to navigate its puzzling waters, pivot when necessary, and be ready to take advantage of new opportunities. Ready to execute on plan B.

Magicians use their talented assistants wisely. Magicians’ assistants make their boss look good. Startup entrepreneurs must also employ their assistants in order to efficiently build the business. Warning to both magicians and entrepreneurs: Never cut your assistant in half. Make the work fun and don’t overwork your assistants.

Magicians engage the audience during each of their tricks. They often invite an audience member onstage to participate. Good entrepreneurs engage their target audience – customers—early in the product development cycle as well as the sales and marketing process. Engaging customers’ interest is the single best goal for startups. Early involvement in the process helps prospects listen and buy.

Last of all, magicians and entrepreneurs both develop a special rapport with their audience or customers and receive appreciation. They also show their appreciation as well. When entrepreneurs show customers how special they are, the customers will return for more.

Remember that as a startup entrepreneur, your job is to show the passion and convey the magic of your innovation.

Pitching—But Not Baseball

25 Rules for Pitchers

At some point in time, every entrepreneur needs to pitch his or her business. Rather than focusing on a specific pitch to a niche industry, these notes concentrate on the general aspect of pitching to potential investors. There is less focus on the content of the pitch and more on the style of the pitch.

1.  Throw curve balls. The best pitch is told by a story. A good story, like a good joke, is remembered. Most people forget numbers and statistics, but they will not forget a memorable narrative.

2.  Never read. Not from note cards and not from notes whether in hand or imbedded in your PowerPoint. Reading will put your audience to sleep.

3.  Never turn your back on the audience. Make it a point to make eye contact and face them directly. If you turn away, only do so to make a point and start a new subject. Never speak to your audience while your back is turned.

4.  Rehearse, rehearse, rehearse. Your pitch should not appear as if the lines were simply memorized. Your pitch is most effective when it appears natural and fluid. This is no different than acting. Rehearse often. If you need to ask how many times, then you need to rehearse more. Time yourself.

5.  PowerPoint should be alive with striking images, not words, and your audience should not need to read slides. PowerPoint is meant to enhance what you are saying, not say it for you. If your audience is reading, then they are not listening. Choose your words to make your points, and use your images to enhance your points. Use their visual acuity to drive your ideas home.

6.  Tell them first what you will tell them, and then tell them. In conclusion, tell them what you told them. Every pitch has a beginning, middle and an end. The beginning needs a hook, something that will draw in the audience, and an agenda, so the audience knows what to expect. The middle is heart of your pitch. The end is a conclusion, a summary of the most important things you want the audience to take away from your presentation along with a call to action. That is why school children have homework. The teacher tells them, and then they practice in school, and practice again through homework. Experts tell us it takes three iterations to identify and retain important information.

7.  There are a number of important parts of the pitch that investors want to hear: Why? Why you? Why now? How big is your market? Why should we care? How does your product or service offer significant value over your competition? Do you have a sound plan for the future? Will there be a reasonable return? Have you made good progress? Is there a large enough market and additional markets to tap?

8.  Make your pitch memorable and easy to repeat.

9.  Be passionate and sincere.

10.  The goal of the pitch is to get to the next meeting. You can’t possibly say all you want to tell in a short pitch to investors. If they sense an opportunity, your audience will be drawn in.

11.  The presenter must control the meeting at all times. Lose control and the major points might get lost or you will run out of time.

12.  Bring backup slides for the most likely to be asked questions.

13.  Know in advance who is in your audience and why they are there. Know also the rules of the funding game. Understand how much this group provide your company in terms of funds and expertise. Make sure the funds are building bridges not piers. Understand their process for funding investments.

14.  Appreciate the mind of an Angel or investor. By necessity, they have short attention spans. Just like everyone else they respond emotionally as well as intellectually. They are usually accomplished individuals but not necessarily very technical. That means you must describe your technology in its simplest form. Diligence on your technology and your business will come later.

15.  Kill the awful questions quickly…Aren’t you just like…?

16.  Know the plan to reach your target market.

17.  Know how you will grow.

18.  Show that you have delighted early customers.

19.  Dress appropriately.

20.  Keep everything simple.

21.  Be credible and build trust.

22. Use concrete examples.

23. Try to get a champion of your effort into the room. Someone the group knows and respects, and who believes in what you are doing.

24. Always have a Plan B. Be ready for the times the projector or computer won’t work, or the embedded video won’t play.

25. There are many more rules.

A Few “Don’ts”

A.  Don’t be vague.

B.  Always tell the whole truth.

C.  Don’t use jargon.

D.  Don’t sell or sound like advertising.

E.  Don’t overestimate the barriers to entry.

F.  Don’t have unrealistic financial plans.

G.  Don’t forget your contact information on the front and last slide.

H.  Don’t use cluttered slides. There is no need to have a logo on each page.

A Sample Pitch Outline

This is just one sample. Remember, the important thing is to get your key elements across.

  • Describe the pain and what you are doing to solve the pain
  •  Articulate the opportunity
  •  Introduce yourself and your company
  •  Describe what your company does and describe the benefits of the secret sauce.
  •  Identify your customers.
  •  Identify how you reach your customers.
  •  State why customers buy from you.
  •  Clearly state why you will win.
  •  Describe how you make money (for investors, bankers, etc.).

Of course, there are many variances to pitch outlines and depending upon the time allotted you can add or subtract slides. Some presenters prefer the problem – solution point of view for slides. I like the movie version of story telling:

  • Set the Action
  • Build the Background
  • Develop the story
  • Get to the Climax
  • Execution

There are numerous articles and books on pitching. Here are three I like:

Own The Room, David Booth, Deborah Shames

Presentation Zen, Garr Reynolds

The Power of the Pitch, Gary Hankins

Made to Stick, Chip and Dan Heath. This is a great book on story telling rather than pitching using the SUCCES model.

Feel free to add your own tips and tricks, and links to great sites on pitching.