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Tuesday, October 27, 2009

Creating a compelling investor pitch (Boston's 1st day-long workshop)

Raising money is always a daunting task for most entrepreneurs. Further, the entrepreneurial view that investors, primarily the venture capitalists (VCs), are people sitting in ivory towers compounds this anxiety during an investor meeting. The first step towards making that initial meeting with an investor a success is to create a compelling value proposition via an effective pitch.

Although I have completed my MBA from Cornell, co-founded a healthcare startup and am currently the CEO of Dragonfly, I still remember the unnerving experience of doing my first pitch to a general partner of a renowned VC firm in the Boston area. However, having gone through various VC meetings myself, I have learned a lot about the right ways of pitching to investors. Thanks to Mark Haddad, Partner, Foley Hoag, I had the opportunity to attend TLP’s “pitch deck workshop” on October 24 at the spectacular Foley Hoag's Emerging Enterprise Center in Waltham, MA. From my previous experiences, I believe that the workshop was a great introduction for budding entrepreneurs to understand the basics of how to create a perfect pitch using simple yet efficient tools. The stellar speakers who were invited to share their experiences were very generous to talk to the current TLP fellows about how to create a successful investor pitch in order to convert their ideas into real businesses.

The morning session of the workshop began with an exhaustive VC pitch by Authors Globe CEO and a 2008 TLP Fellow, Antonio Faillace. The pitch gave the current TLP fellows great insights into how to do a comprehensive pitch. This was followed by a panel discussion consisting of Nilanjana Bhowmik, Partner, Longworth Venture Partners and Jim Matheson, General Partner, Flagship Ventures, and led by the very deft and capable Vishy Venugopalan, TLP Fellow 2010. Both Nilanjana and Jim shared their experiences of good and bad pitch practices with the fellows. Serial entrepreneur, and ex-CEO of Netezza Jit Saxena kicked off the afternoon session with his sensational and motivating story of his journey from being an employee of Data General to founding two companies and taking them both to successful IPOs. After the great tips provided by leading VCs and entrepreneurs, the fellows were ready to do some hands-on training in order to convert their ideas into real businesses. Anupendra Sharma led the working session of creating a great investor pitch during which time fellows worked on their respective slide decks. All in all it was a very informative and exhaustive workshop that provided the wherewithal to the budding entrepreneurial fellows for taking the first step towards creating successful companies.

Here are my five key takeaways from the workshop:

Three key aspects of a memorable pitch: Content, Theatrics, and Interaction during dialogue
Always have a complete pitch ready even if you don’t know answers to all aspects of the business. Start off the pitch by introducing the team and what each team member brings to the company. Further, it is imperative to state the problem you are trying to solve along with some quantitative data and your solution with the benefits it offers up front. This will allow the investor to wrap his/her mind around your idea right away without second-guessing. Next, show the investor that you understand the market and what is the selling opportunity for your offering. Most technologists get too wrapped up with the product and the expenses for the company. Try to understand the market opportunity and hence the potential revenues that it can afford.

Although you don’t need to know the ins and outs of all the possible business models, a fair understanding of them demonstrates to the investors that you truly understand your industry. One of the biggest mistakes most entrepreneurs make is not being aware of and acknowledging their competition. There are three primary competitors that an entrepreneur needs to be aware of: other startups, big companies and status quo of customers. To wrap up, show some basic P&L and cash flow projections, but don’t forget to speak about the underlying assumptions for them.

During the pitch it is important to portray good team dynamics. It not only affects the pitch performance, but also shows the investors that the team works well together. When the investors ask questions, the CEO should do one of the following three things: answer it correctly, point to the right person if he/she doesn’t know the answer or if no one knows the right answer acknowledge it and respond that they will either get that answer or hire a person with appropriate expertise. This might seem common sense, but never argue in front of the investor about who should have known the answer to a question. Finally, practice, practice, and practice with the entire team that will attend the investor meeting. Make sure there are no glitches before going in for the real thing.

Remember, the pitch is a company interview with the management team having a lot of control over the aspects of what the company wants to present.

Recipe for a successful startup: people, product, customers
It’s extremely important for an entrepreneur to know oneself. A successful entrepreneur falls in one of these two categories – they either have a great track record or a lot of passion for what they want to do. Secondly, they know and fully understand why they are doing what they want to accomplish. Know your strengths and acknowledge your weaknesses. Once you are aware of this you need to form a world-class team. If you can get a luminary in the industry on board, that tells a lot about the power of your offering. If you realize that you cannot lead a team as a CEO, attract a great CEO. Surround yourself with extremely smart people so that they will make the company successful. Finally, talk to your customers and understand their pain points. This will allow you to offer what your customers need rather than what you think they need.

Why raise money from institutional investors?
Although bootstrapping is a great way to get a startup off the ground, it is usually more time consuming than raising money from institutional investors. Additionally, the expertise and network that an institutional investor will bring to the table can be an invaluable asset for the company. Therefore, it is important that the entrepreneur is aware of the time vs. opportunity cost for getting a startup, especially a product company, operational. The probability of an institutional investor backed company beating a bootstrapping company to market is pretty high.

Be passionate not religious.
Being an entrepreneur is not easy. Not only do you need to believe in yourself and your idea, but keep plugging along in spite of all the rejections you might face on your journey to create a successful company. However, while doing so, be wary of not becoming too attached to your ideas. Therefore, keep doing what you want to do, but constantly question yourself if it is still the right thing to do. In other words, looking external to the company, sell yourself and your idea but looking internally, constantly challenge and question yourself while believing in your offering so as to not waiver from your vision.

Benefits of Entrepreneurship
Entrepreneurship affords you the chance to impact not only the marketplace but also people’s lives through technological innovations. Founding companies gives you the ability to make an immediate positive impact on the economy by creating new jobs in the local community and hence benefiting the society.

This workshop barely scratched the surface of what's a difficult process, so Anupendra has agreed to work one-on-one with those Fellows raising money to refine their pitches. Thanks a lot Anupendra! Now that the TLP Boston fellows are armed with the investor pitch creation toolkit, I look forward to seeing some superior pitches in the coming months.

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