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.

Choosing and vetting winning ideas

For the Startup Leadership Program’s October session, titled Choosing and Vetting Ideas, we had invited two speakers, Amar Sawhney and Jeff Carbeck to share their insights and advice on ideation and the earliest stages of building a startup. Amar and Jeff drew on their significant entrepreneurial experience in the life sciences to speak of this crucial stage in a startup’s life, when just about every decision can significantly sway its eventual fate.

Amar’s bio and presentation appear in a previous post on this blog. Jeff is a co-founder and CTO of Arsenal Medical (formerly WMR BioMedical), the Chief Scientist of Nano-Terra and comes from a strong academic background in chemistry and material science. Jeff had much to say about the importance of finding a solid, trusted cohort of people with whom to embark upon entrepreneurial ventures.

In this post, I’d like to cover some of my key takeaways from both talks.

• Unmet vs underserved need. Make sure you understand whether your idea serves an unmet or an underserved need, because they lead to fundamentally different kinds of products or services. The first is a change-the-world venture that may have a bigger payoff in the end if successful, but customers may not even realize they have an unmet need for which your product is appropriate. An idea aimed at an underserved need doesn’t carry the risk of shaping customer behavior, but faces the challenge of differentiating itself from a potentially noisy market.
• Product vs platform. Entrepreneurs may start with a product idea to alleviate a pain point for their target audience but may start to face pressure, especially from outside investors, to extend their idea into a platform. Although platforms may be powerful generalizations of a product idea, not every product is suited to grow into a platform. Platforms may blur an entrepreneur’s product development focus by pulling them in several different directions and increase the execution risk associated with the success of a new venture. Entrepreneurs must tread carefully when considering this question.
• Is your product or service VERY easy to use? Amar noted that ease of use is all too often sacrificed at the altar of efficacy and functionality. A new product or service that is VERY easy to use reduces friction and barriers to adoption and is one of the earliest tests of a product, especially one that meets an underserved need. Rather than attempt to ‘share a mountain’ with their competition, entrepreneurs must ‘dominate a hill’ by finding a niche where everyone in the value chain wins.
• Know your market. Even a revolutionary, high-impact idea with low barriers to entry can fail if it fails to navigate market conditions appropriately. It’s important to distinguish between the maximum potential market and the total addressable market. How fragmented the target audience is will undoubtedly influence the go-to-market strategy for the idea. An entrepreneur should also consider if product development (and manufacturing, as appropriate) needs to be vertically integrated in house or whether it can be outsourced at least initially to keep operating expenses low. Entrepreneurs must aim to orchestrate the value chain of their product rather than control it if they can (or as John D Rockefeller put it, “I want to own nothing, but control everything.”)
• Find the right people. Don’t hire everyone in your own image—assemble a diverse team with mutually complementary skills and experience in large and small companies. All employees should be preferably full-time so that everybody’s interests are aligned. First-time entrepreneurs should try and find a mentor to help them through the process of starting up. An entrepreneur should assemble a board of directors evenly stacked with insiders, independents and investors, taking care that investors alone don’t dominate the board.
• Funding. Entrepreneurs should invest some of their own money but not all of their savings. Consider asking customers to invest some money as additional proof of their belief in a product. Raising enough money to reach a significant milestone means that entrepreneurs don’t have to go keep embarking upon a financially and emotionally taxing fundraising process. Even if an entrepreneur plans to raise primarily friends and family money, having at least one deep-pocketed investor on board means that other investors don’t have to endanger their own net worth and can continue being friends and family.
• Funding from customers is better than funding from investors. Jeff related his experience of finding customers and getting them to fund initial product development and rather than undergo significant dilution from taking VC money just to develop a product. Jeff’s experience with relatively capital intensive materials and pharmaceutical startups particularly brought out this point. Entrepreneurs may occasionally have to do some work to uncover the real pain point that a customer has, because they may sometimes be reluctant to reveal them.

Several of us have multiple ideas that we’d like to pursue, but Amar and Jeff had many key insights to offer entrepreneurs to help with the all important question of which ideas deserve the assumption of personal and professional risk for huge rewards.

How Sharing Has Become Big Business (Jay Meattle 2010 Fellow)

Current TLP Fellow and founder of Shareaholic, Jay Meattle, was mentioned in a piece in 'NYT's business section today. The article, titled Share the Moment and Spread the Wealth, describes how sharing Internet links has become a big business.

It has been quite the red letter week for Jay's startup, Shareaholic, which makes a popular Firefox plugin that enables Web surfers to share items they come across with many popular services like Facebook, Twitter and Digg. The plucky Firefox plugin has been downloaded over a million times to date. Earlier this week, Shareaholic closed a small round of angel funding from several people in the startup scene in Boston.

Congratulations Jay, and keep up the great work!