Venture Beat Entrepreneur’s Corner
I spend much of my life listening to other people talk. I know what some of you are thinking: those people in your head are not real; consider a stronger medication.
But seriously, a large part of my job is to host a parade of entrepreneurs through my office as they pitch me on their business plans. When I am not doing that, a portion of the remaining time available to me is spent sitting in Board Meetings hearing those entrepreneurs my firm has backed tell me what is going on in their businesses. The rest of my waking hours are spent listening to my daughter ask me for things that she is not allowed to have, but that is only approximately 72% of my week; the rest it’s all about the entrepreneurs.
When I tell people that our firm invests in fewer than 0.3% of the companies we hear from in a given year, they are shocked that the number is so low. Sometimes I am shocked that the number is so high. There is a stunning lack of communications skills out there in the free world and this may well be the number one barrier to success in getting venture financing. If only people knew how to tell their story effectively, our percentage might actually go up.
“Stories are the single most powerful weapon in a leader’s arsenal.” —Howard Gardner, Harvard University
Not to sound like a jerk, but it is pretty hard to get in to make a pitch to my partners and me. It’s not that we are so high and mighty. It’s that time is short and the list of applicants is long. We try only to see companies in person who have a real chance of capturing our long-term attention in some way, even if that might be in the longer term, because we don’t like to waste our time or the time of the entrepreneurs. Thus, since those command performances are a bit hard to get, you would think people would come in prepared to inform and amaze us so well that we start drooling money. Remarkably, what often happens is they leave to the deafening sound of crickets as we scratch our head in dismay. “What the heck was that?” is a phrase we too often find ourselves saying to each other as we watch the doors close behind people who have a bucketful of advanced degrees and dream of being the next Steve Jobs.
The reason for this dismay lies in the cavernous gap between what we want to hear and what we are often given by way of information in the average pitch meeting. While it is true that there are some amazingly effective communicators out there who could charm the fur off a Persian cat, too many entrepreneurs come in ill-prepared and, to paraphrase Shakespeare, spout off facts and figures with a sound and fury that tells no tale and signifies nothing.
What we want to hear about in a first pitch meeting is quite simple and to the point:
- Team: Who are you and why are you particularly right to lead this company?
- Product or Service: What is it your company does exactly? (not generally and not tons of technical details, but actually what does the specific product you sell actually do?)
- Market Demand: Why does anyone care about that thing your company does, specifically? (e.g., what specific burning problem are you solving?)
- Fit in Today’s Healthcare Economy: How does your product/service improve quality of care and reduce the cost of care to the healthcare system, specifically with examples?
- Competition: Who else tries to do what you do and how well do they do it? How are you differentiated in reality from your competition?
- Financing Plan: What amount of money are you trying to raise and what specific value are you going to create with it?
Here’s what we get more often than I would like to admit:
- Team: I, entrepreneur, am amazing and have tons of experience, and some of that experience you might find relevant if I told you about it. Even though the last 5 companies I have been affiliated with made no money for their investors, this time it’s different, trust me.
- Product/Service: My company makes a product based on technology so obscure that I and my PhD-bearing colleagues will need charts and graphs just to explain how we are going to explain it to you, which we will now commence doing for the allotted 2 hours. What does it actually do and what specific results does it achieve? Well we’ll get to that when and if we have time.
- Market Demand: You probably know all about the specific problem we are solving so suffice it to say that we all agree it’s a big problem, wink, wink nudge, nudge. Or, alternatively, the market for the problem we are solving is so big that every man, woman, child, squirrel and chipmunk will die a fiery death if this product doesn’t reach the market by Thursday.
- Fit in Today’s Healthcare Economy: Our product improves the quality of care just by it’s very existence and it is so unbelievably awesome that the fact that it is just a tad bit more expensive than a gold-encrusted Ferrari will be overlooked by the grateful masses yearning for miniscule advances in technology that don’t really move the needle on outcome.
- Competition: No one else does what we do because they just aren’t smart enough.
- Financing Plan: We need $10-$20 million dollars to figure out if our product works and to do a bunch of other stuff and then we’ll get back to you about how and when you might get some value out of that.
I tell you, it’s maddening.
Effective communication means telling your audience a story they understand, that captivates them and that makes them want to come back for the next chapter. If I go to a poetry reading to hear Maya Angelou and you deliver the def jam poetry slam, I am not going to be all that psyched to hear your encore performance.
The purpose of that first meeting is to hook us. Make us understand through the use of specific detail and imagery why the world can’t really live without your gizmo and why you are uniquely qualified to deliver value to the marketplace (and thus me, the investor). Hearing about the quadratic equation that makes the little thingy next to the big thingy turn counter-clockwise and thus what drove you to pick titanium over aluminum is only mildly interesting, and then probably only to your graduate physics teacher. Understanding that your product makes it possible to take out a tumor 2x faster, 1/3 cheaper and with better surgical margins because it takes a specific and unique approach to intervention that differs in these three specific ways from these four existing alternatives is cool. Make me understand in no uncertain terms why I am going to feel like the world’s biggest idiot if I don’t get to give you my money.
In baseball you get three strike pitches before you’re out. In a venture capital meeting you get one. Take the time to really hone your pitch so you can tell a meaningful story. In that hour or two you have with us that is your job: storyteller. There is a reason people remember Shakespeare and John Grisham…they tell a heckuva story and you want to find out what happens next.
Don’t assume we know what you know about your market and the problem you are solving. It is possible we have never even heard of it before. We are smart, but certainly still learning every day.
Don’t forget to tell us why your particular experiences are relevant, and what you have specifically achieved in past companies to prove this.
Don’t pretend you don’t have competition. You do have competition, even if it’s inertia; acting like you don’t simply damages credibility.
Don’t tell us the market is all of mankind (and squirrelkind) and then some; break it down to the really relevant subsets and tell me how you are going to put bulls-eyes on the back of those people so big that even a blind marksman could hit them.
Don’t forget to tell us about why this is not only a good product but also a good financial investment. Hate to bring it up, but that is a venture capitalist’s whole reason for existence really. Yes, we want to participate in meaningful medical breakthroughs that help advance the species, but if they don’t look like they can make our own investors money, you’re not getting asked to the dance.
Oh, and please, dear God, please do not bring 62 slides that are chock with data points so small that that we need to attend the meeting armed with telescopes. All you really need is about 10 slides or so with the answers to numbers 1-6 above. We want to talk and get to know you. We want to hear the big idea and the specific support for it. We want to get sucked into your vision so deeply that we need snorkels to stay connected to the oxygen supply.
Murial Rukeyser, famous poet and political activist, once said, “the universe is made of stories, not atoms.” Couldn’t agree more. When you visit us, tell us a story.
Note: an excerpt from this post appeared September 23, 2010 in VentureBeat’s Entrepreneur’s Corner, which can be found at http://tinyurl.com/2dpevx9