You never know what you'll hear back after you give your pitch to a venture capitalist. VCs have a much deeper and more expansive view of the business landscape than most entrepreneurs. Sometimes, what the entrepreneur perceives as a strength, the VC perceives as a weakness.
I recently hosted a venture capital forum, during which a panel of three venture capitalists received investment pitches from three entrepreneurs. One young company had achieved annual revenues of $500,000. In his pitch, this entrepreneur stated that he was seeking $2 million in funding. He pointed out how efficient his company had been to date, getting to its current stage with only $1.25 million in capital. Continuing this efficiency, he projected the need for an additional $2 million going forward.
In contrast, the entrepreneur pointed out, a California-based competitor had raised $40 million in VC funding and still had not achieved the technological or market success of his own company.
This fact was presented as a strong point for the entrepreneur and his company.
However, one VC in particular did not see it that way. This VC saw the $40 million as a "war chest" that the competitor could tap to overcome its current weak position. As this was an unexpected response from the VC, the entrepreneur was not prepared with an adequate answer to this concern. This entrepreneur had heard through the grapevine that the bulk of the $40 million had been wasted and the competitor did not have much of a "war chest" remaining. But at the time of his presentation to the VCs, he did not have strong enough support of this rumor to state this in response to the VC's concern.
Of course, after the event, the entrepreneur is working to verify those rumors so that he will be able to adequately address such concerns in the future.
The lesson learned is that it is always good to look at your presentation and plans from all angles... could something that you perceive as a strong point be perceived by others as a weak point, and vice versa. If you do this analysis before approaching investors and have your responses prepared for either perception, you will not only make a better presentation, but you will have a more complete view of your business opportunity.
In defense of the entrepreneur, I must admit that I assisted him in preparing his presentation and the VC's perception caught me off guard as well! After the fact it seems so obvious. This is one reason that it is good to get feedback from as many people as possible when preparing such presentations. Usually, one person cannot think of everything.
Friday, October 17, 2008
Subscribe to:
Post Comments (Atom)
2 comments:
I was at the VC Forum and the comments from the VC caught me off guard as well. I still think that it is actually a strong point, though. This was very educational and I hope to attend more of these types of events to get ready for my own pitch to VCs sometime in the future.
Indeed, it is interesting how entrepreneurs often do not see the bigger picture, or the influences that 40-million can have in the political arena, as barriers of entry are thrown up (Rule Maker, Rule Breaker scenarios).
Forty million in this case allows the competitor room for mistakes and recovery, 2-million certainly does not leave much play in case of lawsuit over a patent or regulator intervention via the competitor.
Boy do I agree with the Vulture Capitalist in that regard. The Entrepreneur could have pointed out "burn rate" of the competitor, weakness, inefficiency, throwing money to waste, ROI, meager sales and show how the competitor was going to be an IPO bomb.
Also it shoulf be noted that sometimes the VC guys really are not so interested in the industry or sub-sector, thus, they pull a wild objection out of the air and play the arrogance chip. That's find, it's their money. Not every VC is as smart as they proclaim.
And not every VC funded company is as tough as they would have you believe. I have slammed well funded companies to the ground and trampled them causing their VC to lose everything. And I laughed as I crushed them into oblivion. Ha ha ha.
I'd say they most successful VC are a lot about "Blink" scenarios, they look at it, and if it feels good and checks out they go with it, if not, nothing else matters, they walk or slam the door, screen the calls? It's a game.
Post a Comment