Pitching to VCs
The O'Reilly Web 2.0 Conference starts tomorrow, and I am looking forward to meeting entrepreneurs and getting new ideas. The days following a conference like this is usually filled with meetings with startups that I've met at the conference. The pitches I see have a few golden nuggets in them, but more often than not a few key elements are missing. This time I am attaching what I call a 'great VC pitch'. It's 14 slides and touches all the important aspects of any business that the entrepreneur needs to think of.
But I don't want to give these slides in a vacuum. In each slide, I'll explain what needs to be described, an example right answer, and what a VC will be thinking when seeing the slide. I am guessing that the latter is no commonly known among entrepreneurs. When giving the right answer, I am thinking of a fictitious, online dating startup who is fundraising.
Slide 1: Mission Statement
This is the one liner of the company that describes what it's doing. It's best here if you relate to a past success. A correct mission statement for our fictitious dating company would be "Skype for online dating" if it is free and distributes virally eliminated the subscriber acquisition cost that's a big cost item for telcos and online dating companies.
What the VC is Thinking: "Why should I be interested in this?"
Slide 2: Market
How big is it and how fast is it growing? That's what you want to convey. Our fictitious dating company would say there are 100M singles in the US and 150M in Europe. Dating goes for about $20/mo and there are only 5M paying online daters.
What the VC is thinking: "Can I build a billion dollar company?"
Slide 3: Problem
How big is the customer's problem that you are solving? Finding a soulmate is hard, that's the problem online dating solves. The harder the problem, the more value there is to capture by solving it.
What the VC is thinking: "How good will my gross margins be?"
Slide 4: Solution to the Problem
What is your company's unique solution? A good answer may be "we have a much better matching engine that determines who would be a good match for you"
What the VC is thinking: "Why hasn't anybody done this before?"
Slide 5: Team
Who is the team, what is their past experience? Good answers here have team members with good startup and big company experience that's relevant
What the VC is thinking: "Would I bet my childrens' future on this team?"
Stop right here...These 5 slides are critical, and they have to be in this order. If you follow this model, in 5 slides you've told, what you do, what market you are in, what the problem is, what your solution is and who you are. This way you'll never come to the end of a pitch and hear "What is it that you do?"
Slide 6: Technology
What's your technology and why is it defensible? A good answer would be a matching engine that's more accurate, and based on specific research done by the founders.
What the VC is thinking: "How long will it take to deliver this technology? 1 year, or 5 years?
Slide 7: Customers
Who is buying the product and why? A good answer for an internet company is to show traction. How many users do you have and how many sign up per day?
What the VC is thinking: "Does the value proposition hold water?"
Slide 8: PER CUSTOMER ECONOMICS
The most important slide of the whole presentation. A good answer here shows how well you've thought about your business. Per user economics is how VC's reduce all business to the same units. How much does it take for you to acquire a customer? How much revenue do you get per customers? What's your cost of goods per customer? What does it cost you to service each customer? What is churn? What is the lifetime value of a customer and profit per lifetime of the customer? Any entrepreneur who doesn't have the answers or see the risks, doesn't yet understand his/her business.
What the VC is thinking: "What is a customer worth?"
Slide 9: Go To Market Strategy
OK, you have a great product, how do you get in front of a customer? What channels will you use and how powerful are they. A good answer would be to show that there is possibility for viral distribution. If one customer brings more than 1 customer to you every month you have a viral business.
What the VC is thinking: "How will the channel affect the company?"
Slide 10: Milestones
When is alpha, when is beta, and when will the product be ready? A good answer is, "the $x we raise will get us to 2M users"
What the VC is thinking: "Will there be another financing necessary? If so will I get a step up in valuation?"
Slide 11: Financials
Show the Income statement, balance sheet and, cash flow, preferably in one slide. A good answer would one that implies that "even if we are off by 2x, this is still a good business."
What the VC is thinking: "Are these numbers credible or just wishful thinking?"
Slide 12: Competition
Put a 2x2 matrix with the most important variables in the axes. The exercise is for you to reduce your business to the two most important competitive variables. Usually it is 1 or 2.
What the VC is thinking: "Does this team understand their competition?"
Slide 13: Financing History
How much have you raised to date? Who are your investors? A great answer here is one that says "we've been frugal and will continue to be so"
What the VC is thinking: "Who are these co-investors and can I trust them?"
Slide 14: Why This VC
This slide is optional. But any team that says "We like your firm because you can help us with xyz relationships" shows that they've done their homework investigating the VC. That's a good thing
What the VC is thinking: "Flattery will get you anywhere!" ...and it is true.
I am also attaching the powerpoint if anyone wants to use the template
Great post, Baris. Awesome, succinct recommendations.
Posted by: Kevin Dewalt | November 08, 2006 at 08:35 AM
Hey long lost friend! We must catch up. I'm in France for the next month, returning to LA in July.
Love your post. Right to the point. I can hear you saying every sentence.
Posted by: Ashley Maddox | June 20, 2007 at 10:36 PM
Online dating has become so famous and there are so much sites about it.People have a great choice when talking about dating.
Posted by: Cara Fletcher | July 18, 2007 at 12:59 AM
Well written. Honest.
-Dash
(http://adEcon101.blogspot.com)
The New Economics of Advertising
Posted by: Dash Chang | March 11, 2008 at 02:01 PM