I imagine that as an entrepreneur, it often feels like there’s a barrier that prevents your message from reaching VCs. VCs get to ask all the questions without explaining themselves, so I can see how it might appear as if we operate behind a very thick set of curtains.

If we push back the curtains though, our motivations are quite simple. We are looking for companies that will make it big. Which ones will become acquihires vs lifestyle businesses vs nicely sized acquisitions vs IPOs? I’ve synthesized my thought process into three core questions that I try to answer whenever I meet a new company. I’ve also included some follow-up questions to each core question that encourage deeper digging into each high level topic.

1. How big could this get? Are you addressing a serious painpoint? Can you prove it? How many users will you have? How engaged will they be? How big is your market? How much of it is addressable? What are your barriers to entry? If we squint a bit, what does your vision look like?
2. What’s the biggest risk to your business? Is it cost of customer acquisition? Sales cycles? Implementation? Competition? Business model? Time to market? 
3. Why are you the one best equipped to tackle this problem? Do you have an evil plan to take over the world? Do you have industry expertise? Do you have a do it or die attitude? Why are you tackling this specific problem?

If you’re able to answer these questions and back your answers up with proof, you’re well on your way to killing that pitch.

Completely unrelated, but what compels a coffee shop to close at 3pm on a weekday? How does that make any sense? Is it too much to ask for them to be open at 2am when I actually need the coffee? 😉

The purpose of your pitch is to convince a VC that they should spend more time with you. The first pitch requires a fine balance between cramming too much information in an hour and not providing enough information. Your first pitch matters a lot because VCs often don’t have the time to give you the benefit of the doubt if you don’t present your message clearly, and how you present your message also reflects on your ability as a founder. Everything matters!

My co-worker gave me some interesting advice recently about a blog post I was writing – she told me to step back and view how others would read and understand the article. What assumptions was I making about what they know? You can use the same strategy to approach your first pitch – assume the VC you are pitching to doesn’t know anything. How can you convince them that you have a great product, a market dying to use your product, and a great team? Meet those points and you’re almost sure to get a second meeting.

Sometimes, no matter how good your pitch is, you just aren’t going to hit those points for an investor. It might have to do with the returns investors want to achieve or the industry focuses investors have. However, I also see a lot of entrepreneurs weaken their chances of impressing investors because of their presentation skills, so here are some common mistakes you should avoid when pitching to investors.

1. Don’t take too long to get to the product. Running through the vision is great, but a single mission statement slide isn’t enough to tell investors what you’re actually doing. If I have to ask twenty minutes into the conversation, “I’m sorry, what exactly are you building?”, you waited way too long.
2. Be able to describe the painpoint you are addressing, and prove it! One general trend in SaaS right now is to take software and apply it to an industry that was previously run using paper and Excel spreadsheets. It’s not enough to claim that an industry is run by paper – you also have to prove that that industry is ready to adopt software and pay for change.
3. Know how you calculated market size. It’s great if you pulled the market size from Gartner or IDC, but it’s even better if you’ve done your own TAM analysis.
4. Understand your buyer. It’s not just about name dropping people you’ve talked to – it’s about being able to dig into the dynamics and factors that weigh into their decision making.
5. Know your competition inside and out. It’s okay if a VC knows a startup in the space that you haven’t heard of yet. Knowing your competition means being able to pinpoint who your direct and indirect competition is. For example, if there are no software providers in your space, your competition would be inaction, consultants, or DIY.
6. Don’t read too much into people’s questions. They usually aren’t trying to challenge you, and having people ask questions means that they are engaged in your presentation.
7. Know your KPIs. What’s your revenue plan? What is your conversion rate? How does you pipeline look? How long is your sales cycle?

That’s it for me this week. Completed during football advertising breaks. Go Patriots!

A lot of start-ups like to ask me this question, and the short answer is that each process is different. However, there is a common denominator across the majority of the deals we look at. A good way to think about what a potential due diligence process might look like with an institutional investor (note that this may not be as relevant for angels) is to explore the key questions driving a typical due diligence process. Investors are trying to determine both the upside in your business, as well as the risks associated with that upside. Typically, the key questions we try to answer are (1) How big is this opportunity? (2) How likely is this opportunity to succeed, and does it fit our risk tolerance? Is this the right idea to tackle this opportunity? (3) Is this the right team to go after this opportunity?

Here are some standard diligence processes we might run to understand the answers to each of these three questions.

(1) How big is this opportunity? 

• Sizing the market
  • How have you, the entrepreneur sized the market? Why did you choose this market as the one you want to spend the next 5+ years of your life on?
  • We often run our own analyses around top-down and bottoms-up projections of market size
  • What do professionals in this space have to say about the market?
• Willingness to pay
  • Is this a nice-to-have or a must-have?
  • What do your customers have to say about how essential your product is?
  • Will you see price compression or expansion going forward?

(2) How likely is this opportunity to succeed, and does it fit our risk tolerance? Is this the right idea to tackle this opportunity?

• Product-Market Fit
  • How many customers do you have? What does your traction look like? Have you developed your product with customers in mind?
  • Quick note on this one – some companies come in and mention that (a) they either don’t have enough customers to measure this or (b) their business model doesn’t allow them to measure the metrics we’d like to see. If you’re in the (a) camp, I’d suggest you to brainstorm ways to answer the product-market fit question beyond customer traction. Do you have betas or early adopters who can speak to the need you address? Were you personally experiencing this problem before you started the company? If you’re in the (b) camp, I would try to figure out how to measure your customers as fast as possible.
• Competition
  • Who else is in the market? What are your key differentiators? How large are the barriers to entry?
• Go-to-market
  • How much capital is required to get the business rolling?
  • How much have you burned, and is there a path to cost efficiency?
  • How will you (or have you) figured out a repeatable sales model?

(3) Is this the right team to go after this opportunity?

• Personal references
  • We often want to understand the team we’ll be working with for the next few years, so we do run personal references in certain cases.
• Strength of team
  • We always like to see the team slide up towards the front of a pitch – people are a big factor in our decision making process. The strength of the team you’ve built around you also hints at how well you can attract and retain talent.

Let’s bring it back home. Your ability to answer the above questions will impact both your success in raising money and your valuation. Sometimes, having a really great team can trump a need for customer traction especially in the early days. At other times, nothing can trump the lack of a large market opportunity. The process of making an investment decision involves putting all the information we’ve gathered into a melting pot and taking a taste.

On a less serious note, just watched The Revenant and have yet to recover from the intensity of that experience.

It’s the end of the year, and I inevitably have to succumb to the urge to write a retrospective blog post detailing what I learned over the last year.  I’d like to end this year by sharing the number one thing I learned this year: less is more.

Let’s dive in on what I mean here, since obviously less isn’t more all the time. I like to believe that less consumption of fried foods is definitely not more, less wine is definitely not more, and less awesomeness in general is most absolutely not more. What I mean by less is more is in the context of communication. One thing I try to focus on when I communicate is eliminating fluff. People have a limited reserve of attention, so I try to make sure that everything I say adds to the point I’m trying to make. It’s hard, but something I continually work on. Venture has been a great opportunity for me to exercise this skill. Given all the information about a given company, how do you distill everything into a couple bullet points on why we should or should not invest?

As usual with this blog, let’s bring this into the context of startups and entrepreneurship. A lot of companies who come in and pitch to us spend a bunch of time setting the stage – the market is huge, the opportunity is big, and the team is strong. However, we are left hanging when it comes to the actual product. What painpoint do you address, and for God’s sake, what do you do??? Sometimes suspense is great, but most of the time, it’s incredibly painful – for the ultimate lesson on how painful suspense can be, check out 2001: A Space Odyssey. Investors and potential customers are inundated with pitches, and if you take too long to get to the point, you are only hurting yourself. Focusing on addressing what the listener needs to hear is a great way to guide pitch deck creation.

It’s almost Christmas, and I don’t have energy to write a longer post. A long post wouldn’t be true to the spirit of less is more anyway. Here’s to a great year of learning from great people!

I hear a lot of entrepreneurs use this term nowadays – it’s usually the nice equivalent of “I’m not ready or willing to talk at this point about funding.” However, I’ve also seen some entrepreneurs use it in a way that I find incredibly dangerous – namely in the context of building a product within a vacuum.

I remember back in the day when I was working on a start-up idea with a couple of my classmates from college focused on “disrupting” business networking. We were all really excited about the idea – it was going to change everything. People who hated on the idea or gave us negative feedback just didn’t see our vision! They wouldn’t understand until given the chance to experience the product for themselves.

So during the period where I was in between jobs, I actually got around to building a prototype of said product. I basically woke up, walked over to my computer, and “hacked.” I really felt like I was getting somewhere – the great thing about programming is that you see what you are building compared to some of the more “soft” things I do on a day-to-day basis.

At the end of the day though, those months spent hacking on a prototype were really an incredibly inefficient way to learn a very simple lesson: never build your product in a vacuum. Even if what you’re doing will fundamentally change an industry, it doesn’t matter if no one understands how your solution addresses a need or pain point.

Another important point is that a vacuum exists both in a physical and mental way. There’s the vacuum where you basically don’t talk to any customers, and there’s the vacuum where you basically don’t listen to any customers. We talked to target users, and they all asked us the same questions around why they would need yet another app for networking, but we just didn’t listen.

So what happened to the prototype we built over those couple months? Exactly nothing. We stepped back and realized that we were really just building another Facebook, and that the value prop was a stretch.

Good times!

There is this dangerous balance when you think about how to pitch your vision. Don’t step forward far enough, and you aren’t being innovative enough; step too far and you’re falling into the cliff of insanity. I am a big believer in thinking big – if you’re going to quit your day job and make your night job your day job, what’s the point of going halfway?

However, when you emerge to pitch your idea, it’s not always enough to sell a big vision, especially if you’re expecting investors to shell out MM+ to support your vision. I could walk into a boardroom and tell you I’m going to cure cancer, or that my app is so viral that it will be downloaded on every single person’s phone in the world, or that I am rethinking enterprise infrastructure from the bottom up, but would you believe me? I wanted to share 3 quick tips that should help when thinking about how to pitch your big vision.

Tip 1: Start with a clear entry point

It’s important to have a larger vision, but at the end of the day, it’s very hard to change human behavior. Find an entry point that’s sticky that you can expand on.

Tip 2: Provide some validation

You don’t need customers, you just need to prove that you understand the pain point and why your approach is plausible.

Tip 3: Don’t oversell it

It’s important not to oversell something just because you think that’s what venture capitalists want to hear. You’re going to be in it for the long haul, and it’s better to find someone who believes in your vision as passionately as you believe in yours.

Keep dreaming! 🙂

I meet a lot of entrepreneurs when they’re looking to raise (obviously), but I also meet a lot of entrepreneurs who aren’t looking to raise yet, but are looking for honest feedback about when they should raise, what metrics they should hit, and first impressions on their business idea.

The one recurring question I get is: how much traction do I need to raise funding? 

It’s a funny word – “traction.” It’s one of those words that has really caught on in the valley, but there doesn’t seem to be a shared definition for it. I’ve been coding a lot lately, so I can’t help but joke: it’s a local variable instead of a global one? It hurts me that I just wrote that, but now that I’ve thought of that analogy, I’m not letting it go.

Back on track – what exactly is traction, and how much should you achieve before you start on the financing path? Obviously, how much traction you should have depends on what stage you are at. The traction we expect to see from an angel opportunity is very different from that of a Series D opportunity.

Let’s drop metrics for a second and really dive into the underlying reason why “traction” matters. Traction is really a proxy for product-market fit. It answers the question of whether or not you’ve hit a painpoint that makes sense. Further down the line, it hints at how large your addressable market is and what your business might look like. Your traction is really a lens that helps focus your very unforeseeable future as a company.

When you think about the right level of traction you should be aiming for, I think it’s better to make sure you can use your traction to answer some key questions about your business that all revolve around product market fit. Namely, are you addressing a need, is your business model feasible for the market you are tackling, what types of customers will need you, and how many prospects are out there? I’ve included a graphic below to provide some color on what you might be feeling inside about how well you can answer these questions. Keep in mind that every company is different, and that at certain stages you might be further along answering one question than the others. Also, some companies have been able to raise far ahead of the proposed formula below. Regardless, I hope this proves helpful in framing your thought process. Apologies for the image quality – I drew it on the closest piece of paper I had at the time.