Mar 21, 2009

When You Are The Product

When you’re pitching to customers, your product is a piece of software or hardware, a service, or a web site. When you’re pitching investors, the product is you.

It may seem obvious, but a pitch isn’t just about the content. You’re evaluating your potential investors based on the questions they ask and the knowledge they show of your space. Meanwhile, your investors are evaluating the whole product that is you: The market opportunity, your strategy for capturing that opportunity, and you and your team.

When I say you as a whole product, I mean whether you:

  • Present effectively
  • Can recruit, sell, and communicate a big vision
  • Know more about your domain than anyone else
  • Think strategically
  • Have the appetite to build something really big
  • Are a great fund raiser

That last bullet may seem a little bit of a chicken and egg problem. But part of what investors are evaluating is whether they think other investors will want to give you money in the future.

With VC purse strings tight, raising money has become a lot harder than it was in recent years. Since I wrote Perfecting Your Pitch last summer, I’ve seen almost another 200 pitches. My hope is that this entry will give you as much insight into what we look for when making an investment decision as into how to pitch.

Address Your Audience

As with any presentation, it’s critical to consider your audience. Many entrepreneurs and CEO’s present a modified version of their customer deck. It has a few obligatory market sizing slides up front, but ultimately it’s trying to convince someone to buy the product the company sells, rather than to buy the company itself.

It’s easy to forget that potential investors aren’t buying your product. They’re buying a piece of your company – the opportunity, the team to go capitalize on that opportunity, and the customers or users who are going to spend money to use that product.

Some entrepreneurs think of spending time revising their presentations as a waste of time. Each VC seems to want something slightly different and it’s easy to become disillusioned with the process, especially when it takes a long time. That’s valuable time away from acquiring users or selling customers.

As an entrepreneur I found the fund raising process highly subjective and time consuming. But I had to remember that pitching is just like any other sales opportunity: it requires preparation, psychology, and ultimately, a product that people want to buy.

Three Key Messages

Last time I wrote about perfecting your pitch, I described individual slides that might make up a slide deck. This time my goal is to take a step back and articulate three key messages your presentation – that is, you and your deck together – needs to communicate.

1. This category will be big, and the time is now.

It’s all too easy to throw up a slide that says you’re playing in a $20B market. For example, some estimates put the Internet advertising market at $21B in 2008.

Your goal is to tell your investors what part of that $21B you’re going to crack, and why. The $21B is the Total Available Market (TAM). The segment of the market you’re going to own is the Served Available Market (SAM).

To devolve into tactics for a moment, one way to make the case for why you’re going after something big is to show the SAM and the TAM with a colorful pie chart. Make the TAM the overall size of the pie. The SAM is the slice you’re going to eat over the next 5 or 10 years. To show that the market is a growth market, you can add a second pie chart showing the market three or five years out – the value of the slice is bigger, as is that of the pie itself.

At this point in your presentation, you’re not trying to convince the potential investor that you are going to be big. You’re just trying to convince them that there is something big here. Don’t try to reel the fish in yet, just try to get the fish on the line.

This is a big opportunity now.

It’s time to set the hook and lend an air of urgency to what you’re doing. Investors are presented with a number of seemingly big opportunities every day. Make the case for why the time is now.

What big next wave are you riding? What confluence of forces are coming together to make this make sense? Surely people have thought about what you’re doing before, but now is the time. Why?

This is a whole category, and it’s a category that matters.

Participating in category creation is a big part of what venture capitalists look for. If you’re building a feature, or a product that is marginally better in an existing space, that probably isn’t a good match for venture capital. Why does what you’re doing matter? Why is it important? Why is it going to fundamentally change things?

Now that you’ve set the hook, it’s time to start reeling.

2. Show and tell: How you win

Don’t just say you’re going to win. Show it. Inspire confidence.

By knowing more about your industry than anyone else, knowing your numbers inside and out, being clear and articulate, and having the best team possible to build the business, you show that you’re going to win.

Then, try to address the following questions:

What makes you more qualified than just about anyone else to do this?

Why is your offering better?

Why is your offering a must have?

How are you going to win?

What is your unique insight?

What asset are you building up that some other venture capital firm can’t just throw more money at to reproduce? Examples include: a huge mass of users; a database of historical data that can only be created over time, not just with money; customer or user data that once imported into your system would be a real pain for your customer or user to transfer to a new system; or a hardware design that only a handful or two of people in your industry could have a chance of building.

Competition is good. It means that this really is a category that matters. Don’t just leave that competition slide hanging without telling people why you’re going to win. What’s the competition doing, and what are you doing to beat them?

3. This is valuable and strategic

I know from being an entrepreneur just how incredibly hard it is to balance the day to day challenges of operating a business with presenting a long term vision that investors will buy into.

As much as possible, be clear and realistic about your business model, and provide supporting data that this is the right business model for your company. Why will it work?

Try to answer questions like:

How will you get to $100M in revenue in five years? Again, it’s not enough just to show a chart with revenue going up and to the right. It’s critical to articulate how you’re going to get that revenue.

Why are you a must have?

Most importantly, why are you strategic? What is the larger ecosystem you’re playing in? Why will multiple large companies care about you? Why will they compete to buy you if you don’t IPO?

Conclusion

Investors spend a lot of time on the potential risks of an investment. Your goal is to get them excited about the opportunity and demonstrate that you will address the risks.

It’s one thing to tell investors you’re going to be successful. But show them you are and you’ll not only give a great pitch, you’ll inspire them to invest.

11 Comments

  • Great post – I couldn’t agree more. Particularly with the point on revenue projections. Everyone can imagine a big number, but the path to get there is far more important.

  • I like how you bring to light the importance of your 2nd or 3rd round of capital raising before the 1st round… I know I’d feel better knowing any VC investment I’d make has a greater chance of appreciating in market value on following-on offerings.

    I think I could park my mind on several of your questions…as “question launch pads” to help steer our biz into the next additional zero in our revenues.

    Thanks!
    -Chris

  • The basic stuff, but as always its the basics that are all important. A useful reminder and important when its all to easy to get lost in the throth and bubble of death by powerpoint.

  • Thank you for a great article! I’ve added to my collection of articles on how to do an effective venture captial pitch: http://www.livebinders.com/play/play?id=625 that I share with the entreprenuers that I work with.

  • I agree. Very informative post. Thanks!!

  • I Blog, Therefore I Invest? Do Blogging Venture Capitalists Invest More in Startups?…

    Given our recent analysis of VCs and Angels who Twitter and how it compared to their investment activity in 2009, we thought the logical extension of this would be to examine VCs and Angels that blog and compare their blogging activity to their investm…

  • Great post!. I’ll re-check it before my next presentation.

    Best regards and thank you so very much for sharing,
    Martin

  • Great post with great thoughts. As an entrepreneur you like to think that what you’re doing is great, but to ask yourself “unblinding” questions, as I call them, require you to really get to the guts of WHY you’re in biz, and WHY anyone should invest.

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