Monday, July 11, 2011

Why Pitching Investors Sometimes Misfires

    According to a recent report from the Center for Venture Research at the University of New Hampshire, women-owned ventures account for 20% of entrepreneurs seeking capital, though only 13 % of them  actually receive funds, lagging behind the overall rate by about 5%.  One crucial step in seeking capital  is “The Pitch.”  Recently two seasoned women investors shared  their experience about  why some pitches don’t persuade investors to write checks.

     A recognized spokesperson for the technological entrepreneurship community in Silicon Valley, Heidi has achieved success both as an entrepreneur and as a venture capitalist.  Currently a faculty member of Stanford University, Heidi served as VP for Apple Computer, and as a co-founder and CEO of T/Maker Company, a developer and publisher of personal computer software. Heidi was a managing director of Mobius Venture Capital which had $2 billion under management.  Currently, She serves on the board of TiVo and Prysm and Springboard Enterprises.
Heidi Roizen

Here are Heidi Roizen’s top pet pitch peeves.

  • Don’t expect to turn a blind date into a marriage proposal in one go round.  Your job when you pitch is to convince investors to start a process by figuring out who you are and whether you can accomplish what you promise. Don’t overwhelm with power points.  State articulately in two or three sentences what problem you can solve not  by recounting your entire resume but by explaining, for example, a relevant experience that led you to start your company.
  • Own your numbers!  Don’t be content to think of yourself as the big idea person. You have to understand in detail how much your product costs, how many minutes it takes to make a sale.  Delegating your numbers is like trying to get fit by sending someone else to the gym to do your workouts.  The blood of your company is the numbers—be sure it’s your blood too. 
  • Don’t hire relatives and best friends.  Of course, there are times when that work out as it has at Google or Sun Microsystems, but always look for the best person for your company.  If your Uncle Henry is an estates lawyer, he’s not the ideal person to sort out patents or even help with a business plan.
  • Don’t overpromise in the near term and under promise in the long term. Investors are mostly worried about costs in the short term; they want to understand  how you plan to  lay the foundation  or construct your business.  For the long-term, they are hoping for big hits which they don’t expect in the first year or two.   
  • Show investors a product they can touch and feel or a mock up or a video or audio of your product. Then stay in touch with the investors. Be persistent and polite. But,  take the initiative to make something happen if they don’t respond after the first go round. 

Judy Robinett:     An active member of a growing high tech corridor in Salt Lake City, Utah, Judy has 30 years of executive business experience with Fortune 300 companies, and also with startups and turnarounds. From 2000-2008, Judy served as CEO of Medical Discoveries, Inc, a publicly traded developmental biotech venture. Trained as a  social worker, Judy now devotes her energy to consulting on strategic plans and financing for newly emerging companies.  A managing director of Golden Seeds, she remains  an active investor in startup companies, particularly in life sciences or high-tech, often taking Board positions to guide the strategy to market.

Here is  Judy’s list of do’s and don’ts:
·       Treat investors as customers.  The product they are buying is you and your company, so they want to know what they will get for their money. Too many entrepreneurs are so in love with their projects that they forget that money has value. If you describe your funding strategy from where you are now to how much you need to reach certain milestones, you appear more credible.  With $1 mil, maybe you can build infrastructure, hire a team and secure patents, but to get a revenue stream going, you will need more money.  Be conservative about what you promise so you can  meet or beat expectations.
·       Show  signs that you understand that it takes a team to get to the next level.  Be sure you don’t just want to be calling all the shots; focus instead on how to be successful. Early stage investing carries great risk so investors bet mostly on the character of the entrepreneur. It’s up to you to show that you value their money and that you want them to act as mentors and open doors for you.
·       Create  a strong  customer acquisition model; too many entrepreneurs have blind spots about how they will grow.  How much does it cost to acquire a customer?  What is the size of your segments, and what are your channels for reaching them? If entrepreneurs say they have no competition, it’s safe to assume there is no market for what they are selling.  Ideas are easy; it’s execution that counts.
·       Count on glitches along the way.  It’s never a straight line to success, so investors want to hear assumptions about “what if.” These assumptions show the quality of your thinking. Anybody can produce great spread sheets with hockey stick numbers; hitting them is the hard part.
·       Understand that good relationships with investors are key. Remember that the path is “know me, like me, trust me.”  Numbers alone don’t make an investment.  Funding is a relatively small world so it’s imperative that entrepreneurs be truthful, transparent and congenial in all their dealings. Burning bridges with one investor can cut off multiple sources because of their extensive networks.


3 comments:

  1. This is great advice - the relationship (whether it's with a potential customer or funder) always comes first. Trying to move too fast or overpromising will - as with any interpersonal relationship - lead to mistrust and bad feelings.

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  2. The presentation skills needed for a great pitch are very specific. It is an area of expertise that requires an understanding of the venture capital game.

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  3. Thanks for this. Both Heidi and Judy are top pros and know what they're talking about. I especially enjoyed the wisdom related to communication. To get more info please visit www.plagiarismdetect.com.

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