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The VCs & the art of the Pitch
 

The VCs & the art of the Pitch

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    The VCs & the art of the Pitch The VCs & the art of the Pitch Presentation Transcript

    • The VCs & the art of the Pitch UCSF Idea-2-IPO Naeem Zafar (Berkeley-Haas) Twitter: @naeem www.Startup-Advisor.com
    • Topics of Discussion • What exactly is the VC model • The art of the elevator pitch • Pitching to VCs • Process of raising money through VC 2naeem@Startup-advisor.com
    • Capital Needs • You must be able to draw this picture naeem@Startup-advisor.com 3 $0 time cash
    • De-Risk The Deal! naeem@Startup-advisor.com 4 time A B C Risk
    • Raising Capital is Hard! • Sources: – Friends, family and fools – Angels – Venture capitalists – Strategic investors naeem@Startup-advisor.com 5 You! Domain, You Traction, Exit! Channels, products, technology
    • VCs vs. Angels naeem@Startup-advisor.com 6
    • VC Industry naeem@Startup-advisor.com 7
    • Angel Investors & Groups • VCs invest $20B a year in ~3,000 deals per year • Angels are investing between $20B and $30B in ~30K deals per year • http://www.angelcapitalassociation.org/ • Angel groups – The Angel’s Forum http://www.angelsforum.com/ – The Band www.bandangels.com – Sand Hill Angels http://www.sandhillangels.com – Keiretsu Forum http://www.keiretsuforum.com naeem@Startup-advisor.com 8
    • Demystifying Venture Capitalism • Firms with partners who have financial & operating experience • Invest other people’s money in high risk, high reward ideas • Nurture & guide them to an exit naeem@Startup-advisor.com 9
    • Why Raise Money in Chunks • Preserve equity by de-risking the deal naeem@Startup-advisor.com 10 time Valuation Risk: tech, team, market Risk: team, market Risk: team, execution Risk: mkt size seed Series A Series B Series C
    • 11 Funding Needs homework Bootstrap Or Angel Prod Dev Deployment proliferationPrototype Series A Series B Series CF&F naeem@Startup-advisor.com ~6 mo. ~6 to 12 mo. ~6 to 18 mo. ~12 to 18 mo.
    • 7-Step Method of Getting Funding 1. Research them (the investors) 2. Get introduced 3. Send exec summary to gauge interest 4. Request F2F meeting 5. Pitch & intrigue them 6. Build comfort & momentum 7. Compelling event to bring to a close naeem@Startup-advisor.com 12
    • naeem@Startup-advisor.com 13 What Investors Looks For • Traction is most important – Sales, customers, revenues • Hierarchy of traction 1. Sales 2. Field testing or pilot sites 3. Agreements for beta testing, pilots, field trials 4. Contract for pilot, field testing 5. Potential customer testimonials 6. Names of customers
    • VC Business Model • Money comes from “Limited Partners” – Committed money, collected upon a “cap call” • Managed over a ~10 years period by “General Partners” by investing in companies • Profits returned to LP as companies exit (merger, IPO) & never pooled • Keep 2% per year of fund size as management fees + 20% of gains (carry) 14naeem@Startup-advisor.com
    • The VC Model naeem@Startup-advisor.com 15 General Partners, associates, venture partners, EIR semicon New materials Web 2.0 sw•Government pension funds LP •Corporate investment funds LP •Private family money LP VC firmSource of $ Startups
    • Limited Partners Diversify Risk naeem@Startup-advisor.com 16 Early stage Software Medical LP VC firms • Limited Partners (LP) invests in a variety of funds to diversify their risks • VC is just one asset class • Various funds can be by type of investments or stage of investments
    • VC Place Multiple Bets naeem@Startup-advisor.com 17 semicon New materials Web 2.0 sw VC firmLP Invest $50M (Money sent as investments made) $3M series A $8M series B $10M series A 40% 18% 25%
    • Ball Drops! Outcome is Known naeem@Startup-advisor.com 18 semicon New materials Web 2.0 sw VC firmLP Invest $50M (Money sent as investments made) $3M series A $8M series B $10M series A Shut down! Series C, then IPO at $500M Acquired for $200M
    • Fund Winds Down naeem@Startup-advisor.com 19 semicon New materials Web 2.0 sw VC firmLP Invest $50M (Money sent as investments made) $3M series A $8M series B $10M series A Shut down! Series C, then IPO at $500M Acquired for $200M 40% 18% 25% $0 $45M (18% became 9% due to series C) $50M
    • Exit Math • LP committed $50M but cap calls for $21M • Over 10 year period paid $10M in management fees • LP math: – Capital recovered $95M – LP got $8M (semi) + $10M (materials) = $18M – Portion of carry • 80% of ($50M-$10M)= 0.8 x $40M = $32M • 80% of ($45M - $8M) = 0.8 x $37M = $29.6M • LP: $31M out, $79.6M returned (net = $48.6M) • VC: $10M in fees + $15.4M in carry 20naeem@Startup-advisor.com
    • The VC Business Model naeem@Startup-advisor.com 21 semicon New materials Web 2.0 sw VC firm LP LP expecting 5X to 10X return over 7 years Management fee ~2% per year + Carry (portion of profit retained ~20% to 30%) • VC will invest in 20 to 40 companies in one fund • Each partner may do 4 to 8 investments over life of each fund
    • Raising Money • Odds are tough, even after proper introductions it may take 20 to 50 presentation to get traction over ~6 months naeem@Startup-advisor.com 22 2 get funded 20 due diligence 100 preso ~1000 biz plans What One partner at a typical VC firm does in a typical year!
    • Term sheet Due Diligence 23 Entrepreneur’s Funding Process Homework LegalPitch Closing! 3-6 months 2 to 4 months 1 to 2 months) naeem@Startup-advisor.com
    • Section II The Art of Presentation 24naeem@Startup-advisor.com
    • Business Communications • Essential to your professional success –& personal relationship success as well 25naeem@Startup-advisor.com
    • You Are The Message! • It is not about PowerPoint • You are the message • Use aids as needed • Have your message ready & crisp 26naeem@Startup-advisor.com
    • Elevator Pitches • If you have clarity you will not need too many words to describe it • Best way to tell others about your idea? – What problem do you solve? – Who has this problem? • Tell about a use case, not “how it works” naeem@Startup-advisor.com 27
    • Pitching • Explain yourself in first minute (slide zero™) • Explain the relevance of what you do • Stay at a high level • Listen for audience reaction … • Pitch again and again & fine tune naeem@Startup-advisor.com 28
    • Pitching • People listen to 7% of words that you say • They listen to 52% of your body language • Connect with your audience – Make it relevant to them – Be clear (first in your own head) – Pause & let the message sink in! naeem@Startup-advisor.com 29
    • Tips • Do not repeat words on slide while presenting • What is the one point you want people to remember after this slide – Make this point in the title of the slide – Make this point verbally – Content of slide should support the headline naeem@Startup-advisor.com 30
    • Art of Pitching • First establish context then describe • Tell what you do, then explain rest – Compartmentalize information • Keep asking “so what?” naeem@Startup-advisor.com 31
    • So What? 32 We provide 128- bit encryption in a portable device It is super hard to break into our system You can now have a secure conversation with your HQ from hotel room Typical pitch So What! Make it personal naeem@Startup-advisor.com
    • Tips on Slides • Unclutter your slides • Minimize font, style, emphasis overload – These detract from your message • Write & insist what words can be deleted • All articles can & should be deleted • Use “builds” only with busy slides • No more than one (or 2) messages per slide 33naeem@Startup-advisor.com
    • Most Important Slide • What is the most important slide in your presentation? • Why? 34naeem@Startup-advisor.com
    • Naeem’s Pet Peeves • Unexpected capitalized words on slides – That are not proper nouns or acronyms • Too many words – OK to delete articles & shorten • Too much clutter, animation that does not add but distracts from message 35naeem@Startup-advisor.com
    • You & Your Passion • Be attentive, energetic, in front! • Know your message! – Do not read your own slides • Engage with audience • Uses pauses effectively 36naeem@Startup-advisor.com
    • Say It With Conviction! 37naeem@Startup-advisor.com
    • 10/20/30 Rule • Ten slides • Twenty minutes • Thirty size font • You want to communicate “enough”, not everything! • Purpose of the pitch to stimulate interest, not to close the deal 38naeem@Startup-advisor.com
    • Organization of Pitching • One hour meeting nets 50 minute • 5 minute greet, 5 minute wrap • 30 minutes for discussion • Leaves no more than 20 minutes for presentation • Font size rule* (oldest person in the room divided by 2) naeem@Startup-advisor.com 39 * Guy Kawasaki rule
    • What do VC hear? • What you pitch – Unmet need – Market size – Solution – ……. – Team – ……. – Financial assumptions – Financial projections 40 • What they hear – Is there money to be made? – Are these the people who will make me money? – How much money can we make? naeem@Startup-advisor.com
    • Company Name Name Title & Contact info Tag Line Ten Slide Pitch Audience can read the info but this is where you explain what you guys do: This is what I call Slide Zero
    • 1: Team • Who are you? – Make words relevant – Include advisors, consultants if they make you look larger & impressive • OK to show up with a less than perfect team – All teams have holes – Important issue is that you know that there are holes that you are willing to fill 42naeem@Startup-advisor.com
    • 2: Unmet Need • What pain are you alleviating – Get everyone nodding their head in agreement • Minimize a lot of data from “analysts” and consulting companies • Describe a problem people connect with • Customer examples 43naeem@Startup-advisor.com
    • 3: Target Market & Segmentation • What is your target market • Which sliver will you own first & why • Market size • Market dynamics – Regulation, new technology, new players 44naeem@Startup-advisor.com
    • 4: Market Dynamics & Competition • Complete view of competitive landscape – More is better • Never dismiss your competition – Investors, customers, employees all want to know why you are better, not why competition is bad • Never say that you have no competition naeem@Startup-advisor.com 45
    • Positioning • How will others remember you • Using familiar players to help position yourself 46naeem@Startup-advisor.com
    • 5: Your Solution • How you alleviate this pain • Make sure that audience clearly understand – What you sell – What is the value proposition – Not a place for in-depth technical description – just a gist of “how” • Avoid text but use diagrams, schematics, mockup, demo here 47naeem@Startup-advisor.com
    • 6: Your Unfair Advantage • Why now? • Technology, secret sauce or magic behind product • Special alliances, relationship that makes it possible to for you to do this, now 48naeem@Startup-advisor.com
    • 7: Business Model • How you make money – who pays you – what channels – what gross margins naeem@Startup-advisor.com 49
    • 8: Go-to-Market & Sales Strategy • How will you reach your first 10 customers • Marketing leverage points • What alliances needed or in place • Convince audience that you have an effective go-to-market strategy naeem@Startup-advisor.com 50
    • 9: Financial Projection & Key Metrics • What are key metrics & assumptions – customers, installations, licenses etc • 5-year financial projection Take into account extended sales cycle • Make people understand the assumptions that you made naeem@Startup-advisor.com 51 $0 time cash
    • 10: Status & Timeline • Current status – Accomplishments to date (last ~6 months) – Timeline (major milestones over next ~18 months) – how the money will be used • Can be used to show key metrics – Employee growth – Customer or geographies growth – Profit point etc. 52naeem@Startup-advisor.com
    • Q2-’11Q4-’10 Q1-’11 2H-’121H-’12 1H’13 Timeline betas e.g. 10 referenceable accounts Or Reach profitability etc. Alpha customer acquisition Series B $7M Start company e.g. 1st Prototype Milestone #5 2H’13 Series A $4M Milestone #3 Milestone #2 Milestone #4 e.g. 1st alliance signed Seed $100K Q3-’11 Q4-’11 Product development Prod Launch Employee count 4 6 11 18 22 29 39 54 naeem@Startup-advisor.com 53
    • naeem@Startup-advisor.com 54 www.FiveMountainPress.com
    • Summary • Pitching requires clarity – Get clarity on your own business – Who your audience is and why should they care • Pitching is common sense! – Which apparently is not that common • Luck happens when preparedness meets opportunity 55naeem@Startup-advisor.com