How To Pitch - Genesis Partners (Gil Dibner)

Communicating Innovation: How to pitch to a VC Gil Dibner Eurekamp, February 2008

topics ● Communicating innovation ● VC basics ● The VC pitch: a user’s guide - What VCs are looking for - Presentation structure - A few helpful tips ● Q&A 2

communicating innovation is hard 3

pitching to a VC is especially hard ● 1 in 100 ● Fear of rejection ● Communicating a new idea 4

VCs are inherently skeptical (it’s our job!) ● Lots of investments ● Lots of failures ● Looking for big successes – but very few materialize 5

VCs are investing someone else’s money ● They need ammunition ● You need to give it to them ● Love is (usually) not enough 6

why the VC model is so hard ● A $200M fund ● Target: $600M (3x the amount invested) ● 20 investments at $10M each ● Assume 10 investments will fail ● So 10 investments need to generate $600M ● An average of $60M per investment ● But VCs only own about 20% at exit ● Requires an average company valuation of $300M 7

so what are the VCs looking for? ● Team ● Large market opportunity ● Technology Amazingly, this is a ● Strong competitive position great structure for a ● Execution ability presentation! ● Potential to be a public company ● Deal terms that make sense 8

but first… ● Prepare a short, clear elevator pitch that you believe in ● Put it on your first slide ● Three steps: - Tell them what you are going to tell them - Tell them - Tell them what you told them 9

team ● Can this team take the company to the next level? ● Does the company have the ability to attract great people? ● Does the company know what capabilities it’s missing? 10

large market opportunity ● What pain does the company solve? ● How do we know the pain is real? ● Who is going to pay for this and how much? (ROI) ● How big is this opportunity? 11

avoid “Chinese marketing” ● There are 1,321,851,888 people in China ● If I can sell a balloon dog at $1 to just 0.5% of them… ● …I will have revenues of $6.7 million dollars in year one! ● Focus on specific attainable market segments where you offer high value 12

pick up the phone! ● The more market validation, the better ● Many people like talking to start-ups ● Leverage your network (linkedin, facebook, eurekamp, etc.) ● Don’t be too secretive ● The VC is going to check the market anyway, so you might as well get started 13

technology ● “Technology” doesn’t necessarily mean algorithms and chips – it can be user experience or a way of doing business ● It’s not about patents ● It’s about: - Uniqueness - Barriers to entry - Tangible technology assets 14

the “complexity” chart ● Allows a technology discussion to take place ● Demonstrates you have thought about the technology ● Allows you to show: - What you have built and what you plan to build - Where you are unique 15

strong competitive position ● If you have “no competitors” you are in a bad market - (or you don’t know your market well enough) ● Why do you have a good chance being a winner in the race? 16

helpful competition slides ●Comparison tables help illustrate key differences ●2x2 matrices are especially clear 17

execution ability ● What is the plan? Is it reasonable? ● Do you know what to do after you get the money? ● Are you raising the right amount of money? 18

financial modeling: what’s wrong with this picture? 90,000 80,000 Revenue 70,000 Total expenses 60,000 Net Income 50,000 Cash position 40,000 30,000 20,000 10,000 0 -10,000 Year 1 Year 2 Year 3 Year 4 Year 5 Year 1 Year 2 Year 3 Year 4 Year 5 Revenue 0 300 4,000 20,000 80,000 COGs 0 200 1,000 3,000 10,000 Gross Profit 0 100 3,000 17,000 70,000 Gross margin 33% 75% 85% 88% R&D 600 1,200 1,500 1,500 1,500 Sales and marketing 100 1,000 2,000 3,000 4,000 General and administrative 200 500 1,000 1,300 1,500 Total expenses 900 2,700 4,500 5,800 7,000 Net Income -900 -2,600 -1,500 11,200 63,000 Cash position -900 -3,500 -5,000 6,200 69,200 19

communicating milestones: perhaps the most important slide M1 M2 M3 M4 Month 3 9 15 24 Cash required $300K $900K $2.2M $3.5M Headcount 4 8 11 15 Working FPGA Beta Technology proof Milestone Image identification prototype Tape-out of concept. within 20000 sample Image identification size with 2% error within 5000 sample Open US office size with 5% error 3 design partners 1 design win Complete R&D plan 1 design partner Market validation 20

potential to be a public company ● Can this be a stand-alone company? - Is this a “feature” or a company? ● What are the growth opportunities? ● Are there any similar stories? 21

deal terms that make sense ● this is a long-term partnership ● alignment of interests ● VCs have limited flexibility because of the VC model ● “Valuation” is really just a function of - How much money the start-up really needs - How many investors are sitting around the table - VC expectations of between 15% and 30% depending on the stage - Competition on the deal ● Almost all VC terms are standard 22

tips for your meetings with VCs ● Decide on your goals for the meeting - Introduction / testing the waters - Brain storming - Financing ● Be yourself and be comfortable with your story ● Expect tough questions (its part of the process) ● Be clear about what you know and what you don’t know ● Listen to what the VC is asking 23

this is a two-way street: you are choosing a partner ● Do your homework on the VC ● Does the VC understand your business and your market? ● Do you have chemistry with the VC? ● Can the VC bring you value beyond just financing? 24

dealing with “no” ● Unfortunately, hearing “no” is often part of the process ● Genesis has said “no” to several companies that are now in our portfolio! ● Do your best to get solid feedback ● If you are consistently getting “no’s” try to understand why 25

momentum ● One of the secrets to generating VC interest is momentum ● False momentum vs. real momentum - FALSE: “You better move quickly because I am talking to 3 other VCs…” - REAL: “Just wanted to update you that I have added Yoav as VP R&D and spoken with two more potential customers in New York…” ● Momentum can come in many ways: - Users, technology, team, customers, market validation ● It creates the feeling (and the reality) that this is going to happen and the VC better get on board 26

final words ● We know this isn’t easy ● We are here to help, brainstorm, advise, consult ● Don’t take “no” for an answer 27

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How To Pitch - Genesis Partners (Gil Dibner)

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How To Pitch - Genesis Partners (Gil Dibner) — Presentation Transcript