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Vc 101 1.0 rev3


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Vc 101 1.0 rev3

  1. 1. What To Know When Approaching A VC A Primer, and a few important tips.
  2. 2. What We Will Cover1. VC Econ 101 – Know Your Customer2. Profile of a Hot Deal3. The Stage/Company Match4. Getting a Meeting5. Pitch Essentials & Common Pitfalls6. The Match Making Process7. Some General Advice
  3. 3. Part I: VC Econ 101Raising capital is a sales effort, so you need to knowwhat motivates your customer to buy.
  4. 4. The Single Deal Axiom“Your company must exit at a pricethat repays your VC’s entire fund.” Typical VC funds are $200 million in size. Typical VC stake at exit is 10-20% Since Profit = Exit * %Ownership…
  5. 5. Your Company Needs to Sellfor $1-$2 Billion
  6. 6. The “Limited Capacity” Axiom“A Partner in a venture firm makes 1-2 investments peryear. So you can’t just be good in their eyes, you have tobe top 1%.”
  7. 7. Part II: Profile of a$Billion Exit Prospect (AKA a “Hot Deal”)
  8. 8. 4 Attributes of Hot DealUber Geek Proven Friend of ProvenWunderkid Executive the Firm Entrepreneur 1.Highly Backable CEO
  9. 9. 4 Attributes of Hot Deal2. Unbounded Market
  10. 10. 4 Attributes of Hot Deal3. Frictionless Growth
  11. 11. 4 Attributes of Hot Deal4. Scarcity
  12. 12. Part III:Matching Investor with Stage
  13. 13. What is “Early Stage”
  14. 14. “Backable Early Stage”1. A Company with no business traction, but a great team and really amazing concept.2. A Company with really amazing business traction and a team that can execute.3. A Company with some exciting early traction and a solid team.IMPORTANT: Nobody but friends and family will fund abusiness with an unproven team and no traction!
  15. 15. Who Should You Target? Proof Points Team Strength
  16. 16. Part IV:Getting a Meeting
  17. 17. Get a Warm Intro
  18. 18. Reach Out Over Email Send a short thoughtful note  Why they are a great investor for your company  Why they should be excited to meet with you Attach a slick, scaled down pitch (10-15 slides) with the essential elements. Send these emails Tue-Thu.  Partner meetings are on Mondays, and Friday emails get buried.  Never send anything important late on a Friday
  19. 19. Be Persistent Anyone on the buy side in finance has a great barrage of incoming. Assume that your first note was glanced at on a smart phone and forgotten. Use your warm intro connection more than once and as a back channel. Good News – Getting a Meeting is by far the easiest part of the process. The hurdle rate for a meeting is low. Bad News – Getting a meeting does not mean an investor is interested. It just means they are allowing for the possibility they might one day be interested.
  20. 20. Part V:Pitching Tips
  21. 21. Must Have #1: TAMTotal Available Market = TAMTAM = ($ from one cust.) x (# possible cust.)If you are selling accounting software, your TAM is not theentire software market. It is (the number of firms thatwould possibly choose your software) x (their totalpopulation in the world.)
  22. 22. Must Have #2: The Ramp Your ramp exceed $40 million in year 4
  23. 23. Must Have #3: Competition
  24. 24. Must Have #4: Concise Pitch Plan for 30 minutes of presenting time. If you plan to talk for an hour, there is no way on earth you will finish.
  25. 25. Other Important Tips… Avoid Slides that look like this one. There are way too many words on this slide. It is boring as hell, and the title doesn’t make an affirmative point. Never discuss valuation. Say how much you are raising, say if it is a note or equity, but don’t presume you are in a position to dictate terms. Pitch to a Partner. It is always best to pitch directly to a check writer. If you approach an associate and get turned down, it is very hard to recover.
  26. 26. Your Goal is to get a2nd meeting. Get themexcited, and don’t bury them in detail.
  27. 27. Part VI:The Match Making Process
  28. 28. How they choose you Market Risk Technology Risk Execution Risk Financial Risk Chemistry Vision Alignment
  29. 29. How you choose them
  30. 30. Size Matters Bigger is not better  They can take longer to make decisions  They have more complicated decision making which makes it less likely they will say yes  They tend to “upgrade the team” earlier.  They always play for upside, and tend to turn down what the founders would consider attractive acquisition offers.  The partners are often spread thinner, so you might not get much attention post investment.
  31. 31. Size Matters Taking biger fund money also has advantages for the founders:  Larger firms are great for deals that require large amounts of cash rapidly  Pharma  Semiconductors  B-C plays  Large brand name funds attract follow-on capital and executive talent  They can afford to pay up for deals they really want
  32. 32. Choose the partner not the firm Shared vision of target market evolution. Personal Chemistry Right mix of help and patience  Know when to ask the hard questions  Know when to leave you alone History of success –> has clout with partners.
  33. 33. Experience MattersYou don’t want this guy You want this guy (even after a 31-0 loss to Buffalo)
  34. 34. Lastly, SomeGeneral Advice
  35. 35. Talk to other Entrepreneurs Go to meetups, network, network, network Information is power and the more you know about the people you are speaking to the better  Are they knowledgeable about your space?  Have they done a lot of deals already from their current fund?  Who are the decision makers and how do decisions get made (firm led or partner led)?  With whom do they typically syndicate?
  36. 36. A Serious Commitment Once you take investment this is no longer your company no matter how much you own  With great dollars comes great responsibility  Share holders  Employees  Management team career paths
  37. 37. A Serious Commitment You have committed to do great things  Once you take VC your new found friends have very real and very big expectations and its your job to meet them  No small ball. Raising VC is an enabler not a milestone  Many entrepreneurs think that once they raise VC they have made it!  Your business is probably more risky now than before you took investment capital
  38. 38. Scott Johnson scott@navfund.comJim Schoonmaker jschoonmaker@everyscape.comMatt Brendzel