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Ace your first meeting with a VC by Ran Levitzky, Carmel Ventures

Ace your first meeting with a VC by Ran Levitzky, Carmel Ventures. How to be best prepared to discuss your startup when first meeting with a ventures capital firm. More on Ran Levitzky: https://www.linkedin.com/in/ranlevitzky/ https://www.viola-notes.com/author/ran-levitzky/

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Confidential | 1
Acing your first meeting with a VC
Ran Levitzky
Principal, Carmel Ventures
RANL@carmelventures.com
February 2017
https://goo.gl/a9FjdI
Online version:
@RanLevitzky
Confidential | 3Confidential | 3
Carmel Ventures
 Israel’s top tier VC firm
 Founded in 2000
 Focused on early stage
technology companies
 4 Funds with over $800M under
management
 Home run strategy, yielding
strong performance
 A member of the Viola Group
Confidential | 4Confidential | 4
Viola - Israel’s Premier Tech-Oriented Investment Group
Backing the Leading Tech Companies in Israel
One Stop Shop for Tech Companies Throughout Their Lifecycles
Broad ecosystem
and strong access
>150 companies
with >10,000 people
$2.5 Billion AUM,
Global investor base
Founded in 2000 Early Stage VC, Credit,
Growth & Buyout
Exit Value of >$1.8B
in 2015-16
Confidential | 5Confidential | 5
The Structure of a VC fund
Source: Wikipedia
Confidential | 6Confidential | 6
What exit size is needed to move the needle?
• An early-stage venture fund will usually invest in 20 companies
• The fund aims to get a 3x gross return (which, with the usual 2%–20% fee structure, translates into
something close to a 2x net return and a 15%-25% IRR depending on the actual timing of the cash flows)
• The expected distribution of outcomes is: 1/3 losses (7 companies with 0x returns), 1/3 money-back (7
companies with 1x returns), 1/3 successes (6 companies with substantial returns)
• The expected distribution of the successful outcomes is: 1 home-run (a company returning the entire fund)
+ 5 meaningful exits (5 companies returning the amount required up to a 3x gross fund return)
Source: Samuel Gil @ JME Venture Capital (via Medium)
Confidential | 7Confidential | 7
VC is a tough business – Most do poorly
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Ace your first meeting with a VC by Ran Levitzky, Carmel Ventures

  • 1. Confidential | 1 Acing your first meeting with a VC Ran Levitzky Principal, Carmel Ventures RANL@carmelventures.com February 2017 https://goo.gl/a9FjdI Online version: @RanLevitzky
  • 2. Confidential | 3Confidential | 3 Carmel Ventures  Israel’s top tier VC firm  Founded in 2000  Focused on early stage technology companies  4 Funds with over $800M under management  Home run strategy, yielding strong performance  A member of the Viola Group
  • 3. Confidential | 4Confidential | 4 Viola - Israel’s Premier Tech-Oriented Investment Group Backing the Leading Tech Companies in Israel One Stop Shop for Tech Companies Throughout Their Lifecycles Broad ecosystem and strong access >150 companies with >10,000 people $2.5 Billion AUM, Global investor base Founded in 2000 Early Stage VC, Credit, Growth & Buyout Exit Value of >$1.8B in 2015-16
  • 4. Confidential | 5Confidential | 5 The Structure of a VC fund Source: Wikipedia
  • 5. Confidential | 6Confidential | 6 What exit size is needed to move the needle? • An early-stage venture fund will usually invest in 20 companies • The fund aims to get a 3x gross return (which, with the usual 2%–20% fee structure, translates into something close to a 2x net return and a 15%-25% IRR depending on the actual timing of the cash flows) • The expected distribution of outcomes is: 1/3 losses (7 companies with 0x returns), 1/3 money-back (7 companies with 1x returns), 1/3 successes (6 companies with substantial returns) • The expected distribution of the successful outcomes is: 1 home-run (a company returning the entire fund) + 5 meaningful exits (5 companies returning the amount required up to a 3x gross fund return) Source: Samuel Gil @ JME Venture Capital (via Medium)
  • 6. Confidential | 7Confidential | 7 VC is a tough business – Most do poorly
  • 7. Confidential | 8Confidential | 8 VC is a tough business – Recent years Source: PitchBook
  • 8. Confidential | 9Confidential | 9 VC is a tough business – Recent years Source: PitchBook
  • 9. Confidential | 10Confidential | 10 The Opposing Views – Beginning vs. End of the story The VCThe Entrepreneur Please give me $3M to get going Will you be a homerun 7 years from now?
  • 10. Confidential | 11Confidential | 11 What the VC investment process looks like Initial Screening First company meeting Second company meeting Due Diligence (meetings, calls, research…) Company Presenting to Team More Due Diligence Pre Term Sheet Discussion Term Sheet Logistics, Legal, etc. Closing From days to months. Different for each fund and deal
  • 11. Confidential | 12Confidential | 12 Reaching out to a VC fund • Best bet it to get someone to introduce you • Make it personal • Do your homework on the fund, portfolio, partners • Don’t email Info@somefund.com • Definitely do not mass email in BCC starting with “to whom it may concern”…
  • 12. Confidential | 13Confidential | 13 What’s the goal of the first meeting? To get to the second meeting* *even better: mutually understand if you should spend time on a second meeting
  • 13. Confidential | 14Confidential | 14 First meeting - What to spend your time on • Different depending on stage of the company • The earlier is it (Seed to A) the more it is about technology, product, IP • The later it is (A, B) the more it is about traction and execution, GTM, scaling of the model, scaling the team • Balance according to stage • Avoid the Israeli tendency of spending 45 minutes on Product
  • 14. Confidential | 15Confidential | 15 Attention curve in a meeting (not just with VCs)Attention Meeting’s End Start and Finish strong! Meeting’s Start
  • 15. Confidential | 16Confidential | 16 It’s all about the PEOPLE. So, why YOU? Product, Market, Competition, GTM, Model – All change. VCs invest in the people.
  • 16. Confidential | 17Confidential | 17 Problem being solved • VCs invest in businesses, not a technology, so make a real business • Solve a real problem - Don’t be a “solution looking for a problem” • Back that up with data • Quantify the impact of the solution, for example: • Reducing 25% of costs associated with lack of automation in XYZ • Making a sales agent 50% mode productive by doing XYZ • Don’t be a “me too” company, or an incremental solution
  • 17. Confidential | 18Confidential | 18 The Market / TAM • Clearly define the market • Do a sanity check on reported numbers • i.e. “who sold $12B in 2015” • Is it big enough? North of $1B? • Do a bottom-up sizing model as well • # Customers * Price • Cite your sources and be ready for a deeper dive • Validate assumptions such as price points
  • 18. Confidential | 19Confidential | 19 Product and Technology • Product that sells itself is great • Illustrate winning user experience & good design • Describe the High-Level Architecture and Technologies • What is your underlying intellectual property • What gives your product and tech an edge • For example, what makes your ML algorithms better? • Know your Product Roadmap and your Vision • Show customer feedback and usage metrics – demonstrate value
  • 19. Confidential | 20Confidential | 20 To Demo or Not to Demo? • Demo is not a must, there would be time for that in the next meetings • If you demo, make it short, make it impactful • Consider having a recorded demo on hand to avoid wasting time on internet connection and other technical issues • Sometimes screenshots will do just fine at this point • Consideration may vary in B2B vs. B2C
  • 20. Confidential | 21Confidential | 21 Business Model • Many legitimate models, if they work for you: SaaS/Subscription, Transaction fee, Rev Share, ... • Clearly define it and show how it scales for your startup • Focus on metrics such • Customer Acquisition Cost (CAC) • Lifetime Value of Customer (LTV) • Average order size, Churn, and many more • Professional Services and Perpetual license are not hot these days..
  • 21. Confidential | 22Confidential | 22 Go To Market Perhaps the most important part of the meeting A go-to-market strategy (GTM strategy) is an action plan that specifies how a company will reach customers and achieve competitive advantage What (Offering) How (Channels) Who (Customers)
  • 22. Confidential | 23Confidential | 23 Go To Market Perhaps the most important part of the meeting • Who are you selling to, segmentation • How? Inside sales, direct sales, channels, … • Execution: Key personnel, Team building • Sale cycle • Price (vs. Pricing) • Sustainable competitive edge • Identify the key success factors • Benchmarks and success to date, metrics What (Offering) How (Channels) Who (Customers)
  • 23. Confidential | 24Confidential | 24 Competition • A Feature matrix is not effective • Quadrant approach is much better • Identify your edge, why you are ahead of the competition, will you stay there? • Who keeps you up at night? • Think in multiple dimensions • Product, Technology, Business Model, Scalability • Be honest Don’t do this This is much better
  • 24. Confidential | 25Confidential | 25 Where are you right now? And what’s next? • Product Roadmap • Customer traction • POCs, Betas, Pipeline, Numbers • Have the CRM data ready • Metrics (depending on type of company) • Engagement, SaaS, DAUs, conversion etc. • Cohort Analysis • Team • Who are you hiring next? • “Are you moving to the USA? Where to?”
  • 25. Confidential | 26Confidential | 26 Numbers Numbers Numbers • Have a financial slide! • Don’t say “I will send you an excel file later” • Don’t say “Sure I can open up the excel now” • Understand terms and basic accounting • Revenue ≠ Collection ≠ Booking ≠ ARR ≠ … • Are you a SaaS company? • Master the SaaS Metrics (ACV, ARR, CAC Ratio, Net New MRR, etc.) • Your Financial plan should clearly illustrate why you are raising $X • Quarterly plan for the next 2 years is good, annual for 3-5 years
  • 26. Confidential | 27Confidential | 27 Also, you don’t need to break even by year 3-4… Snap Inc. Founded in 2011 @ Pre-IPO
  • 27. Confidential | 28Confidential | 28 Final considerations • Ask the VC questions too! • Be on time, and assume the meeting will end on time • No more then 3 people (usually CEO, CTO is enough) • Get your laptop ready (slides, battery, adaptor, …) • Understand what is needed to help get the ball rolling • reference contacts, deck, excel, demo link/videos, any other data requested • Have a ready made “package/data room” to help investor make a quick decision • 3 deck versions: Pre meeting, Meeting, Post Meeting • And your one pager…
  • 29. Confidential | 31 Acing your first meeting with a VC Ran Levitzky Principal, Carmel Ventures RANL@carmelventures.com February 2017 https://goo.gl/a9FjdI Online version: @RanLevitzky