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March 14, 2006

VC Primer from an Entrepreneur’s POV – What to Show VCs

There are two things you are trying to accomplish as you present yourself and your new service or product to VCs.  One, of course, is to convince them that they want to “give” you the money you need for the next great leap forward.  The other is to demonstrate that a lot of value ALREADY exists – essential positioning for the haggling over valuation which is going to be part of the investment process.

Previously I blogged the good news that most high-tech VCs no longer require you to generate a fantasy five year plan as part of your pitch to them.  This post is about what you SHOULD be prepared to present.

Much better than a PowerPoint is a demo of your product.  Of course, the demo gods will do their best to frustrate you – good news is that everyone understand this – but one demo is worth a thousand slides.  Your comfort with your product is very important.  If you’re a nerd, this is where you shine.  If not, you want to practice a lot.  Nerd or not, don’t get hung up in the FEATURES – you’re supposed to be showing the benefits, what the product or service does that makes users lives better.

If your product or service really works and can be useful to the VCs in THEIR work, do everything you can to get it installed on their machines and/or to get them registered as appropriate.  Set their expectations LOW: “it’s still in Alpha”; “we’re tinkering with the UI”; “still adding features”; “tech support not set up yet but email me”.  Then over-deliver.  If the VCs really become users, there’s a very good chance they’ll become investors.

If there is a dashboard showing a growing number of real users and you are reasonably confident that it will continue to show growth, leave access to that with the VCs.  They’re investing in growth.  If they can see it and feel it, they will be receptive. Showing confidence never hurts; but getting caught bluffing does.  Decide accordingly.

If you can leave either of these two things behind, you are in good shape.  If both. dynamite

Don’t present someone else’s charts and words.  If you start with a PowerPoint (which people expect but are getting tired of), you should know enough to be able to answer questions as if each major bullet on each slide were a complete presentation.  Looked at the other way around, DON’T try to show how much you know by presenting too much.  Present the top-level, encourage questions and drill down, give knowledgeable but not long-winded answers (I can hear people who’ve had to listen to me answer questions laughing at that advice), invite more questions.

Don’t answer a question until it’s completely asked and until you’re sure you understand it.  Don’t be afraid to stop and think before answering a question.  It’s a sign of respect for the question and the questioner and can save you from making an ass of yourself. Don’t be afraid to say you don’t know – if there’s too much you don’t know you’re not going to get the money – but it’s OK not to know something and a good sign that you know what you know and what you don’t know.

Your presentation’s got to answer:

  1. Who are the potential users of your service?  If there already are some, great.  Use what you know about them to validate your thesis of who needs your service.
  2. What are the benefits of your service to these users? BENEFITS, not features.  Don’t start with “easy to install.”  It’s even easier not to install.  Someone has to want to install before they care whether it’s easy or not.
  3. What are the obstacles to use?  You don’t have to dwell on this but it’s good to show you’ve thought about it.
  4. How will you market to get new users?  Even better if you can already demonstrate that the approach works.
  5. How will you sell?  This is not the same as marketing and you need to demonstrate that you know the difference.
  6. If your service depends on network effect, (Metcalfe’s law), how will you get past the initial stage where there aren’t enough users to create significant network value for any of them?  This is by far the most important issue for network-effect services.  Sure – with a million users, you’ll have great value; but how will you ever get there?
  7. Who’s on your team (including you); what have they accomplished in previous lives; and what skills do you need to add when you get the money?
  8. What are the other ways you plan to use “their” money?
  9. How will you make money?
  10. What are the metrics of success on the way to making money?
  11. Why can this business succeed as a stand-alone business?  They know that the most likely successful exit is a buyout but they also know, except in the frothiest of times, it’s hard to get a good price for an incomplete business.

Sounds like a lot but don’t make it more than eleven slides.

Good luck.

Previous posts in the VC Primer are:

VC Primer from an Entrepreneur’s POV – Source of Funds

VC Primer from an Entrepreneur’s POV – The Funds

VC Primer from an Entrepreneur’s POV – What About Angels?

VC Primer from an Entrepreneur’s POV – Finding First Round VCs

VC Primer from an Entrepreneur’s POV – The Five Year Plan

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