Vc 101 1.0 rev3

What To Know WhenApproaching A VC

A Primer, and a few important tips.

What We Will Cover

1. VC Econ 101 – Know Your Customer

2. Profile of a Hot Deal

3. The Stage/Company Match

4. Getting a Meeting

5. Pitch Essentials & Common Pitfalls

6. The Match Making Process

7. Some General Advice

Part I: VC Econ 101Raising capital is a sales effort, so you need to know what motivates your customer to buy.

The Single Deal Axiom

“Your company must exit at a price that 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…

Your Company Needs to Sell

for $1-$2 Billion

The “Limited Capacity” Axiom“A Partner in a venture firm makes 1-2 investments per year. So you can’t just be good in their eyes, you have to be top 1%.”

Part II: Profile of a $Billion Exit Prospect

(AKA a “Hot Deal”)

4 Attributes of Hot Deal

1.Highly Backable CEO

Uber Geek Wunderkid

Proven Executive

Friend of the Firm

Proven Entrepreneur

2. Unbounded Market

4 Attributes of Hot Deal

3. Frictionless Growth

4 Attributes of Hot Deal

4 Attributes of Hot Deal

4. Scarcity

Part III: Matching Investor

with Stage

What is “Early Stage”

“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 a business with an unproven team and no traction!

Angels

Friends & Family

Who Should You Target?

Team Strength

Proof Points

Early Stage VentureLate Stage Venture

Angels

Part IV: Getting a Meeting

Get a Warm Intro

Reach Out Over EmailSend a short thoughtful note

Why they are a great investor for your companyWhy 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

Be PersistentAnyone 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.

Part V: Pitching Tips

Must Have #1: TAMTotal Available Market = TAM

TAM = ($ from one cust.) x (# possible cust.)

If you are selling accounting software, your TAM is not the entire software market. It is (the number of firms that would possibly choose your software) x (their total population in the world.)

Must Have #2: The RampYour ramp must exceed $40 million in year 4

Must Have #3: Competition

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.

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.

Your Goal is to get a 2nd meeting. Get them excited, and don’t bury them in

detail.

Part VI: The Match Making

Process

How they choose you

Market Risk

Technology Risk

Execution Risk

Financial Risk

Chemistry

Vision Alignment

How you choose them

Size MattersBigger is not better

They can take longer to make decisionsThey have more complicated decision making

which makes it less likely they will say yesThey 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.

Size MattersTaking biger fund money also has advantages

for the founders:Larger firms are great for deals that require large

amounts of cash rapidly PharmaSemiconductorsB-C plays

Large brand name funds attract follow-on capital and executive talent

They can afford to pay up for deals they really want

Choose the partner not the firm

Shared vision of target market evolution.

Personal Chemistry

Right mix of help and patienceKnow when to ask the hard questionsKnow when to leave you alone

History of success –> has clout with partners.

Experience Matters

You don’t want this guy You want this guy

(even after a 31-0 loss to Buffalo)

Lastly, Some General Advice

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 betterAre 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?

A Serious CommitmentOnce you take investment this is no longer your

company no matter how much you ownWith great dollars comes great responsibility

Share holdersEmployeesManagement team career paths

A Serious CommitmentYou 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 milestoneMany entrepreneurs think that once they raise VC

they have made it!Your business is probably more risky now than

before you took investment capital

Questions

Scott Johnson scott@navfund.comJim Schoonmaker jschoonmaker@everyscape.comMatt Brendzel matt.brendzel@generalassemb.ly