I receive various newsletters from Venture firms with “tips” to founders and start-ups.  Today I received one that had tips on how to conserve your cash.  The unfortunate part is that while this is a great topic and one that all founders should be made aware of, it was written in a negative way.  As in “X number of ways to burn through all your cash”.  The post went in to great length of what you should do to burn cash.  There is no reason to use a negative scolding like tone as it got in the way of the message.  Do you really want someone (the VC) looking over your shoulder treating like a child?  What should be great advice was imparted with  smuggishness and condescension that is a hallmark of horrible VC firms.  The tone was so bad that the advice is immediately dismissed.  A shame as the topic of how to avoid burning through your cash should have been a great one.

The article was so offensive that it did nothing to help anyone and makes you wonder if the tone of the article represents the tone of the firm towards their portfolio companies…

I guess “I” will NEVER know.

I see this all the time.  People have good ideas maybe even great ones and do nothing.  They do nothing because they have built a life around having things – cars, houses, vacations, games, toys, etc. and need – no must have a steady income to support their addiction to things.  This need for a steady income adds to the reasons why many people do not go after their dreams.  I know a great engineer who is busy creating great products for his company when he could go off and create them for himself.  I know a product manager who had five “fund-able” ideas and yet took a job working for someone else working on a product that did not excite him.  A know many people like this as they continue on in their jobs because they create their cages and shackle themselves to their own desks.

I have done this as well – so if you feel this way do not despair you can break the bonds.  get rid of the junk – reduce your dependence and set a goal to buy your freedom from the tyranny of the paycheck.  Once you are free you can try all the things you dream about.  You can go “All In”.

When you do go for it their will be investors waiting.  If you want them (different story).

The net was make every word count.  If you have 20 minutes to present don’t spend 5 on the story of your last company.  Yes establish credibility but squeeze it down to a proportionate size – remember you have a ton of points to cover and the pitch should only serve to get Angels interested in finding out more.

• Market Size
• Management Experience
• Business Model
• Ability to attract clients
• What problem are you solving
• Can you identify the people who want the solution
• Can the people who want the solution afford to buy it
• etc. etc.

These are great things to think about but I would like to add the following for consideration:

• The Idea: This is probably the superset of all questions asked above so answer them.
• Management: Why did I pull this one out because in Louisville “You always bet on the jockey not the horse”.
• Timing: First is this an idea or product that will take years to catch on or is it a little too late?  Second how long will it take to grow the company and how long will it take to get my cash back.
• Valuation: Too frequently a management team does not address the valuation question in the pitch – preferring for the investors to set the price.  Hey that falls under that quaint rule “Who ever names the price first loses.” – Don’t believe it – name the price get your money and grow your business.

Look I hate to add four more things to the mix but thinking about them before you do your pitch really will help.

1. Adding up years of experience is really lame!  As in, “Our management team has over 30 years of industry experience.”  What?  How many people on the team 25?
2. Word walls on PowerPoint presentations BLOW!  Then again so does crusty PowerPoint presentations.
3. Demo of a website – Always expect there to be no connectivity.  It never fails the internet connection you were gauranteed to have does not work or there is a firewall issue, or no one told the IT guy or… you get it.  If you are to demo a website make sure you have the bandwidth prior to your pitch and always have a plan B and C.
4. Don’t use the opportunity to let everyone in your management team have a chance to talk.  Too many switches of presentation giver is bad.  I have seen four people give one pitch.  This ruins the continuity and interrupts the flow.  Inevitably one of you step on the other.
5. Never contradict one of your team mates.  I had a group actually start arguing over an industry fact – like I am going to invest in a management team who argues in front of investors.
6. Answer the key five questions http://hueyequity.com/blogg/2008/05/19/the-1-thing-a-web-company-should-provide-to-potential-investors/

I hope this quick reminder helps you as you pitch your business.

I think you might guess where this is going.  Why is every pitch a boring PowerPoint?  Show your product if you can.  Do something different – it is similar to American Idol – where Simon states how disappointed he is as he was hoping the contestant would be memorable but isn’t – do something memorable. Please! 

If you are like everyone else and your company is like every other company – why do I want to invest?  Here is some advise:

1. Don’t have a presentation – give a speech – tell a story
2. Show your product – even a mock up is better than nothing – wire frames of a website are ok.
3. Answer the key questions (http://hueyequity.com/blogg/2008/05/19/the-1-thing-a-web-company-should-provide-to-potential-investors/)
4. If you need to show a slide show it while you are talking about it and then advance to a blank screen as you stop discussing that one point.  By doing this you keep the attention on you as a speaker and not the slide.
5. Hand out the slides or have a leave behind that you distribute after your talk.

Don’t use PowerPoint as a crutch.  Focus the attention on you and your business.

How did I get there?  That is the part that start-ups need to include in their pitch.  In this case the company was seeking $750,000 for a 34% stake in the company (step 1).   Wait a minute the company expects to raise more money in the fall.  My investment is going to get crammed down.  How much do they intend to raise and what to they plan to give for it?  In this case the company expected to raise an amount that would have cut my 34% down to 16%  and then expected no additional funding needs until a liquidity event (step 2).  This information is what is needed and I call it a “Capital Plan” the pros may call it something else.  You have to have a Capital Plan if you want to raise money. – Funny I never hear anyone explicity state their Capital Plan.

Having heard that I was going to get squeezed down and guessing at the Revenue Multiple (note I know that most company’s do not sell at revenue multiples but I will keep it simple), I arrived at the target that the company will need $10 million in revenue (step 3).  This helped me develop a key assumption and assess whether I believed the story.  Given their product price point and the size of the market, I decided it was too high and took a pass.

If you are pitching a company this logic path of what does an investor have to believe to get a return is a key part of your pitch so don’t forget it.

1. Organization & Resources: Angels are better organized and have access to resources previously only available to VC firms.  They have tools like Angel Soft and information more publically available on the internet.
2. Deal Flow:  Because Angels are better organized they share deals and see more deal flow than in the past.  They are also known to have less preditory terms – does “Full Rachet” ring any bells.  Also there is a sense (neither right or wrong) on the part of the entrepreneur that Angels like their name are more trust worthy.  These factors add up to deal flow.
3. Lower Capital Requirements: Let’s face it many businesses need less money to get started and once they are started the same businesses become breakeven or cash neutral quicker.  A recent review of my company’s budget reveiled such a low capital budget that I almost dismissed the whole as inconsequential.  Smart start ups are using shared resources (Amazon for bandwidth, work from home (Starbucks) employees and outsourced everything to get started and only bring things or people on board as they have the cash to pay for them.
4. Sophistication of Angels:  Angels are smarter (for the most part) about how to get a deal done.  There are real professionals who have made their money and are now operating their “mini-funds” instead of buying into a fund so that they can have more control over their investments.  I call them retired Angels and I know several.  They are sharp people who could easily work in a venture fund but instead have “fun” doing their own deals.  To these people I say, “Bravo!”

If you are looking for money – even if it is three to five million try the Angel side of the tracks first.  There are a lot of Angels out there looking for you.  Remember – Good Deals always get funded!

I think – that is wrong.  I have never seen a good idea or business not receive funding.  In fact the best deals always get money in fact some get more pledged than what they need (which causes different problems). 

If you don’t receive funding it is for one of three reasons:

1. You did not present your idea or business to an investor group that has the right risk profile.  An example would be presenting a life sciences opportunity to me.  I know nothing about life sciences and so I do not invest in them.
2. You did not sell your idea.  Hard to hear but often is the case.  That is why you need a friend – a sponsor or someone that can help coach you on your pitch.
3. Your idea just is not good enough.

So what should you do?  Try to determine which of the three reasons caused you not to receive funding and correct it.  Don’t just hang your head and lay blame at the potential investors feet.  Also don’t go back to that same investor pool unless you have totally overhalled your idea.  It is a waste of time.  Fix It.  Change It.  Practice it.

Good ideas always get funded!

They printed out their presentation on high quality, glossy paper stock and in color.  The presentation was OK and it was given slide by slide in a monotonous way (bad Power Points always exist so let’s look past that part) but what stuck out to me was the print outs of their presentation.  The print outs – which were not really needed ( a good thing sense there were not enough copies for everyone in the room).  Each print out was at least $5.00. 

If you are trying to make a good impression in a room full of angel investors think about the message you are sending by printing out presentations that are not needed in color on expensive paper stock.  Don’t print them out at all.  If you must print, then print them on normal paper and in black and white.  Show your potential investors that you watch your pennies and consequently – if they invest in your company show them that you will watch theirs as well.