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Vc 101 1.0 rev3

  1. What To Know When Approaching A VC A Primer, and a few important tips.
  2. 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
  3. Part I: VC Econ 101 Raising capital is a sales effort, so you need to know what motivates your customer to buy.
  4. 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…
  5. Your Company Needs to Sell for $1-$2 Billion
  6. 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%.”
  7. Part II: Profile of a $Billion Exit Prospect (AKA a “Hot Deal”)
  8. 4 Attributes of Hot Deal Uber Geek Proven Friend of Proven Wunderkid Executive the Firm Entrepreneur 1.Highly Backable CEO
  9. 4 Attributes of Hot Deal 2. Unbounded Market
  10. 4 Attributes of Hot Deal 3. Frictionless Growth
  11. 4 Attributes of Hot Deal 4. Scarcity
  12. Part III: Matching Investor with Stage
  13. What is “Early Stage”
  14. “Backable Early Stage” 1. A Company with no business traction, but a great team and really amazing concept. 2. A Company with really amazing business traction and a team that can execute. 3. A Company with some exciting early traction and a solid team. IMPORTANT: Nobody but friends and family will fund a business with an unproven team and no traction!
  15. Who Should You Target? Proof Points Team Strength
  16. Part IV: Getting a Meeting
  17. Get a Warm Intro
  18. Reach Out Over Email  Send a short thoughtful note  Why they are a great investor for your company  Why they should be excited to meet with you  Attach a slick, scaled down pitch (10-15 slides) with the essential elements.  Send these emails Tue-Thu.  Partner meetings are on Mondays, and Friday emails get buried.  Never send anything important late on a Friday
  19. Be Persistent  Anyone on the buy side in finance has a great barrage of incoming. Assume that your first note was glanced at on a smart phone and forgotten.  Use your warm intro connection more than once and as a back channel.  Good News – Getting a Meeting is by far the easiest part of the process. The hurdle rate for a meeting is low.  Bad News – Getting a meeting does not mean an investor is interested. It just means they are allowing for the possibility they might one day be interested.
  20. Part V: Pitching Tips
  21. Must Have #1: TAM Total Available Market = TAM TAM = ($ 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.)
  22. Must Have #2: The Ramp  Your ramp exceed $40 million in year 4
  23. Must Have #3: Competition
  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. 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. Your Goal is to get a 2nd meeting. Get them excited, and don’t bury them in detail.
  27. Part VI: The Match Making Process
  28. How they choose you  Market Risk  Technology Risk  Execution Risk  Financial Risk  Chemistry  Vision Alignment
  29. How you choose them
  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. 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. 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. Experience Matters You don’t want this guy You want this guy (even after a 31-0 loss to Buffalo)
  34. Lastly, Some General Advice
  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. 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. 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. Scott Johnson Jim Schoonmaker Matt Brendzel