By Igor Sill
Virtually all of the start-up presentations I see given by first time entrepreneurs fall well short of their intended goal, getting funded.
Essentially, these presentations are primarily nothing more than “yet another idea” delivered via 50+ slides. Though a great deal has already been published on the subject, I continue to see most entrepreneurs miss the key points. Here are a few pointers you may want to consider.
First, think of your investor audience as an interview opportunity with a hiring manager. If you think about the critical 4 elements of getting hired you’ll immediately see the correlation to a successful business funding pitch. First, are you highly qualified and capable of getting the job done? Do you fully understand the market opportunity and your value proposition? Are you passionate and determined to do the job? And, lastly are you reasonably-minded and receptive to working with opinioned venture investors on your board?
Investors need to quickly see the intrinsic value of investing their time, money, experience, reputation and network into your new business and we generally draw that conclusion from the first impressions of the entrepreneur’s ability to articulate their business.
Your pitch should be focused on selling your ability of materialization and market execution of the idea, addressing the anticipated risks, evangelizing your audience, not educating investors.
An innovative idea with a new business model disrupting a huge and growing market is great, however, a fundable company it does not make. Evangelistically presenting a slide deck borne out of a great idea is, essentially just that, slides of an idea.
You should consider an investor’s concerns regarding the risk factors associated with funding early stage startup ventures, as evidenced by the 9 out of 10 failures. There’s:
the founder risk,
the technology risk,
the consumer adoption risk,
the market size risk,
the future capitalization needs risk,
and, most importantly for me, the execution risk.
It may be your idea, but it’s just one piece of the overall business pitch. Unless the other start-up propositions are properly addressed, it rarely finds funding. There is no presentation that can turn a bad idea into a good one, but there are many ways to disguise a good idea.
Let’s look at the technological risk first. If the technology doesn’t work, generally there’s no money left to re-engineer it or start over. It may take years to solve the technical issues, and generally some other entrepreneur working on it will inevitably get it done before you do.
Generally, it’s not about technology, as a competent group of engineers can usually program web-based projects, or find portions of the code that have already been developed and then quickly “paste together” a working prototype via royalty sharing deals. So, essentially, the technology risk tends to be minimal.
Of all the failed internet businesses that I have invested, the culprit is usually a result of customers, or the lack of them, or more succinctly, “it’s the inability to quickly penetrate the addressable market”. Business success is all about gaining customer traction, rapid market adoption and offering a compelling business model. Simply put, internet businesses fail due to lack of customers.
When I reflect on one of the biggest internet successes I funded, from zero revenues to IPO, then growing to $16B in market capitalization within 6 years, I recall that their first product offering was absolutely horrible and the beta customers were less than enthused. Lots of technical assumptions proved false when deployed in the real world.
However, those customers offered key insights into the inner workings of their businesses and the improvements they truly needed—essentially taking a pretty good idea and turning it into an industry changing stellar solution. The start-up team learned the real value proposition to the customer’s pain. So, the second iteration grew from a dozen or so customers to hundreds, then thousands, then tens of thousands.
More insight was gained, more customer satisfaction was earned, much greater value was delivered which evolved into higher product prices, more attractive business terms, bigger margins and an acceleration of both, customers and revenues, ultimately profits.
The key lesson here: all start-up ideas evolve based on customer usage and feedback. Generally, your business will evolve into something much more compelling, much more disruptive and industry changing—all of the great internet successes went through a very similar process.
During this stage of the growth process, the entrepreneurial founder’s leadership and company-wide execution was the key to overcoming the early risks, “crossing that chasm” and scaling that business successfully. The returns to investors proved phenomenal.
So, back to that slide presentation. Show your prospective investors that your idea was refined via actual customer usage, that you learned great insights and evolved them into a meaningful value proposition for your customers.
That your customers benefitted geometrically and that you can now scale that into hundreds of new paying customers, increasing the profit margin as you grow, and your company’s market valuation. That you know the depth of talent you’ll need to grow the business to a leadership role and that you’re capable of recruiting and leading that talent. Keep the slides to a manageable number, less than 24, and your points succinct and impactful.
Essentially, an investor needs to grasp how rapidly you can validate, learn, deploy, evolve and scale that business into the leader of a large, growing market. Investors typically extract that from how committed smart founders are about learning their customer needs and the correlation of market trends and dynamics.
It’s not solely about a brilliant idea and a smart entrepreneur. It’s not about how great you are, what school you graduated from or that “J” curve chart you displayed in your slides. It’s about how prepared you are to attack a huge market, your ability to learn from your customers, evolve and design new solutions, and, ultimately it’s about people.
Think Steve Jobs, Bill Gates, Larry Ellison, Marc Benioff, Tom Siebel, Larry Page, Sergey Brin, Bernard Liautaud, Marten Mickos, Peter Thiel, Pierre Omidyar, Mark Zuckerberg to name more than a few. A clear and consistent pattern starts to emerge.
Remember that 9 out of 10 startups will fail. So the real question is how are you going to continually learn to solve your customer’s biggest problems while minimizing the market risk and scaling your business? Now, go put those ideas on a few good slides.
The author, Igor Sill, is a Silicon Valley venture capitalist and founder of Geneva Venture Partners. Igor manages his own angel investment fund at Geneva Venture Management and is also a Limited Partner in Goldman Sachs Investment Partners, Benchmark Capital, Norwest Ventures, Granite Ventures, SV Angels and ICO Funds. Igor resides in San Francisco, CA and has 23 years of tech investment experience.