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How you differentiate from competitors only matters if it matters to customers.

Pick any differentiation you want – pricing, features, target market, market gap, performance, etc. – unless customers really, really, really care about the difference, you’re shit out of luck. Hell, pick two or three of them and it still doesn’t matter. You can’t pile them on and assume that’ll make the difference.

When doing competitive research, don’t just look at what the competition is doing, figure out how customers feel about them. Understand why customers are picking one competitor over another. What’s motivating and driving them?

Being different from competitors isn’t enough. That’s easy. Making sure that your key differentiators actually matter in a huge way to customers is a whole other story.

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Startup founders often say to me, “We’re going ahead with this new startup … we’ve identified a gap in the market!” It’s a common refrain explaining why someone is starting a business, and how the startup is positioned against competition. There’s a gap in the market.

The question to ask at that point is simple: “Is there really a gap?”

Too often, startup founders haven’t done enough homework and really don’t understand the industry they’re going into. They use incomplete evidence and analysis to come to the fairly significant conclusion that there’s a gap in the market. Here are some examples I’ve seen in the past:

1. Anecdotal evidence: “A friend of mine who works in the industry says this is a huge problem.” That’s anecdotal evidence and it’s not enough to really understand a market. The anecdotes may be right, but like most “stories” they’re embellished or altered away from pure fact.
2. Backyard evidence: “Companies in this area are way behind the times and need a new, more innovative and less expensive solution.” Backyard evidence -if gathered correctly- can be a compelling first place to start, but be careful that there aren’t any regional specifics as to why there may be a better local market vs. everywhere else. Serving a local market (at least with a software/web startup) is extremely difficult and narrow minded. Don’t make the assumption that a local gap in the market will be reflected everywhere else as well.
3. Me too evidence: “I see a bunch of startups jumping into the space (reading it on Techcrunch), I knew there was an opportunity there!” You can identify trends and certainly identify competition from the press, but I wouldn’t base my assessment of a market on what I see published online. Plus, there’s no way of knowing if all the other startups did their homework either.
4. Past experience evidence: “I’ve been in this industry for 10 years, I know what’s going on.” This kind of domain knowledge can be extremely valuable. I’ve often counselled people to stay out of industries they haven’t participated in because they really won’t appreciate the intricacies of it. But past experience is powered by the bias of one person, so be careful about how you interpret it, especially when it’s someone else’s experience and not yours.

Knowing your market isn’t something you should take lightly. It can make or break you, simple as that.

Using super-biased, incomplete, casual, close-minded or anecdotal evidence as a determinant about whether or not you should start a company, and then how to position it in the market, your value proposition, and what you should build, is incredibly risky. Instead, take a rigorous, scientific approach to identifying market gaps. Talk to more people. Talk to people outside of your local area and comfort zone. Do more research on competition. Try and disprove yourself instead of seeking “evidence” that only proves your point. Hack something together, show it to prospects and get them to pay for it.

Even after you’ve identified a gap, you have to then understand why the gap exists. A gap alone doesn’t provide enough validation to jump into it. There could be lots of reasons why a gap isn’t being filled.

Don’t jump blindly into a startup and industry that you don’t understand, using a haphazard “gaps in the market” analysis … it’ll hurt.

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$250,000 is a lot of money. Venture investors might not think so, but for most of us it’s a lot of moolah. And for early stage startups it’s often the amount they ask for coming out of the gate (or $500,000 – which seems to be pretty standard as a first, seed ask). The problem is that $250,000 is a dangerous amount of money to invest in an early stage startup.

For first-time entrepreneurs, $250,000 sounds like a million dollars. Maybe more. They’ve just raised money, they feel like giants ready to take on the world, they feel validated, and success is guaranteed! So they start spending. Office space. Office furniture. Business cards. T-shirts. Introductory video about their business. And then they spend more – particularly on hiring. All of a sudden, a founding team of two is a small startup of five.

The problem is that $250,000 runs out very quickly. And the milestones needed to raise the next round of financing are either not properly defined (and then it’s just a wishy washy mess later on), or they’re unrealistic. Founders – with their pockets bulging full of cash – get distracted from the core of building a product that customers want, and all of a sudden those seemingly easy-to-hit milestones 6-9 months out are impossible, and the company is losing momentum. This experience may be inevitable (think: The Startup Curve and the Trough of Sorrow), but it’s made particularly worse and potentially deadly when a startup doesn’t have enough capital.

$250,000 is a lot of money. I don’t like the idea that people can be flippant about spending that kind of money when there are many, many ways that money could be used for something useful in the world. But psychologically to startup founders it seems like even MORE money than it really is, and that puts a lot of startups into trouble. It results in a lot of startups struggling to raise follow-on capital, and ultimately failing before they even have a chance to succeed (what I’ve called Startup D.O.A.)

At Year One Labs we decided to invest up to $50,000 per startup. This is more than typical accelerators/incubators but far less than $250,000, or even $100,000. The thinking was that anything more than $50,000 and entrepreneurs would more readily make mistakes with the money. Anything less and they wouldn’t be able to survive (for up to 12 months in the program.) We didn’t want founders starving to death, but we also didn’t want them feeling comfortable or overly confident in their ability to spend. One thing accelerators and incubators have done successfully is chip away at the early stage $250,000 funding rounds. They make it possible and acceptable for entrepreneurs to take a lot less money, but get a lot more help and guidance. That help and guidance, the mentorship and focused access into key networks (of partners, other entrepreneurs, investors, etc.) is a value that traditional venture investors and even angel investors don’t provide (at least not on a consistent basis.) More startups will emerge further along with more traction out of relatively short accelerators than they would have with $250,000 in funding (and less value-add). They can then raise a more substantial follow-on round and give themselves a proper runway.

Going from a $250,000 round to a $500,000 or $1M round is extremely difficult. Founders are given too much flexibility to make too many mistakes with $250,000 in their pocket, and they realize (often too late) that they’re out of money, and haven’t hit key milestones. They also get too distracted (with that amount of money) but also realize that they have to start raising almost immediately, which is a further distraction. One advantage of (most) accelerators and incubators is the focus of a demo day that brings a lot of concentrated investor interest at one time. That can speed up some of the normal process of fundraising, which is great.

This isn’t meant to be a pro-accelerator/incubator post per se. I’ve certainly raised some concerns and issues with the accelerator model. But I’ve seen a lot of companies raise $250,000 or thereabouts only to run into a heap of trouble after the fact. These startups were most likely not able to raise more (even if they wanted to), so they go with a lower raise. Investors may look at this as hedging their bets instead of investing too much too early, but I think they are doing startups a disservice.

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It’s quite common for early startups to lack clarity around their core value proposition and target market(s). There’s a temptation to go wide on both – offer lots of different value to lots of different people. But generally that doesn’t work. A focus on a specific, differentiated and compelling value proposition targeting a specific, well-defined market is a much easier way of getting out of the gate and building initial traction. It also gives you a better framework for testing your assumptions (is this the right value to the right market?), and can lead to more calculated and focused pivots, if need be.

Lean Canvas is one tool you can use to help define your value proposition and target market. It’s quite restrictive, which is good, forcing you to be precise. But I also like to tackle this in other ways too.

When an entrepreneur is pitching me or asking for advice, I often ask, “Imagine the website. What does it say?” I find this really gets to a number of key and challenging issues for startups, specifically around value proposition and target market. It also helps position the company more clearly against competitors and define key differentiators.

“We’re the best X for Y.”

Imagine after all your hard work and effort, you’re ready to unveil your new baby and pull back the curtains on your shiny website. What’s the first message people will see? Let’s not obsess over a catchy tagline, instead let’s be literal and precise. How will a person visiting the website identify that (a) you’re speaking to them, and (b) it should matter to them?

Hopefully you’ve gone through enough customer interviews and early validation before “launching” to give you an idea of your value proposition and target market. Launching blindly will most likely kill you. But visualizing your future website and what it will say (value proposition), how (the tone), to who (market), the why (differentiators), etc. is a good way of forcing you to be precise and admit to potential issues or unknowns. I’ve found during meetings with entrepreneurs that asking them to visualize their website and tell me what it will say is a great conversation starter (except in cases when the entrepreneur really doesn’t know … which is a good indication that it’s time for more thinking, planning, customer development and iterating.) Try it as an exercise and see if it helps.

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Once you’ve raised funding, your board meetings will likely become a lot more serious. Prior to raising capital your board likely consists of the founders and that’s it. After funding, your investors will want a seat at the table (and maybe more.) Boards are often setup with 5 people (2 founders, 2 investors and an independent, or 2 founders, 1 investor and 2 independents.) It’s important when raising money early on that you retain control of the board. I’d argue that this is more important than valuation, even though most entrepreneurs focus on valuation above anything else. Board control is key. Without it, you can find yourself in a lot of difficult situations going forward.

Another quick note: You don’t have to pick the independents right away. It’s quite common to leave the open seats available for awhile. And like advisors, don’t focus on “celebrity board members”, look for people that can be strategically valuable to the company.

So here are 7 tips for successful board meetings:

1. Board meetings are important. You shouldn’t take them lightly. Be prepared and well organized. A bad board meeting can be extremely painful, frustrating and a waste of time.
2. Prepare a board package and send it a day before. This can be time consuming, but it’s an important way of being organized. Investors will appreciate the effort and thoughtfulness that goes into it. It also gives investors a chance to catch up on the entire business. Here are some of the things you can (should) include in the board meeting package, which also serves as the board meeting’s agenda:
   • define clear goals for the board meeting
   • review action items from previous board meeting
   • state of the company (financials, key metrics, etc.)
   • governance issues
   • staffing report
   • financial report / budget
   • key accomplishments
   • key challenges
   • sales funnel / user acquisition strategies
   • product roadmap
   • business development roadmap
   • milestones to accomplish by next meeting
   • final takeaways / actions
3. You run the board meeting. This is very important. Make sure you’re in charge of the board meeting, keeping everyone focused where you want them focused. Losing control of a board meeting is surprisingly easy, and it’s hard to get back. It’s also going to be an indication to investors that you might be losing control over your startup too (whether that’s true or not.) You can’t ignore investor confidence as a key variable in having a good, productive relationship with investors.
4. Get the governance stuff out of the way quickly. You don’t want the board meeting focused on administrative issues. You want it focused on strategy, business goals and key tasks that you want everyone working on.
5. Have a clear agenda (using what I’ve written above as a framework), but don’t obsess over it. Let the meeting go where it goes, but keep a reign on it as well. You’re in charge, and you have to keep everyone focused on what’s important.
6. Don’t think of a board meeting as a report. The point of a board meeting isn’t for you to report what’s going on with the business. Board members and investors should have access to and know what’s going on all the time. There’s an element of reporting of course (and a good board package will help with this), but the best board meeting is going to be a fairly open, strategic discussion on the business. It’s a focused point in time where you can ask for help, brainstorm creatively and get everyone aligned and excited.
7. You need to give board members “homework.” I don’t mean this in a bad way, but this is your opportunity to really ask for help and get commitments from board members that they’ll do things you need them to do. This doesn’t mean you shouldn’t get investors and board members involved in-between board meetings too (they should be helping the whole time!) but the board meeting is a focal point for getting their help on key issues.

Board meetings are important. They’re key benchmarks for investors to assess you, and good points in time for you to re-focus investors and get their help. Board meetings can serve as forcing factors for having important strategic discussions, and making major decisions. If you look at them as something you’re forced to do by investors, and mostly about reporting to investors on the state of affairs, you’re missing the point. A good board (caveat: You need a good board for all of this to work!) will be much more than that.

Image courtesy of Shutterstock.

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Having great mentors can make a huge difference for you, individually, as an entrepreneur. I’ve never had a mentor, but looking back I’m certain it would have been very helpful. Even today. Mentors are there to help you, and by extension (potentially) your startup. But even if your startup fails, or you’re not going where you want with your job, etc. a mentor is still there adding value.

The same should be true with advisors. Advisors are there first and foremost to work with you as the founder of a company. Your Board of Directors is different. They have other responsibilities beyond helping you (as tough as that may sound.) But advisors are yours – you should pick them, and consider them mentors and friends that have your best interests at heart.

But the reality with advisors is that they’re often low quality and not particularly helpful. There are “celebrity” advisors that attach their names to projects, but don’t really do much. These might help with some buzz and momentum, but it won’t be sustainable. There are also advisors that commit a small amount of time but then do nothing but make promises and platitudes.

If your advisor doesn’t really understand your business (or you as a person – strengths, weaknesses, etc.) then their contribution is likely to be filled with common platitudes about startups and running businesses. The same sorts of things you can read elsewhere…Having said that, being told something by someone can be more effective than reading it, but still, this isn’t really enough to add significant value.

A lot of advisors are brought in to make introductions. And this can be extremely valuable. But again, if the advisor isn’t really committed, then how meaningful are the introductions? If someone is doing advisory work for 50 startups … are they really contributing value?

Pick your advisors carefully. Build a relationship with them beforehand, get to know them as professionals and people. Be demanding. Advisors are busy people, and they’ll forget promises they’ve made quickly if you’re not constantly stoking the flames.

And don’t assume you automatically have to give up equity in your startup either. I’ve seen this in a few cases; meetings between potential advisors and entrepreneurs are setup, and the advisor basically says, “Give me X% of your startup and we can work together.” Um, no. That’s not how a relationship is built, and it’s an unprofessional way for advisors to work. If an advisor is proving his or her value, you’ve built a relationship over some time, things are going well, then you formalize the relationship. Giving options or equity to advisors makes perfect sense – but you’re not obligated to do so out of the gate.

Advisors are people. They have the same motivations, goals, psychological issues, fears, phobias, etc. that you have. And they’ve got big egos too. You attract the best advisors based on personality fit, value they actually bring (not promise to bring), and through your understanding of what makes each individual advisor tick. Figure out what will convince someone to be your advisor, and pitch that.

Be wary of promises and platitudes. Take your time building your advisory network (or board, or team). But once you’ve got an advisor, make sure you get as much value out of them as you can (being respectful of their time, and making sure they’re getting enough out of the relationship too!) You need to be proactive with advisors – they won’t come knocking on your door asking if you need help – so go through their LinkedIn networks, figure out who they know, figure out how they can help, ask, be persistent, and reward them as the relationship strengthens.

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Whenever I get pitched by a startup, I always look to see if they’ve properly identified the competition. For starters, I can guarantee you that someone is already working on the same idea. It’s a universal truth. But more importantly than that, competitive research and analysis is one of those areas that is often horribly lacking from any pitch. There are a few reasons for this:

1. Entrepreneurs don’t want to know. Nobody likes to find a bunch of competitors doing the same (or nearly the same) thing. So entrepreneurs put blinders on.
2. Entrepreneurs are thinking too small. This is too often the case in Montreal, where entrepreneurs think of Quebec as a market. Even looking at your local market as an entry point is risky if you haven’t done your homework elsewhere.
3. Entrepreneurs have big egos, which makes them believe what they’re doing is unique and awesome. Egos are needed, but not if they blind you completely.
4. Entrepreneurs don’t bother looking. This comes down to not tackling your startup in a diligent, rigorous manner. Too often entrepreneurs get an idea, think they’ve hit a home run and start running wildly (in any and all directions.)

The existence of competition should not (necessarily) stop you from starting your company. It should color your thinking, create the appropriate context and help educate you on what’s going on in the market. And it’s one of the first places investors will look to help educate themselves on the market. Most investors aren’t experts in every market they invest in (they may not be experts in any of the markets!), and so a big part of their due diligence up front is to check out the competition.

This happened to me just a few days ago. I received a pitch, looked at it, and started doing some quick research. This is usually the first thing I do if the pitch gets passed my basic “sniff test” judgement (i.e. does it make any sense at all?) In this case I knew of at least one competitor. That’s going to happen a lot when pitching investors – they see a ton of deals – so they have cursory knowledge on a lot of companies. Then I went to Google and tried a couple of relevant search terms. In this particular case, one of the top 3 listings looked like a competitor. I checked them out and it seemed very similar. I saw a few other ancillary competitors as well. This took no more than 10-15 minutes.

I emailed the entrepreneur asking about competition. I listed a couple of references, including the one that looked like a direct match. I asked flat out, “What’s the difference between you and Competitor X?” He replied:

Not much. Fuck.

He followed that up with a more detailed comparison (after he spent some time looking at the competitor), but this essentially kills it for me. The fact that this entrepreneur hadn’t really looked at this competitor – which I had found in 10 minutes with very little understanding of his market – is really bad news. And before you think this is unique to this guy, it’s not. This happens all the time!

Competitive research is an important point of due diligence for investors. More importantly, you need to do it for your own edification. You need to demonstrate and actually have a level of expertise in your market that’s both broad and deep. Domain knowledge is a key advantage; and I bundle in competitive knowledge as a key component of that.

These days I use Crunchbase for competitive research. The profiles in there are often quite detailed and some of them have links to other competitors. With one competitor’s name you can typically find a bunch of others. AngelList is also extremely useful (although a lot of the information is probably hidden to entrepreneurs.) Try Quora as well. And Google almost always returns interesting results. Find a competitor’s name and type in, “[company name] competitors”.

Do your homework. Know your competitors and how you differentiate from them. This isn’t the crux of your pitch to investors, but it’s gotta be there. If a prospective investor (or customer, partner, etc.) can find a competitor in 10 minutes and you don’t really know who they are and how you stand against them, you’re in serious trouble.

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With five startups in Year One Labs (all at various stages of our process), you start to see some fairly clear patterns. One of the biggest hurdles at Year One Labs is moving from the Probe Phase to the MVP Phase. I’ve talked about this process in more detail a few times. The gist of it is that a startup at Year One Labs needs to provide enough validation that their idea is worth developing into a minimum viable product to get from the first phase to the second. The process typically starts with customer interviews, after defining the hypotheses and value proposition for the idea. Some of our companies created Lean Canvases as well.

The challenge is in how you define “enough validation.” In my previous post I talked about the difficulty of defining success. Without an agreed upon goal in mind for an experiment, there’s no way to prove or disprove that you’re heading in the right direction. So you need some kind of definition of success. But that’s incredibly hard to define up-front – most startups don’t know what it should be, and most don’t have the discipline to really put a line in the sand.

With or without a definition of success, what I’ve seen out of Year One Labs (and my own experience looking back, and in many discussions / advisory sessions with other startups) is that startups need to find the one thing that’s so obviously compelling that it justifies continuing. Without that one thing to hang your hat on (or more importantly hang your entire startup on), a startup flails around and struggles.

• Early on, it’s best not to focus on a lot of different metrics. Better to pick one or two that you think are the most meaningful. A startup’s “one thing” might come out of that.
• But it might come out of something else, like the startup’s brand or culture, or one specific feature that creates significant differentiation and more clarity on how the startup can move forward.

Startups need that “one thing.”

For Localmind it was people’s willingness to answer questions. That’s where it started, even at Localmind’s earliest stages when it was just a web application. The next “thing” came when Robert Scoble declared Localmind the best app at SXSW. That “one thing” skyrocketed Localmind in an amazing way. It’s important to remember that neither of these things alone come anywhere near to making Localmind a massive success. But they were enough to say, “OK, we’ve got something here. Let’s keep going.”

For Highscore House, their “one thing” was an incredibly successful survey that showed a very high level of interest in their value proposition. That was followed by the high conversion they got from early advertising, even when there was no product at all.

Some of these things were by design, through experimentation. Some were just luck. But even months after these trigger points (which helped move these companies from the Probe Phase to the MVP Phase), you can still see the impact they’re having on the startups. The early “one thing” hooks that made us all say, “We’ve found something to focus on,” continue to impact these startups in significant ways from their stories, to fundraising, branding, product development, and more.

Startups need to find their “one thing” to focus on. It provides (at least some) clarity on how to proceed and helps shape what’s to come.

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Delighting users is incredibly hard. Most startups don’t even try. That results in boring (although occasionally effective and useful) web applications. Some startups try too hard and end up overloading their applications with flashy funkiness that doesn’t add any real value. They might get an A for effort, but they won’t keep users happy through a “shock and awe” campaign.

When you successfully delight users it’s magical. They love you, you love them, birds chirp beautiful music and the clouds literally part in the sky…

The rewards are immense. Loyal, rabid fans tweet shamelessly about how incredible you are, how valuable your web application is, and how successful your startup will be. Awesome stuff.

The interesting thing about delight is that it doesn’t have to be constant. Part of delight’s magic is surprise. Anticipation too.

Anticipation + Surprise = Delight

So you don’t need to delight someone with an “Aha!” moment every single time they use your web application. The experience overall has to be delightful, but there’s a difference between a satisfying, “Damn straight,” and a “Holy sweet mother of God that is amazing!” We’re talking about the latter here…

Digg used to delight a lot of people. Me included. I loved Digg back when this blog hit the front page 3 or 4 times within the space of a few months. It was insane. The traffic spikes were monumental. Server crashing. The spikes lasted two days at most, and very few people stuck around, but it was still awesome. Delightful in the truest sense of the word. (Valuable too, because a chunk of people did stay around, people linked over like crazy, SEO improved, etc.) Digg was delightful.

But then it stopped. Things changed. Doesn’t really matter why at this point, although their story is well-told and interesting. I think Sarah Lacy does a great job recounting that story in her post, RIP Digg. It’s less depressing than the title insinuates (and certainly not anti-Digg like a lot of what we’re seeing out there). The folks at Digg did some amazing things and I’m certain they will continue to. But one of the areas they failed was in delight. They stopped being delightful.

And that’s one of the biggest risks when it comes to delight. If you manage to find a way to provide an insane amount of delight (even in rare, short bursts – and in some cases, rare short bursts are better!) be very, very careful about taking that delight away. Or even changing it a bit. There may be legitimate reasons to change your product, which results in changing the delight factor, but it’s a huge risk. People are fickle. Blame the Internet (to a degree) for that. We move insanely quick, turning winners into losers in mere moments, moving with a powerful herd mentality. And your product goes from delight to downer.

It’s hard to recover from that. Add a second risk to the equation: Believing your own hype. That’s gotta be one of the single biggest killers of startups. Hype is often legitimately fuelled by delight. The more delight you create, the more hype you make. The more hype you make, the bigger your head gets. If your head gets too big, you can very quickly start making unreasonable, untethered assumptions and decisions. That can impact the overall perception of your startup as well as the quality of your product. And ultimately, affect the delight of your users and customers.

There are very few cases where you can argue against delighting users, or at least trying. But be careful just the same…

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Lately I’ve been answering questions on Sprouter and having a lot of fun doing it. Hopefully it’s useful to the people asking as well. Not surprisingly, a lot of the questions are about VCs and investors – how to pitch them, what to pitch, how to prepare, etc. It’s a popular topic and something I’ve written about a number of times. But even still there always seems to be more ground to cover, from some of the basics to the more complicated. So here’s a summary and extension of some of the answers I’ve been providing on Sprouter with regards to preparing for VC meetings, and dealing with investors in general.

1. What should I do if I suspect an investor is taking a meeting with me just to gain competitive intelligence?

This does happen. Generally associates at venture firms are tasked with (a) doing outreach to see what’s going on in a space, and (b) doing competitive or just broad scale intelligence. And it makes sense. If you’re about to buy something very expensive, you usually check out the competition. This is no different.

And investors want to and should see as much as they can. It’s not something I really appreciated until I started Year One Labs – but it’s important for investors to see everything; it adds perspective, increases overall knowledge on what’s going on, and helps them identify the deals they really want to do.

Generally, I wouldn’t worry about this. If it’s a first meeting it will probably be very high level. Even more so if it’s a phone conversation and not a face-to-face meeting. And generally, most startups don’t have much to hide, especially early on.

If someone (an investor, competitor, client, prospect, prospective employee, etc.) wants to find something out about your company, chances are they will, with or without speaking to you. So in general, I wouldn’t worry about this as an issue, but at the same time you don’t need to reveal every secret and unfair advantage you from day one.

2. Is it bad form to turn down investors who approach us? Should we take all meetings out of courtesy?

You do not have to take every meeting with investors. If you manage to get some publicity and attention, there’s a very good chance investors will start calling. It’s a great feeling, but don’t let it distract you. The simplest answer is this: “We appreciate your interest, but we’re not raising money right now. I’d love to keep you up to date on what’s going on in the next few months when that’s likely to change.” That’s a standard line but it’s also the truth. It delays meetings that will very quickly become a distraction and still maintains a positive relationship with the investors.

Incidentally, if you say that, then make sure you do keep the investors up to date. Keep a list (in some form), do your research into the deals they’ve done and figure out which investors would be right for you. Do your due diligence. And then stay in touch with people. When the time is right for you to raise money, ideally you’re in control of the situation and can run a tight, well-organized funding process.

3. Is there such a thing as pitching too many investors?

Yes. Don’t be an investor whore. With Standout Jobs we probably pitched 10-15 investors seriously, but we met more than that (casually) and pitched some of them a few times. Probably 50-60 pitches when all was said and done.

You don’t want to pitch too many though and “shop the deal around” too much because investors will find out. And when they find out they’re not special or one of your top choices it’s going to reflect bad on you. It also means you’ve been rejected more, and that’s going to put a black mark on the deal.

On the flip side, if you’re pitching endlessly and getting nowhere you have to ask yourself what’s going on. Investors are not the gatekeepers of truth. They’re not guaranteers of success. But they do see a lot of startups, and if you’re not making progress you should take a step back and ask yourself what’s going on.

4. What should I bring with me to my first pitch at an investor’s office?

An executive summary (1-2 pages), which you likely sent in advance. A pitch deck and a demo. Business cards can’t hurt.

In the past I’ve brought a printed pitch deck as well – not focusing as much on the “pretty pictures” of a presentation, but more focusing on the details of the business. Not everyone agrees with me, but I found it to be a decent leave-behind. I don’t think it’s necessary though. And while I’d rather investors be looking at a handout than their phones, the best case scenario is that they’re focused entirely on you.

5. What information should we include in our executive summary?

I wish I could share one with you to show you what it looks like, but they’re all very confidential. Generally you’re looking to explain:

• Current status: funds raised to-date, monthly budget, revenue, team size, team expertise, customers, metrics
• Problem you’re solving
• Market size &amp potential
• Solution
• Competition
• Go to market strategy
• Unfair advantage
• The ask (how much you want to raise & why)

Fit this all on 2-pages. Look at every word, cut everything that’s unnecessary, on point and on message. Think of this as your high-level sales pitch to get investors interested enough to call you.

6. What’s more important to finding an investor a business plan or an actual product or service?

This is an easy one — the actual product or service is infinitely more important than the business plan. Having said that, you do need a plan – something that speaks to how you’ll go to market, your unfair advantage, user acquisition strategies, pricing (if you’re charging), and financial models. But this isn’t a big ass document. It’s a pitch deck with 10+ slides. It’s a couple of pages for an executive summary. It could even be a lean canvas.

What you need is a product / service AND a business model. The business model is important and encompasses the items I listed above: how will you acquire customers, how will you make money, how are you different, what are your unfair advantages…

7. How do I calculate the amount of money I should ask for?

I recommend having two or three plans, with one that’s ideal but others that are doable as well. Actually, the first plan is that you don’t raise any money, so find a way that your business can work in that situation. So your ask to investors is really: 1 small number and 1 bigger number.

At a very early stage this is particularly difficult, if you’re getting traction and growing there are other comparables in the market, you have a better handle on growth and requirements. Early on though it’s very difficult to figure out.

Start with this: Raise enough money to provide 18 months of life.

Most startups need at least that amount of time to figure out what they’re doing, so you need to buy yourself that amount of time. And if it typically takes 6 months to raise capital (at almost any stage), that means you’ve got 12 months from the time the money hits the bank to get to the next level, so you can go out and raise financing again (if needed.)

Aside from physical amount of time, you have to make a judgment call on the next critical milestone you’re trying to accomplish.

If you’re following a Lean Startup approach (and I hope you are!) and you’ve got to or you’re close to Product/Market Fit then you know it’s time to accelerate user/customer acquisition. That can be expensive if you need to bring on salespeople, or if you’re buying a lot of traffic. Usually at this stage companies are raising good chunks of money. Prior to that, the risk is significantly higher and so raising less money is a good way to mitigate that risk.

8. What should I be looking to get out of my first meeting with a VC?

If you’re relatively new to pitching investors I’d recommend that you focus on learning. Soak it up and learn as much as you can about the process. When I started I was always amazed at the questions investors asked. Each one asked a few different questions based on their own experience and biases. It helped me anticipate questions and get better at pitching. So focus on learning.

You also want to gage interest, and you’ll need channel your inner psychologist a bit for this one. Assess body language and attention.

Finally, you want to get a sense of next steps and action items. In most cases the next step is likely going to be a request from the investors that you stay in touch and follow-up. That’s pretty vague, and you have to decide whether they’re really saying “no” or not. But at least come away with some clarity on next steps and follow up from there.

This is just the start…

This isn’t the entirety of issues surrounding VCs, investors and raising capital, but there are some interesting questions in here for sure. If you have your own questions, leave a comment on this post, or go to my Sprouter page and ask there.