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It Doesn’t Matter How Much Money You’re Raising, It’s Still Hard

Things certainly feel frothier these days. More and more companies are raising money, and valuations seem to be skyrocketing. But even in stronger economic times (we hope!) and bubblier eagerness to put venture and angel capital to work it’s still extremely hard to raise financing. And in many cases the amount of money you’re looking to raise isn’t particularly relevant.

Often it’s just as hard to raise $50,000 as it is $5,000,000.

And this is true for startups as much as it’s true for VCs. When VCs are ready to get a new fund off the ground they have to jump to our side of the table and raise the money. Big money. Hundreds of millions of dollars. Alan Patricof of Greycroft wrote a telling article for Business Insider titled: You Think It’s Hard To Raise Money For A Company? Try Raising It For A VC Firm.

When raising early seed money, the requirements and demands from investors will be lower. Investors can’t look at significant traction, measure revenue growth and assess a lot of metrics. But you will invest a disproportionate amount of time raising early stage capital, even if the amounts seem low. And investors are still looking for key things across the board – early stage or otherwise: a kick ass team, unfair competitive advantages, market understanding and a clear roadmap.

Mastering the VC Game: An Important Read for Startup Entrepreneurs

Mastering the VC Game: A Venture Capital Insider Reveals How to Get from Start-up to IPO on Your Terms is written by Jeff Bussgang, General Partner at Flybridge Capital Partners. Follow him on Twitter here, and read his own thoughts about the book here. Jeff has been a VC for a number of years, but prior to that was “on the other side of the table” as a startup entrepreneur. It’s a shame we have to speak about venture capitalists and entrepreneurs as being “on opposite sides of the table” but that seems to be the case much of the time. And if you can’t beat ‘em or join ‘em, then the next best thing is to understand what the hell they’re thinking.

And that’s exactly what Mastering the VC Game is all about. It’s a strong, introductory primer to the venture capital and investor world. For an entrepreneur looking to raise financing this kind of “insider information” is critical. From understanding the fundamentals of investment to how investors think, Mastering the VC Game walks you quickly through the essentials. Understanding the mechanics of how venture capitalists make financing decisions and make money is great information when you’re ready to pitch. You’ll be that much more equipped to succeed.

The book is easy to ready and understand. While it tackles somewhat complicated issues around financing and how venture capital works, Jeff does a great job of making this simple to understand.

The stories at the beginning are also very interesting. Jeff recounts the beginnings of Twitter, and how founder Jack Dorsey came up with the idea. It’s not a story I had heard before, but it resonates with some of the keys of being a true entrepreneur — passion, immense curiosity, drive, being able to adapt, and learn from failure.

Jason Evanish makes a great point in his review of the book:

If you take away only one thing from this book, it needs to be: understand and work to align the motivations of all board members. It is when motivations get out of line (or start out that way), that conflict and company issues arise. Your probability of success is infinitely greater when you have everyone working to the same goals.

Alignment is something I’ve been thinking about a lot lately with respect to how you keep investors, board members, entrepreneurs, founders, employees, customers and others aligned for success. It’s not easy.

The only part I would have been interested in seeing is a stronger evaluation of the Canadian VC scene. Jeff takes a look at what’s going on in China, Vietman and Europe, all of which have different issues and lots of interesting lessons for nascent startup ecosystems. But I would have been curious about Jeff’s input on the Canadian startup scene.

Mastering the VC Game is well worth purchasing, spending a few hours with and learning about “the other side”.

An Introduction to Pitching Investors

Kudos to the students at McGill University for putting on some great events. I’m a big fan and advocate of anything that bridges the gap between students and startups.

I was invited to speak along with Daniel Drouet at an event entitled, “The Perfect Pitch”. I’m not sure such a thing exists, but I was happy to help out and present my experience and advice on pitching investors. Since the audience was comprised of students, with little startup and pitching experience, I tackled the basics — but hopefully everyone gets some value from this.

An Introduction to Pitching Investors

Here are some highlights and additional details from the presentation:

  1. Pitching is a combination of storytelling, selling and conversation. You have to understand what an investor pitch is before you can really do it, and the combination of storytelling, selling and conversation really does describe a good pitch. You need to tell a story, be engaging, interesting and creative. You need to sell, just like you would gun for a customer or partner. And you need to realize it’s a conversation, not a one-way diatribe. If investors aren’t asking questions, you’re in trouble.
  2. Pitching is a skill onto itself. Pitching investors is truly a skill. It takes a ton of practice. You get better with practice, and if you don’t do it for awhile you can lose your edge. So practice. Make an effort to pitch when the opportunity arises.
  3. Hearts – minds – wallets. That’s essentially the order of things you need to capture from investors. First go for their hearts and connect at an emotional level. Maybe they feel the pain you’re trying to solve. Maybe they love your team, or your vision for changing the world. Whatever the case, go for the heart first. Then you need to connect with them intellectually. Let’s look at the financials. The market. The meat & potatoes. Then go for the dough. This basically makes up the structure of any good story: beginning, middle and end.
  4. Hook them fast. You only have a few seconds before investors start to fade away. You need to hook them quickly with a strong elevator pitch. You need to answer the question, “What we’re all about”, with a strong, bold statement (or two).
  5. Know who you’re pitching. You need to research investors before you meet them. Find out what they’ve invested in (not just their fund). Find out their background (especially if they have an entrepreneurial one.) Reach out to portfolio companies and speak to them about the investors too. There’s no excuse for going into a pitch unprepared.
  6. Expect to be interrupted. It’s a conversation, and investors love to jump in. Don’t expect to just walk through your presentation precisely the way you’ve designed. It won’t happen. You can’t get flustered or take questions personally. Expect to be interrupted. Expect tough questions. Know your stuff and don’t fumble your way through a PowerPoint pitch deck to find the answers. The PowerPoint deck is just a guideline; really just a placeholder for the engaging, incredible pitch that you’re giving. You’re the one investors care about. And don’t worry if you don’t get through everything; go with the flow.
  7. Don’t act like the smartest person in the room. There’s no advantage to being the smart ass know-it-all. You need to be confident, but not to the point of being obnoxious or irritated. Admittedly, it’s a fine line.
  8. Cut the bullshit buzzwords. You don’t demonstrate expertise by throwing around industry buzzwords and acronyms. The investor might not be an expert in your industry, so make sure you speak to them in a way that they’ll understand. Remember: it’s a conversation, a dialogue and you’re trying to sell them. Most people don’t buy what they don’t understand (and in 30 seconds, I might add.)
  9. Avoid granular product detail. You won’t win points by going over your solution (or product) in finite detail. Describing every feature is going to send investors to their Blackberrys in a hurry. Tackle the high level aspects and features of your product — more importantly, impress upon the investors the benefits of the solution. Product demos are great – a picture does tell a thousand words – but be prepared for the demo to break. You should be able to walk through your product demo in its entirety without even showing it … “So what you’d see here if this was working…”
  10. Sex sells. We all know this, but it bears repeating. A well-designed presentation and/or product demo helps. Investors like sex. They’re human after all…
  11. You don’t know everything … and that’s OK. You can’t know everything, even about your own business. So don’t bother pretending. If you don’t know, admit it. Investors will have a mental checkbox for, “He’s not a total bullshit artist, scammer. Good.”
  12. Consider it a learning experience. Every time you pitch you’re going to learn something; about yourself, your business, investors, how the startup world works, etc. So one of the most important tips is that you walk away from every pitch with something of value: knowledge. As we all know, you’re not going to walk away from most pitches with money, so knowledge and a good learning experience is the next best thing.
  13. Have a memorable ending. Too many pitches end with the financial model, but it’s often one of the most dull (and messed up) parts of a pitch. It’s better to end with something much stronger. “The 4 most important things today that we’ve talked about: bam, bam, bam and bam.” Think of a way to end strongly, and make sure you hammer home your key messages.

Instead of including links throughout this post, I’ve included a bunch below (they’re also references in the presentation). Read everything I’ve listed below. There’s some amazing content about pitching in there. I’m especially fond of “12 Ways to Blow Your Investor Pitch”. It’s awesome.

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About Ben Yoskovitz
I recently joined GoInstant as VP Product. GoInstant changes how we use the web, making it shareable like never before.

I'm also a Founding Partner at Year One Labs, an early stage accelerator in Montreal. Previously I founded Standout Jobs (and sold it). I'm a hands-on startup guy, helping companies grow successfully from the idea forward. You can reach me at byosko at gmail dot com.

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