and Don'ts When Pitching VCs,"
June 23, 2000
by Matt Bolton
Woodside Fund analyst Matt Bolton can usually be found answering
questions in the Ask The Expert segment of TecConnect.com. In this
edition, he discusses with Editor Michael LaLumiere the dos and
don'ts when meeting with venture capitalists.
Meeting with venture capitalists to ask for millions of dollars
to fund that dream idea you've sweated over for years has to be,
well, gut-wrenching. But if you've been invited to present that
idea to venture capital partners it must mean you have something
worth talking about.
Now that doesn't mean your meeting will result in a big, fat check.
But it does mean that you shouldn't let an attack of self-induced
pressure get in the way of pitching your idea. Because according
to Matt Bolton of the Woodside Fund, the keys to a successful meeting
are fairly simple.
First a little background. Matt says his venture firm will meet
with approximately 5 to 10 percent of the qualified companies who've
submitted business plans. Before a company gets a meeting, they
are screened at the executive summary and phone interview level.
"Companies come in generally at one of three levels: Companies
just looking for money and could care less who it is from; companies
that are raising capital from funds that their homework tells them
would be good value-added partners; and raw, unsophisticated startups
that need roll-up-the-sleeves experience and assistance."
So what's the No. 1 error companies make when meeting with VCs?
"Selling your business instead of presenting your business," Matt
says. "There is a difference. Present with the passion and conviction
that drove you to write your business plan. You are presenting to
a VC because they have an interest based on your executive summary.
Now, it is your time to present how you are going to make this company
the next billion-dollar category killer: why this solution for this
market and understanding the challenges in becoming a successful company.
"An example is competition - all companies have competitors or
potential competitors. I become very skeptical when an entrepreneur
says that they have no competition. That is not being realistic.
First mover advantage is different and making that distinction is
very important. Entrepreneurs need to remember that we're looking
at them as a future partner. If we make a deal we'll be with you
for at least three years. Our value add is the operating experience
within the Woodside Fund team. Understanding the challenges up front
allows us to approach them head-on with the entrepreneur and work
for a solution together. So the question is, 'Can we work as partners
for three years?'"
- Not if your management team doesn't interact well with the venture
- Not if the CEO thinks he has all the answers or is not open
to bring in complementary skills when the time is appropriate.
- Not if the management team isn't flexible.
"The best company pitch I've heard came from one of our portfolio
companies," Matt says. "The company is based on very sophisticated
technology. The thing the CEO did very well is take the tech part
and put it in layman's terms. He took it to a level that was understandable
to non-engineers. He was patient and addressed all our questions
in real time, not deferring them to later in the presentation. He
used a lot of graphics in explaining the technology and it was 15
to 20 slides max."
"Another thing he did very well was explain how the product created
value for customers, enabling them to create a trillion dollar market
by providing additional services to their customers."
Now, Matt, what if the CEO doing the pitch just has a bad day?
He's nervous. Or the presentation is out of order. Whatever. The
pitch just stunk. Is that it?
"Not necessarily. Did the person know their business inside and
out? Do we like them? Were they passionate? Did they seem flexible?
It's not necessarily the end but you have to think, 'How do they
present to customers or strategic partners. Are complementary skills needed?' "
When it comes down to it, do VCs mostly invest in people?
"Good management teams can make a 50-50 company work,'' Matt says.
"I don't think that statement's wrong at all. A lot of people can
steer the ship in calm waters but what about when it gets stormy.
And we don't think in terms of a startup CEO having to take a company
all the way past IPO. If they can great. One thing we look at is,
'How far does this person take the company, and will they be ready
to step aside when, say, it's time for someone else to take this
company to the next level?' "
Matt, what's the question the companies ask the most at a meeting?
"After the pitch they always ask, 'So, What did you think?' Even
though we invite questions, this isn't one. We need time to digest
a presentation and sleep on it. We need to talk as a partnership
and get everyone's thoughts and make sure we are all on the same
page. We prefer questions about how can we help companies, what
other companies have we invested in and in what markets, how we
react to hiccups as board members and can we call some of your portfolio companies?"
What's the question the companies don't ask enough?
"They should be asking, 'How can you help us? What other companies
have we invested in? How do we react to problems as board members?
Can we call some of your portfolio companies?' We like that because
it's part of the partnership model that we're looking for. It also
shows that they know they need help and they are trying to determine
if we are the right partner for them. For example, we met with three
PhDs recently and they were very open about needing help manufacturing
their product and bringing it to market. They wanted to know how
we could help them in this area. That's a good sign."
What's a question you always ask in meetings with companies?
"Twelve to 18 months from now your company is not as successful
as you would have liked, assuming you get money, what could have
gone wrong? The answer is usually enlightening. Entrepreneurs really
need to know the obstacles to their success and how to articulate
them to potential investors. It shows what kind of research they
did. If they can convey it right it gives you more confidence in
their ability to make this company successful and why they have
the right solution for their target market."
What's the most spectacular "don't" you remember?
"Three guys come in to meet with us. They have a business plan
and a pre-beta software product. No customers. One strategic partner.
At the meeting they insisted the valuation of their company was
$25 million. Right or wrong, this was in our first meeting with
the company and pre thorough due diligence. Due diligence usually
brings a valuation into focus for both entrepreneurs and VCs. The
private markets have some sense of efficiency. I think they had
Matthew J. Bolton is an analyst with Woodside Fund, a leading
early stage venture capital fund who partners with visionary, passionate
and talented entrepreneurs in building innovative technology enterprises.
Founded in 1983, the firm has four funds with more than $200 million
under management. Matthew will continue to answer questions from
entrepreneurs in coming issues of TecConnect.