You made the pitch on a Monday to a venture capital firm and you believe you nailed it. Woohoo and hot damn! They laughed at the one joke. They asked good questions about the market size and the patent potential. No one fell asleep and at the end the group was effusive in showing appreciation. This could be it.
A day or two later you receive an email that the venture group decided to pass on your company but thanks and good luck. Ugh. Depression and back to using the credit cards. What happened? Was it presentation skills? Is it a bad idea? Should you go to work at Best Buy? What!? You may never know.
The relationship between entrepreneurs and investors is complicated. Investors are desperate to find good deals. Ideas with the possibility of a big return are really difficult to find. The most difficult part of being an investor is finding the next big thing. Entrepreneurs are desperate for the investment. The credit cards are at the limit and every start up is on the verge of greatness, if only that next round of money comes in. Two desperate parties looking for the same thing – returns. So why is there such a dance after the presentations? Why don’t the VCs give feedback? There are several reasons.
- No one wants to hear “your baby is ugly”. That’s right, your baby, in the form of your idea or your company might be ugly and you are unwilling to accept it. We love entrepreneurs because they are passionate and committed and idealistic. Saying it’s not a good idea or you don’t have the right team will only elicit a rejoinder of protest and angst that no investor wants to deal with.
- No one wants to tell you “your baby is ugly”. It’s no fun to deliver bad news or deal with the protests. The more engagement there is in delivering the negative decision, the more difficult the meeting is. It is just more efficient to send an email.
- Hope springs eternal. If there is a glimmer of hope from the investor, the entrepreneur tends to be too optimistic that there is still money to be had. So investors don’t give feedback because it is heard as, “if you fix this and that then we might fund you.” That is not the case. Almost always, once the decision is made, it is final.
Other reasons could be part of the decision too. Maybe the investors are too heavy in a particular vertical. Maybe the investors are running out of money but want to keep seeing pitches. In both cases, you won’t hear that as a reason.
The solution? Don’t wait for feedback and don’t get mad. Just move on. That investment could be waiting around the next corner. When it comes to investor feedback, it could be like that last break up when you heard, “It’s not you, it’s me.” There is no good way to say I don’t love you.
Any investor or venture capitalist quickly learns what to look for as he or she considers making an investment. After one sees a batch of deals, pattern recognition takes over. Investors are looking for big returns and want to hear about ideas but also want to know that the entrepreneur is not naive when it comes to what it will take for success.
Certain triggers will make for an immediate reaction, and not in a good way. In the spirit of cheering for entrepreneurs, here are a few pointers – both what to do and what not to do.
On the “what to do” side I have only one piece of advice: GET ATTENTION. Over the course of my investing career, I have heard phrases like the following:
“Our technology will detect autism in children at an early age.”
“Our technology will disrupt the college choice process.”
“As PayPal is to payments, we are to passport control.”
It doesn’t matter whether or not the money was invested; these entrepreneurs had big ideas and had my attention. The rest was due diligence.
The “not what to do” bucket is a big one but here are a few obvious mistakes that entrepreneurs are prone to make:
- Telling me what I already know. I know the Internet changed the world. I know that big data is big. Don’t start there, start with what I don’t know.
- Pronouncing there is no competition for your idea or technology. It is never true; there is always competition. To say otherwise shows a naive entrepreneur. Go back and do research to identify the competition.
- Proclaiming that your idea will go against Google, Apple, Facebook or many others and make a dent in their growth. It’s too late; don’t say what you will do to those big successful companies with billions in assets. Even if that is your intent, it is not credible.
- Failing to answer the question, “What Is It?” Investors don’t need suspense. By page two or three any investor should know what your idea or product is and understand the space in the world it occupies. Is it software, a drone, an app, a flying car? Just blurt it out early.
- Confusing an Advisory Board with people who will build the company. Having famous people on your advisory board makes for a good PowerPoint but investors know that most advisors don’t help with day-to-day operations. The team that is running the company is more important than eye candy advisors.
Entrepreneurs complain that if they talk to ten different people, they will receive ten different pieces of advice about an investor pitch. My advice is to listen to all ten but make sure you are comfortable with your end product.
Oh yeah, did I mention that listening to feedback is a big part of being a successful entrepreneur?
A little boy rang the doorbell and asked if he could give me his elevator pitch about why I should support his basketball team. Yes, elevator pitches are still all the rage and not about to go away. The concept probably started in Silicon Valley, which is ironic, since most of the buildings in Silicon Valley don’t have elevators. And like lots of other things that start in Silicon Valley, the concept has spread for better or worse.
An elevator pitch is a crisp and tantalizing description one can give to a potential investor or employer in the time it takes to get from the lobby to their appointed floor or vice versa. In other words, “You don’t have much time, so make it snappy, entertaining and compelling.”
Most times I am on an elevator, no one talks to anyone else. Even if anyone did talk, I don’t think the rest of the occupants want to hear a pitch. But here we are with elevator pitches coming from kindergartners about acquiring puppies; jilted boys explaining why girlfriends should take them back; authors pitching books to publishers; and complex policies reduced to Twitter blasts.
As a sometimes investor I have heard my fair share of elevator pitches, good and bad. The best elevator pitch to give to an investor will answer two questions:
- What is it? Is it food, software, a device, a drone or a movie?
- What do you want? Is it a huge idea that requires millions or is it a pet project that requires a little advice?
Answering those two questions might be enough to get someone to linger in the lobby where you can go into more details.
Everyone needs an elevator speech about something. Questions like what do you do or tell me about yourself are prime candidates for an elevator answer. To not have one might show poor communication skills when you most need them. And most employers will say that the one thing that hurts people’s careers more than any thing else is poor communication skills. Knowing the key message that you want to convey is more important than all the fluff around it.
Some will say that the concept of elevator pitches is shallow, rude and ineffective. Remember that an elevator pitch is just a metaphor to emphasize how important it is to have a short interesting message, and I am all for that. Sometimes a little more time is required to explain the passion and importance of an idea.
Make sure you have a short, concise, well thought out pitch, but don’t confuse it with communication skills or heartfelt discussions. We need elevator pitches but remember that some elevators only stop after a long ride.