Getting In with VCs - No MBA Required!
Getting in the door we're going to focus on get a personal introduction here's one thing that has changed as faras veces and their websites then ten years ago it used to be you'd see a little click saying send your business plan or you'd even see the email address of the fun partner but that's been taken away why? Because everybody's email addresses air spammed by you know scam artists and so forth and we've actually raised the bar it's too easy for you to just say click and sent and then what do we get? We get a business plan let's raise the bar how do we if we get a couple dozen new business plans every week or every month? How do we now everybody's got great ideas? How do we separate the men from voice so to speak how do we create a hurdle that will say something to us about you and your level of persistence how much you really won our cash and so here's the bar we want you to find a way to get to know us we want you to do some homework we want you to find somebody in our world some...
body we've already done business with to get you to get them to give you our email for a personal introduction no it's on gosh how but you're cold calling aren't you most of your customers going be a cold call experience aren't you gonna have to research to find the names of the buyer? The top buyer at corporation x y z so this is a good little asset test we want to see how great you are it's sales and muck raking and how determined you are are you like a howard who will keep digging and finding you know I'll take ten you know, one hundred nos to get one yes, that's the entrepreneurs we want to invest in so who's in their network start out focus on finding the partner at the website that invests in your deal. We talked about that before, ok guess what is usually next at that same website is a list of companies that that company that partner sits on the board of directors. Why not reach out to the founder? Especially if they live in your community? Why not follow those partners on twitter? Now don't hound them on ly reach out when you're ready to go why not find out what the name of the corporate counsel that that fund uses all the time to negotiate their term she's be even more creative there's one vc I know who's an uber, you know participates in one hundred mile runs okay, go find out where he's right engage them, do some homework you can probably send your deal in, but you will be received better with a personal introduction and it doesn't have to be where they have to say we think this investment is great but say just try a meet with somebody in their world and create that connection you will find where they went to school if they got an mba what they like, what they care about where they came from it's easier than it was five years ago to find out about people and I want you to hound them I want you to get a gentle introduction there's somebody that they value already and at the same time you can say can you tell me more about that fund your experience with this person you can learn a lot more in that process so that you hit it off with that fund manager this is a must if you want vc funding no way around it it will put you in the possibility versus maybe we'll eventually get around to this don't underestimate the value of the analysts in funds to usually get people who say rahm only going to the general partner they're fun okay went the general partner be the absolute busiest person in the fund with the most responsibility the most deals the most things that that person has to watch out over but yet there are some analysts who have tremendous power a little bit farther down the food chain whose job it is to actually read the entire business plan and if you engage that person, you are taking a big step forward don't necessarily have to start at the top to generate that deal. Momentum. The other thing, I really caution people from targeting one funded a time. I want you to fund a target every single funding, potential angel level v c level, and go after all of them great guns at any time, things entirely outside of your control can slow down progress at one fund suppose one of their portfolio companies has a major trauma that will require that fund manager to just drill down on that existing investment. Existing investment traumas rank higher than new investments because they've already deployed their capital cover all grounds. Find out what's on that person's play. It may be a month later, two months later, that casey may have more time, keep them engaged, but keep working on other people. I want you out there, and you don't stop soliciting new funds until you sign a term sheet that forbids you to solicit new funds. Ideally, I want you to have five term sheets that you have, which are proposals of what each fund will invest in your company, because guess what? At that point you can start picking and choosing you get to be the bigger shopper, you have a little bit more negotiating power, or you may feel you just have a better feeling that this particular fund understands more about what you're doing and is a better funding fit than the other one you don't stop even if the vc compliments you loves you is asking great questions don't stop looking elsewhere you don't have to and I don't recommend you telling this fund who else you're going to they will the smarter you are and the more the vc respects you they will expect you to be shopping elsewhere you want more than one fund and they're both going to be funding you for the long term don't you want to have some kind of collaborations and, uh good report between the veces are they both invested in your company? Yes ok, then this is I'm going one step before that, so when they get to a yes um and if it is worth your while to involve both in your deal, then you might introduce it to I don't want the two starting to work up and gang up and if one had of this deal and this one in this deal, I was still wouldn't tell him who it is because I don't want them kind of going together and saying, well, let's merge and now we're going to give you this deal, which is a little bit left um my point is so listen solicits a listen in the interim, your company may be making progress so all of the sun you qualify for early stage funds or a broader range of funds keep marketing your company until you get a term sheet preferably more than one that's what he has to be in your mind set I don't want you to get lulled into a false sense of security usually veces don't issue term sheets without being really serious about their intent to invest in you you should be really close on deal terms but there's still some things I want you to do that we're going to talk in the next upcoming segment but these are the things that tend to wreck mo mentum you fall in love with one vc you fall in love with the idea that this is the one that you're working with and few I don't have to do it this solicitation stuff anymore I can get back to work and then the term she doesn't come and you've lost more time when I'm saying to your power becomes stronger when you have more funding options than one but that's usually the knee jerk reaction of first time entrepreneurs raising their first round of capital from veces and it's not a trust or distrust it's just he sees have busy lives you're not the only ones in that they're not the only deal in their play they may looking be looking at other opportunities and doing their due diligence at the same time they're looking at you whoever gets their act together the term sheet settled obviously you want involved people in their community that will keep you know if you end up working with an attorney that have been recommended by them that attorney's gonna be putting in good learns to so that's another reason why I to play ball within their broader social and professional world um personalized short emails I hate it when I get long e mails that just go down pages and pages that just ramble and usually the last paragraph is the only thing worth while to be said you know especially think about what we see on our cell phones we see a headline make it wonderful make us want to click and actually read which you're sending to us do not re gourgeon tate everything about your business in an email with an attachment document hey bud short if you have progress to report, make sure it's meaningful progress I don't twenty progress points now give me three and make sure they matter have you booked a customer? Have you completed something? Don't tell me about something that maybe happened maybe will happen don't tell me if somebody tweeted something favorable about you now you're wasting my time am I gonna want to read more of your e mails like that? I show me you get it show me you don't waste time tell me important things briefly consistently show me you know how to prioritize and know what's valuable progress competitors we touched on this a little bit before usually first time entrepreneurs they don't want to talk about the competition, but yet I find wonderful value in your competitors and understanding the weaknesses and strengths of your competitors. Usually everybody's knee jerk reaction is to focus on the strongest competitors in the market. I love it when I brainstorm with entrepreneurs to find out the weakest existing competitors out there, the ones that annoy and pesce off their own customers. They're likely to be the low hanging fruit the ones that you could easily steal their customers and bring them into your fold. The more you spend understanding where people are buying now for something similar close to what you will be selling may have the gold for you to get new customers in faster pay attention to this I said earlier it may be a competitor much larger competitors that becomes your ultimate buyer or instead of the competitors er just following your lead and doing replicating what you d'oh that competitors may say you're a great candidate to come up with a strategic partnership, there is gold in here we love it as investors when you can partner with other companies, even competitors to get your business to a higher level sooner with less risk look for those opportunities here, especially at the seed stage don't take it as a criticism if we keep drilling down about your competitors, listen to how the vcs size up your competitors you might learn something new this is the way entrepreneurs who get funded that's their brain you know their mindset, a healthy attitude about the competition do not ever say to a vc we have no competitors you d'oh you d'oh your product or service is not that extraordinary that the landscape is completely empty and if it is really true that there are no competitors for what you're buying or selling, it may not be worth investing in we want it where customers are now willing to write checks this is huge, especially at the seed an early stage level your numbers your products are not proven yet, so where you fit in against them will matter in how venture you know venture investors size you up, don't repel engage on these conversations also think about in a healthy way some of your competitors are going to copy what you d'oh, they might change it up in a different way you might end up being the trailblazer don't fear those conversations, embrace them and say to the vc, this company I'm guessing maybe the most likely to jump into the marketplace to follow our lead how can we stay ahead what can we do tow locked down companies or customers toe long term contracts? What can we d'oh to make it harder for them to get in that's the kind of language like problem attitude of a solution? Every problem has a solution, but a scary aspect of to investors is investing in entrepreneurs who bury the problems they wait too long to address them and that won't be you what you need to succeed a shout out to our bonus documents right especially for video subscribers they get action steps and tips on structuring their executive summary. Usually the first documents you need to present a venture capital funds or I would ready have them ready to go is an executive summary certainly some level of projections and usually a slide deck ten to fifteen slides that outline what you want to accomplish, what the significance of your product or service is how much you want to raise who your competitors are really easy dex, the projections are going to be important because we want to know that you know something about accounting make sure the numbers match up. You'd be surprised at how many projections I get where the balance sheet has nothing no relationship to the p and l statement and it's all a mock and what you can't do is finger point oh my accountant did a wrong my controller did iran shouldn't you have looked at the numbers and made sure the math was there. Yes video describes what susan's referring to is those people actually purchased thie anytime access and actually have the course in their library that's that's what you meant by video subscribe yes video subscribers there's a deep dive I don't know how many pages is action steps on your executive summary and includes not only how to form at the document but what are some of the tips of what we're looking for when we read through those executive summaries with throws us off base and in these segments I hope I've tried to emphasize that the projections and the executive summary that you might give to lenders should be different than investors. Adam and I were talking during a break and it was funny during his presentation this morning for the cash he was talking about issues that would have excited lenders you know the receivables and load, you know, recovery reasons so forth, but those aren't things that excite investors so let's match it up, try and hit those high notes whenever you deliver a document, I know that whatever they're investing they only make money the eight years down the road with the growth in the value of your company which is going to come from very fast growth of your customer base it could be for an online entity you have to show a very rapid online engagement hits unless you know unless you're coming up with it is important to show that you have a social media presence but don't think that is the only benchmark of a success eventually a wall come around to who is writing checks who's your customer who's paying the bills so don't necessarily always stay in the world of social media people love us make it more realist tangible show us how their money will turn into customers that's the heart of everything we're doing if you make it to product focused in your executive summary you may be pushed aside because I may think he's too in love with this product she's too in love with what she's doing is sheer he really willing to listen to what the customers want and adapt to what customers want these air subtle things but really important things in the things that you emphasize in those first meetings with investors you know they will locate your if you have existing customers they will ask those customers and find those customers and asked them what they think I love it if you've got some reorders from that same customer boy that tells me they love the experience they want more if we and we may pretend to be your customer and you may not know it we will measure how you respond how you communicate with us and we will size up where we may find people who represent your ideal customer experience and send those people in tow act like customers, be ready for them and be careful about discounting any objection it could actually be one of your investors. I truly don't discount it happens, the bigger the dollar mount her asking for you should assume they are out there looking and trying to find your strengths and weaknesses without you telling us one of the biggest areas I find that start up entrepreneurs absolutely missed the boat on they do not put any attention to the customer service that start up in early stage pre funding or post funding. In fact, I have a presentation coming up to a vc about how to improve their own performance performance and what to look for and big there is force entrepreneurs to pay attention to customer service. Why does this make sense? You just got money from the v c now you're out there serving customers for a brand new product, a brand new service that's when you're going to hear about what doesn't work about your company, who you know where on your website is that feedback? Where can they hear from you? Boy, if you are not building that into your business plan, you're missing the boat because if you, as the busy executive, are the last to hear about what's not working about your product. Boy, I wouldn't want to talk to the board next you need to hear it very fast and adapt to it and react to it especially if it's an unproven product you want to fix those things fast, fast, fast, fast I'd like to see five year projections with emphasis at the seed stage an early stage on your first two years I want you to then present would I call a use of proceeds statement if you're asking for a million dollars, where are you spending a million dollars if two hundred thousand is going to be allocated to r and d, let me know a general sense of where my money is being deployed I said earlier that don't put in your use of proceeds that you're paying off debt it's that we get that you may be paying off some payables, but the lion's share of our money should go to billy more assets or more customers we want things that will demonstrate value growth. That's what we warm up to that's the good judgment we want to see from you I think we took a question earlier from somebody who I suspected needed a hiring plan. This is big usually people forget about him. While it may not consume a lot of cash it is and certainly coming up in the next segment, we're going to talk about the biggest mistakes on turner's make that keep cutting their equity stake in their own business hiring is part of that earlier stage companies should have you it could be a diagram of the types of people you want to employ and at what stage is will you employ them? You will hear we invest in management over and over again you're the jockey as they say we invest behind the jockey or we on ly size up people by the team members they bring to the table, show them give them some comfort it's so important I don't want you to think it's all about you anymore, it's about the team, you can't do everything you may be the uber code writer if you present yourself at the v c stage, where million dollar checks are being written as the person who writes all the code because you were the most brilliant person there probably not going to get funny, you have to delegate, you have to trust your team because we have very big expectations for you, it's a really hard mindset to get out of. I really am sympathetic because I know at the point everybody in this audience is we're in a lot of hats you are so busy, you have too much to d'oh and all the sudden you have a big check, you've gotta unwind and allocate things that you had to make sure we're perfect you have to trust others to do an awesome job and you've ticks really lay out what you want them to d'oh you don't start talking in a team approach in terms of accomplishments it's you're probably going to get it now or we may wonder if you're really fit to be the boss verses of the baker so when we talk about those fears losing control of the business getting fired it's funny how that one always rises high we only try and there's on ly a need for a change at the top when things are running amok so you have to be that boss one of the ways when I say, what are the docks you need to succeed? It is ah hiring plan would that have ever been on your list before in level of importance? Probably not. Maybe a little bit not the detail show us that you will start hiring those people fast but not foolishly and how might your skills and the people around you change as you grow? I don't want to see um just because somebody comes out of a big corporation marketing that they necessarily will be right they may not have been there done that experience for where you want to go working in a v p role at nike may not be the perfect person for a tech company marketing all marketing is not marketing oh dialled back understand what are the specific skills and deliver bols that will take your company at this very vulnerable stage from here to here and that's what when you're starting to think that way in a very granular way what's going to get my product on what's going to get it out there and hiring the talent who has already done that kind of work that's your hiring plan that's the diagram of who you're out to hire because what we were hearing his execution that's the buzz word of warning somehow that entrepreneur had not yet convinced the vcs who had the potential of right five hundred thousand dollars check that is success but that entrepreneur heard execution we need you to go back and work on your execution unfortunately we use stupid words like that but that meant whose implementing who's getting you know who's keeping the trains on time they were not convinced this is part of that they are in deep plant the commercialization plan this is your execution line right here I wish I could say can take credit that that was a plant but it was how's everybody think about this it's not so black and white you can develop all of this adam what do you think I especially at the last point about the hiring plan the rnd planning diving deep because sometimes I think we just feel like scratching the surface is enough and in the vessel helping bring the manpower in, but this is vital lego if that helps you get a snapshot of what's going on in your business before you go talk to someone else about it. And if he trusts the vcs to do it, aren't you then setting the stage to lose the control that you want? Because if you're not doing it and their money's already employed darn it means you need help and we're going to send out life preservers. We don't want you to do around so fast, but it means we're going to increase our engagement and this is usually the afterthought emphasis here's what I know you know, how are we going to market our company? Everybody can go deep on that because that's sexy that's fun. We're not a commercial that's only one piece of a commercialization plan yet if I looked at page count and word count of how much is under how we're going to market and promote our company from the pr firms and so forth he could go on for pages of a twenty page plan or even a ten page plan. What is loosey goosey there's, no hiring plan really what's going to be done to get the product out the door, it's over weighted to the fun stuff and not the stuff that really, really matters in terms of getting you here to here with the least amount of risk and the more work you do here, the less pressure is on the founder it will make your workday seigner by just find some people who do really great jobs for what you want on how's that working I know you're heading in this direction the hiring plan and that feels mohr important than a lot of other things on here that's what I've seen in my industry experience is you if you underestimate what you need to hire and you hire the wrong people, it sets you back so far. Well, when boy are we going to do about that in the next segment I've specifically save time for questions? Are we getting any feedback on this or some prior slide student questions here specifically about investment and the difference between investments strategic partners time capsule as is asking what is the difference between a strategic partner and an investor? And is there a way to research the background of an investor before signing any kind of contract with them now we touched on that earlier on these air to really terrific questions okay with angel investors, you can google them checked and see if they have linked in pages vcs you khun dive deep one of the things you can obviously do is talk tio pryor, other companies and other founders who have gotten funds from those investors that's easy if you come across a new investor who is sec violations is on the bad boy list, as it's called with the sec don't take that investor, but in general I think especially regional investors and angels, you can find out what their m o is are they fair? Are they valuable? Certainly funds that have been in business for ten, fifteen, twenty years says a lot about what they dio they have a track record of building little investments into big investments, but ask questions. Um, what might worry may maybe involving a vc investor who's about to retire it's not likely that that person will be the lead investor, but those were some of the due diligence things I'd want to know about. Um, the deal terms that's coming up in the upcoming segment will tell you a lot about who you're dealing with, but overall, my go to point for researching investor is if it's not available online asked the investor what other companies have the invested in and usually the investors really proud to talk about. Now I know that you are hitting week appoints of pain the end the angel investor has probably written a lot of checks that they would love to have back don't expect all deals to be winning deals if a company has gone out of business, I guarantee, especially if it's still a raw thing that the entrepreneur will say those investors didn't write multiple checks when I need money they didn't write more so they will trash the investors all investors really promised to d'oh is right this first check some vcs will say and market that we have very deep pockets to come in and invest multiple times my m o for all entrepreneurs is don't count on them shop even if you have an existing investor in your pool today, why become dependent on them? Something could happen where that fun is all out of cash or commits it elsewhere so you as the master mixologist are always responsible for bringing in cash don't fall into a false sense of security it may be that they come in with more and more cash more more rounds but don't count on keep shopping keep shopping sorry forget the other aspect of that question uh I've got questions sorry I was checking out investors and something else yes of the defense team sorry between a strategic partner and an investor okay fine point a strategic partner can be also a strategic investor a strategic partner does not necessarily have to invest cash a strategic partner may contribute to you or a relationship where you have access to their own distribution were some other operating partnership a strategic investor could also do both contribute access to assets or customers plus invest cash that's the fine point difference strategic, though, means there is a close collaborative association a shared purpose that is not a conflict where you both get to achieve and get to a better, bigger place by working together. If it's a strategic investor, they're bringing cash as well. Quick question. I know that based on who we have here in the studio, we have a lot of solo entrepreneurs we have a lot of these people in the chat rooms as well. So this question comes from cashes clay and now they say what percent of time on average should a ceo be spending on bc an angel fundraising? Because I know a lot of people are wearing different hats they're doing a lot for their business. How much time should they be spending? Looking into this? Whatever amount of time brings in the cash companies go out of cash out of business when they run out of cash, so unless you have the cash in place to build or expand or keep your company's doors open on your person when you have the cash to expand that opens up ah whole new world of opportunities without it where you're going, you may continue to struggle with cash, you get to hire more people with cash, you get to finish the product with cash, you get to pursue more more customer relationships without cash your life is miserable. Cash makes it easier cash alone will not lead you to success because obviously haven't we talked about a lot of companies that got the cash and didn't get anywhere so it's not going to lead you to the promised line but it's going to advance you to that point? You can't stay in business without cash, so if you can't get it from lenders or you're operating cash flow is not yet there one hundred percent of your time and when she start making progress of those investors, then maybe you can dial it back, but I'd rather get it over rip the band aid get the dollars in make your life easier it's really quite quickly quest susan, I do have one last question l s is saying they've encountered some angel clubs where they've been asked to pay to play. In other words, just to be considered their pitched youths recommend staying away from those of those not the kind of angel clubs people should be looking out. There are a couple of angel clubs where they ask for you to write a check for a thousand or two thousand dollars for access to their peeps I say don't do it, don't do it most angel investment clubs may have, for example, an application fee fifty dollars one hundred dollars that's reasonable because most of these angel clubs or nonprofits something has to keep the website going but the higher the amount, I'd say no, not a good investment of your cash.