Chip Hazard Interview: Pitching your strategy

Chip Hazard has been in venture capital for over 15 years and has an impressive track record of success. He’s currently a general partner at Flybridge Capital Partners, a leading early-stage venture capital firm. He currently sits on the board of eight information technology companies. Previously, Chip served as general partner at Greylock Partners and was a consultant at Bain and Company. Chip is a graduate of Stanford University and The Harvard Business School—where we met—and where he graduated at the top of his class as a Baker Scholar and a Ford Scholar. You can read Chip’s blog at www.hazardlights.net.

UpStart: “What advice do you have for entrepreneurs pitching their strategy?”
Chip Hazard: “As an early-stage venture capital investor, I regularly meet with entrepreneurs that are just getting their businesses off the ground. During these meetings I am often struck by how much trouble the founders have articulating their strategies in a clear, concise, compelling way. I encourage entrepreneurs to focus on delivering a simple vision of what they are trying to do and why it is important, what markets are being targeted and how broad these markets are, and how the idea, customer value proposition and market translate into a compelling business opportunity. It is important to avoid in this introduction the deep technical details of how the product or service works, but rather focus on the connection between a large unmet need and your unique solution. The MadLibs exercise outlined in this chapter is a great tool to drive this exercise, resulting in a simple, short, clear message.”

UpStart:  “Please provide an example of a great strategy summary.”

Chip Hazard: “I always felt Skype did this well. Using your format, from the beginning their message was something like: For people who want to connect with friends and family around the world, Skype is a person-to-person Internet telephone service that is free, simple and easy to use.”

Bo Peabody interview: Business models

Bo Peabody is co-founder and Managing General Partner of Village Ventures, an early-stage venture capital firm. Previously, Bo founded / co-founded a string of startups, including: Tripod (one of the first social networks, later acquired by Lycos), Waterfront Media, VoodooVox, FullTurn Media, and UplayMe. He’s also an owner of Mezze, Inc, which consists of three award-winning restaurants. Bo wrote a book for entrepreneurs called Lucky or Smart? published by Random House. He is a graduate of Williams College.

UpStart:  What advice do you have for entrepreneurs pitching investors about their business models?

Bo Peabody:  “Entrepreneurs have the counterintuitive task of having to think big and act small. For any business that is going to attract venture investors, a big vision is important. But that’s the easy part. The much harder job is figuring out how to distill that vision into an actionable plan that has clear, incremental levels of success. Entrepreneurship is like a video game…you need to know what the levels are and then reach each one before going on to the next.”

UpStart:  Are there particular business models that you prefer to invest in?

Bo Peabody: “At Village Ventures, we prefer to invest in business models that are tackling mature markets. We’d rather bet on our ability to back the right team that can knock off existing competition than bet on our ability to see around corners. For instance, this is why we invest in vertical publishers in the interactive media space, rather than social media companies.

How to create and use a one-page synopsis

Once you find a contact  (e.g. a potential investor) who has heard your elevator pitch and expressed interest in learning more about your new business, it’s time to introduce the one-pager. The one-pager is a brief synopsis of your business plan, used for a very specific purpose:  To get someone to meet with you, so you can present to them in-person.

And yes, it really does need to be on just ONE PAGE!! That’s the whole point. Don’t try to jam everything from your business plan into this document. It’s not supposed to be comprehensive. Instead, think of it as a teaser—a sales document used to whet the appetite of your audience and leave them wanting more. Write in short, simple sentences. Make sure it’s easy to read and understand. Use headlines, so readers can scan it in seconds. Take out any unnecessary words, or empty descriptors (e.g. “the leading…”, “the best”…. “amazing…”). Here’s what to include:

1.) Team. Name the founders and their titles and primary roles. List just the experiences they’ve had that say to the reader “this person is a great fit for this role, at this startup, given where they are right now”. If you’ve got room, and impressive advisory board members, list them and the primary roles they’ll play. Here’s an example:

TEAM

XYZ’s founders are JOHN DOE (CEO, “mr outside”, sales and marketing) and JANE DO (COO, “mrs inside”, product development and operations). They developed XYZ in after working together at ABC startup, where John served as President and VP Marketing, and Jane as VP Operations. Together they helped launch ABC and grew it to $10 million in revenue within five years. Previously, John ran marketing at BlahBlah. He’s a graduate of IO University. Jane’s previously founded DIY Software. She has an MBA and a BA from AAA University. Advisory board members include Mary Smith (sales) and Sam Jones (design).

2.) Opportunity. First explain the context – including the market size, growth, and critical trends. Then describe the customers you’ll serve, and their needs. Finally explain why the needs of those customers are not being satisfied today. Here’s an example:

OPPORTUNITY

There are over X00,000 self-published authors in the US and the UK, and their numbers are growing at over Y% per year. Services such as Lulu and CreateSpace make it easier for authors to self-publish, but only allow them to generate Z% margins. By working with LightningSource, self-published authors can generate margins three times higher. However, the process of shepherding a book through the LightningSource requires technical skills most authors lack.

3.) Elevator pitch. Explain how you intend to give customers what they need, and how you’ll make money.

XYZ Corp

XYZ sells online tools that let authors self-publish via LightningSource quickly and easily.  XYZ runs a blog and newsletter with self-publishing advice, and generates revenue by selling online software packages that range from $150 to $500.

4.) Progress. Explain what you’ve done to date. Focus on the metrics that investors care about, not the pain you’ve endured. Spent a year and half your savings on this project? That’s your problem, not theirs. Instead, tell them you built your team, designed your prototype, and have paying customers. Quantify your results wherever possible. Here’s an example:

PROGRESS

XYX launched in January of 201X. Within 9 months, we attracted 15,000 free subscribers. In July of 201x, we conducted a test of our paid services. We got a 4.5% response rate, which exceeded our expectations.

5.) The ask. Describe what you are looking for now, why, and how to proceed. For example:

FUNDING

XYX is seeking $350,000 to fund the next 12 months of operations. During that time, we’ll test and roll out our marketing campaigns, and reach a revenue run-rate of at least $50,000 per month. At that point we plan to raise our next and final round of $3-5 million. To learn more, please contact John  Doe at john@xyzcorp.com or 222-333-4444.

When you are finished, save the one-pager as a PDF. That way, when you send it via email your recipients will see it the way you created it, no matter what kind of software they are using.

5 business plan pitch tips that may surprise you

When it comes to pitching business plans to potential investors, a lot of so-called conventional wisdom is simply dead wrong. Here are a few pitch pointers you might find counterintuitive, but you’ll definitely find helpful:

1.) Aim low. If you make outlandish claims, such as touting yourself as the next Google, investors will be more inclined to poke holes in your arguments. And trust me, they will find holes. Instead, sell just hard enough to get investors to nod their heads and think “yes, that seems reasonable.” Be confident, but not cocky.

2.) Be picky. Getting in front of the right investors is at least half the battle. That means people who invest the amount you are asking for, in the industry you’re in, and they invest in companies at your stage of development. Do your homework, and make sure there’s a fit, to avoid wasting everybody’s time.

3.) Less is more. Emphasize one or two points on each slide. No more. These are your friends: White space, photos and charts that make complex ideas simple, bullet points with less than ten words. These are your enemies: Small fonts, confusing graphics, too many words, your company logo repeated 15 times, and consultant speak (e.g. “leverage”, “value-added” and “synergy”). Pitch the headlines, with about 15 slides, in less than 20 minutes. If investors want more detail, they’ll ask for it.

4.) Your deck shouldn’t make sense without you. A good pitch deck is an outline. It reminds you what to say at each step of your presentation, but doesn’t compete with the words you speak. In a great pitch, your eyes should connect with the eyes of your audience about 90% of the time. If all eyes are glued to the slides, you are probably not generating much excitement.

5.) Let investors help you pitch. Great sales people get customers talking, thinking, and wanting more.  The same is true for pitching to investors. Encourage investors to discuss their perspectives and their experiences with related businesses. You’ll learn more, and raise more.

5 reasons to use a FrieNDA with potential investors

When you first approach a potential investor, don’t insist they sign an NDA. Save that for later, when you divulge the intricate details of your plan, and for people you pay, like freelancers, employees and consultants.

Instead, try a “frieNDA”—get introduced to investors through people you know and trust. Ask the investors to keep any particularly sensitive information between you, and let your mutual friends serve as a way to enforce confidentiality. Here’s why:

1.)   When you first begin to woo a potential investor, it’s a bit like flirting with a new love interest. You wouldn’t want to start by asking him/her to agree that they want to have 2 kids and a golden retriever on your first date. It’s a bit presumptuous.

2.)   Some investors will view your request to have them sign an NDA as a sign of naiveté. Venture capitalists, for example, typically refuse to sign NDAs early in the pitch process as a policy.

3.)   Startup success is about 95% execution, and 5% idea. Especially since most startups change their strategies as they go. If all you have is the idea and not the ability to execute, you have bigger problems than NDAs.

4.)   Chances are, someone is already doing what you are envisioning. If not, be sure to ask yourself why not. There may be a good reason.

5.)   Are you really prepared to file a lawsuit? If you think a prospective investor violated an NDA, it’s typically difficult, expensive, and time-consuming to prove it legally.

Got a different point of view? Have you ever seen a founder sue an investor? Please share your war stories.

Different business plan strokes for different startup folks

Some startups don’t need business plan presentations. This includes companies that won’t grow beyond one person and won’t ever raise capital. If you fall into this group, do the thinking behind a plan—but keep your output very basic. A few bullet points about each of the topics in a plan should suffice. Forget the fancy graphics and charts.

If you have more than one founder, want to get feedback on your plan, or intend to raise capital, you’ll need a presentation. Still, demands will vary.

Many startups raise capital from friends and family. These investors tend to be fairly easygoing. Chances are good that your wealthy Uncle is investing in your business because he loves you, wants to help you succeed, and thinks you are the greatest nephew this side of the Mississippi. He’s not going to grill you. Still, the more you explain to him, the more informed he’ll be—which means he’ll be able to do more to help you (e.g. make appropriate introductions)—and the better he’ll understand the challenges and risks you’ll face using his money.

Other startups raise capital from angel investors—people who invest their own money on an amateur basis. Angels that invest in many startups or that are part of angel groups or “networks” tend to see many business plans and have high standards. If you are pitching to angels, you’ll need to have a great presentation.

Finally, some startups raise money from VCs. If you are pitching to VCs, you’ll need a comprehensive, investor-grade business plan backed up with detailed research and analysis.

5 Business Plan Pitch No-Nos….

Like those of you who are angel investors or venture capitalists, I hear business plan pitches just about every day. I’ve been keeping a mental record of the most common mistakes I see. Here are a few “no-no’s” to avoid:

1) Don’t jump on the latest fad. I’ve seen entrepreneurs try to explain that they don’t have to worry about competition because they will create a “Blue Ocean” or “Purple Cow.” Eye-rolls nearly always ensue.

2) Don’t be afraid of white space. A slide with one photo can be far more persuasive than a slide with seven bullet points. Resist the urge to cram every supporting fact into your deck. Prioritize and keep it simple and clean.

3) Don’t try to show how much business lingo you know or explain ideas in complex ways. If your mom wouldn’t understand what you are saying, simplify it until she would.

4) Don’t forget you are planning a business, not just a product. If you spend 20 minutes on your entire presentation, don’t spend more than three or four minutes on the product or service offering.

5) Don’t send your plan out ahead of time or expect it to make sense without you there to explain it. A presentation is for presenting. A one-pager is for reading. A hybrid is for the garbage can.

4 things to consider before you ride on the wings of angels

Before you seek financing from angel investors or angel networks, make sure the fit is right. If you or one of your co-founders has built a business before, sold it, and made profits for your investors, you can probably break the rules. Otherwise, take note of the following guidelines:

1.) What stage are you at? In general, your chances of raising angel funding are much greater if you’ve already got a product developed. It doesn’t have to be full-blown, but the most critical features should be operational. Get that product created any way you can – with financing from your savings, your credit cards, or from friends and family, by giving away equity to partners, by bartering for services – whatever it takes. Just have it up and running.

2.) What’s the money for? As per the paragraph above, many angels are reluctant to spend money to help you build your site. They’d rather see you put their money towards proving customers want your product. Use angel money to find out what percentage of people who see your product use it, pay for it, stick with it, and tell friends about it. Have quantifiable targets in mind, and measure your results.

3.) How much do you need?  An angel round is typically between $100,000 and $750,000, and individual angels tend to write checks for $25,000 to $100,000 each. Looking for less? Go back to friends, family, savings, etc. Looking for more? Either find a way to make do with less, or take a shot at raising venture capital.

4.) What’s your exit strategy? Your rich Uncle may invest because he loves you, but angels have other goals in mind. Yes, many angels get off on helping to create new business, but for the most part they are economic animals. They want a return on their investments. How and when will you turn their $25,000 into a much bigger amount of cash? You can’t know for sure, but have a reasonable hypothesis in mind before you pitch.

Sequoia Capital’s business plan advice

Sequoia Capital is the venture capital firm that backed Google, Yahoo, YouTube, eHarmony, LinkedIn, and PayPal, among many other winners. Here’s some of their advice about business plans. As you’ll see, the format and content they recommend is very similar to what I’ve suggested in previous posts. For example, forget the 30+ page word document, and stick to a short slide presentation that’s simple, clear and concise (easy on the text!). The content elements they recommend are also in-line with what I’ve suggested, though in a slightly different order. They don’t put the team up front, for example. One reason for that is the people who land a meeting with Sequoia tend to be well-connected entrepreneurs with proven track records, so they are already “known” to a large extent. I like their section called “Why Now”. I may borrow that one…

We like business plans that present a lot of information in as few words as possible. The following business plan format, within 15-20 slides, is all that’s needed:

Company Purpose

• Define the company/business in a single declarative sentence.

Problem

• Describe the pain of the customer (or the customer’s customer).
• Outline how the customer addresses the issue today.

Solution

• Demonstrate your company’s value proposition to make the customer’s life better.
• Show where your product physically sits.
• Provide use cases.

Why Now

• Set-up the historical evolution of your category.
• Define recent trends that make your solution possible.

Market Size

• Identify/profile the customer you cater to.
• Calculate the TAM (top down), SAM (bottoms up) and SOM.

Competition

• List competitors
• List competitive advantages

Product

• Product line-up (form factor, functionality, features, architecture, intellectual property).
• Development roadmap.

Business Model

• Revenue model
• Pricing
• Average account size and/or lifetime value
• Sales & distribution model
• Customer/pipeline list

Team

• Founders & Management
• Board of Directors/Board of Advisors

Financials

• P&L
• Balance sheet
• Cash flow
• Cap table
• The deal