Wade Appelman — Blog and Website

I’ve been involved with raising money for 5 different start-ups and without going back thru every business card I guess I’ve pitched about 75+ different firms and likely a lot more.  If I include the websites I’ve visited and research I did on firms I did not contact I’ve likely looked at or discussed >300 firms.  Depending on your perspective that’s either a lot or not very many!  For everyone of these raises I found that it took considerable effort to distill 100’s of data points, references, market trends, etc into the 15 or so that got the points across crisply and showed the compelling value of the idea/company.

Currently I’m helping three different teams raise money each in a unique market (Cloud Storage, Robotics, and Alt Energy) but all with the same challenges.  What I find amazing (and I guess refreshing for someone like me) is how similar the needs are between each company seeking to raise the funds and how with a really open team you can quickly see the problem in telling the story and embark on fixing it.  Honestly you do not have to be a domain expert you just have to listen well and apply common lessons from past experiences and the answers/ideas start to flow.

To understand what I’m talking about first lets look at VC traits as to craft a story you have to know your audience.  As a general rule VC’s are:

• Outgoing, personable, generally willing to listen, Type A … BUT
• Short attention span … if you don’t figure out and diffuse their major objection is likely to be within opening minutes your toast (more on that later)
• Feedback is weak and not often helpful as they don’t want to appear rude (“that idea just sucks”), want to preserve relationship, can’t share partner/firm dynamics and lastly don’t want to deal with time consuming counter arguments
• They often DO know more about the markets than they let on AND the competition you are going to face in coming years — but you have to listen carefully for signals in their questions to gain from that insight.
• Lastly they look at on average a deal or two a day at some level … they only do a few a year so pretty easy to say no to you if any hair raises on their neck!

So with all that against raising money and communicating your idea here are a few of the simple steps I follow when embarking on the process:

1. Develop a crisp story and refine constantly
2. Create a targeted and phased VC approach list and track progress/follow-up crisply
3. Have your customer & market references ready to go for 2nd level questions/diligence in various forms to meet different styles
4. Bring the right pitch team to meetings
5. Follow-up for feedback appropriately and with expectations in right place
6. Never lie and ALWAYS admit problems, concerns, communicate openly
7. Once they say no … it over.  REALLY
8. Don’t get discouraged

Lets quickly jump into each of the above area so I can explain further what I’m talking about because this list is pretty obvious — but here is the point … I’m amazed by how few people really do it!

STORY DEVELOPMENT:

There are great posts on what should be in a Exec Summary or VC pitch – HERE & HERE so I’m not going to cover that part.  What I’m going to comment on is the mechanics and mistakes I’ve seen.  First figure out what the likely objection is and bring it to the front on the deck.  For example if you think that VC’s may not know a lot about your end market or growth prospects get that on the table before you explain the solution.  If concerns are competitive in nature bring the competition slide right up front and say why you are different before you show product ideas.

What this does is kills the tendency we all have to listen to a pitch and decide why the idea won’t work. By eliminating the common objectives first people sit back and listen in a more appropriate frame of mind. I’ve even gotten up and verbally said “here are the three things you are likely concerned about X,Y, Z because we have heard this from others. Well in this presentation we are going to tell you why these concerns are unfounded and how we  have the ability to kick Big Guy Named Competitor, do have a unique go to market approach, and have the following four customers behind our idea and will leave you with an MP3 of their testimonials on the way out”.

Another tendency I’ve seen is to try and do too much in the first meeting and put too much information out.  My favorite technique to resolve which my CEO at Sitera taught me is to lay out all the slides on the conference room table and look at it from above.  You can really then see redundant information, which slides are too wordy and can go to pictures, and re-order your points in rapid fashion.

Last point on story development is time allocation.  It will take you 6-8 weeks before you are really ready to go and plan too to regularly schedule time once active to modify your existing approach and story.  Yes, that sounds like a lot of time and you can have draft decks for “friends of the company” before that period but remember it takes time to get crisp data and good at telling the story.  Don’t rush it and constantly rethink, change, dump slides/ideas you worked days on and question “will they get it”.  Remember you get one hour max on first meeting and they are not being dumb in not getting it (yes, I had someone say that to me once) it is your story they can’t get!

TARGET & TRACK:

Putting together a real approach strategy is critical.  It’s just like a sales pipeline you have to know who to target, understand the funnel, track responses and actions, and know when it is appropriate to ask for the order.

I like to break my approach list into these categories and approach the meetings as follows:

• “Friend of Mine/Company” — Tell them upfront you are pitching them first and only looking for feedback and issues.  Don’t expect investment.  You know partner very well and they know it is practice.  Pick 2-3 guys to talk to.  Keep it casual.
• “Initial Targets” — Local to your company, mid-size firms, domain knowledge with history of investing in your space and stage.  Pick 4-6 guys to target and then refine pitch.  This is not Madison Square Garden — but these guys are real so do it right. Odds are 1 may stay active .. but that’s OK its a big ocean.
• “A List” — OK now you are ready.  Hit the big guys.  The ones who are very active.  Pull out all the stops to get meetings.  I’d still stick with an approach list of about 10 and realize that will take about 30 days to really hit and schedule. So reality you will have two waves to refine your pitch.

OK … now the dilemma.  If you do it right life is good.  No further early pitches as you have enough action to feel like you are going deeper into DD with at least three firms.  However, life is never that good.  What to do next?

I always keep my list of “B’s” and “C’s”.  If my my meeting pipeline is looking bare I go to the next group on the list. I may also start thinking about strategic partnerships.  I’ve also refined my story a lot during this period and my deck from the “friend of mine” stage looks very different to what I’m pitching today.  I like it better!

DUE DILIGENCE MATERIALS:

This one is obvious but there are a few ideas I’ve used that work well. Here is a good post from Flybridge Partners on the DD process

First customer references.  You will need them and it is a big favor to get someone to go on the record with a VC.  It is also a little scary if you are not there to know how it is going to go. One trick I like is to record the customer interview session and then provide as an MP3 file to the VC.  Its actually quite easy to record (use a teleconference service and record feature) and then have a third party “interview” the customer as if they are a VC asking questions.  Of course you tell the person you are recording and can even tell them you will only send with permission.  Best part is you can ask questions that go to competition, why they picked you, etc and weave a great story.

Another good idea is to create an on-line extranet of all your DD documents.  This way you can simply give access to the room and even get records of what/when items were looked at.  Makes your company look professional too.

BRING THE RIGHT TEAM:

You need to bring at least two people to every VC meeting and maybe three.  Not only does it allow you to showcase your depth it allows for a better post mortum review and honest critique of the meeting.  There are however, things to avoid.  Many obvious but I’ve seen these happen … really. In early stage deals team dynamics are almost more important than the technical feasibility.  If VC’s sense any concern what so ever they will go with there gut and pass right away.  Here are some good rules to follow:

• Agree ahead of time who presents what and how much time to spend on topics.  Know who is QB.  They set the tone, pace, everything.  Follow their lead if they call an audible (i.e. VC walks in and doesn’t want to use the flow you have).
• Don’t correct/argue (even a little) the person talking on your team.  If a minor mistake let it slip or correct appropriately later but NEVER in challenging factor.
• Let everyone talk.  If you bring them to the meeting at least have them perform a task or address an area of expertise. Show em/ off.
• Presenter does not have to be CEO.  Sometimes VP of sales or marketing is simply better.  Have CEO do intro, financials, and leave “details” to others.
• Body language is important.  Yes — I’ve heard of people falling asleep on pitch team and looking at BB’s … NEVER, NEVER, NEVER!

FOLLOW-UP:

Some VC’s will caucus after your meeting and only give feedback on call after first meeting.  Don’t be surprised.  It is important to follow-up with an email after the meeting and get any questions/actions documented or out of the way.  If you don’t get feedback live in 48 hours by them reaching out … call and leave a message.  Wait … and call again 48 hours later.  Don’t be a pain but push for resolution.  By the way — if they are really in love they will start chasing you.

BE HONEST:

This goes really into story creation, DD preparation, and follow-up sections.  It is also obvious.  Look every business has a problem, every person has a failure, every plan has a weakness.  Admit it!  You might avoid an issue in meeting 1, 2, or 3 — but before they write that 7 figure check they will find it out.

My favorite story on this is from my Cabletron days.  The founders on Cabletron (which became a NYSE traded $1.6B annual rev company) could not raise VC money and the founders flunked a personality profile test they were subjected to per tales they told.  Didn’t stop em — they became members of Forbes richest by mid-90’s.

ONCE THEY SAY NO — MOVE ON:

I’ve never seen a VC revisit a “no” answer.  Even if one partner passes others will VERY RARELY look at the deal.  Many dynamics cause this — but if your are turned down don’t hold out hope of a re-connect.  Sure you can go back to friends in a firm and run stories and ideas by them but take them off the list and call’em what they are … PASSED!

DON’T GIVE UP:

The question is often asked … when should I go and get a real job, get the internal round, or close the company.  I’ve been involved with all of these thoughts personally.  I’ve had to close two companies when Series B or C could not be raised for various reasons and also had success when I thought the company was toast.  My favorite example is Sitera where we were really down to weeks in the bank and looking for a new lead.  Long story short — we got the lead and <12 months later sold the company for more and 25x return on capital!

Would welcome your thoughts on the Do’s and Don’t and experiences on raising money from the entreprenrual side!