Anand Rajaram of Pixily recently posted a piece on approaching industry competitions/award programs if you are a startup. I thought that you may find it interesting.
While nothing says success like an increasing customer count, sometimes a startup can appear bigger, more established and get great free marketing from success in a prestigious industry award. The right award or two can help get a customer over the “should I trust this startup” hump!
Healy Jones | 
Entrepreneur tips, Recruiting strategies, Selling strategies, V Said | 
07 24th, 2009| 
1 Comment »Should startup founders spend time creating a crisp elevator pitch? Yes! Let me explain what got me thinking about this…
I recently received an email from a student in Texas who is thinking of starting a business. He stated, “I’m 23, I have my eyes on an idea with IP that’s protected, I’m piecing together a business model, and I’m doing all in my power to make this happen. The problem is that I’m so young I don’t have many industry contacts and, even though I’ve yet to try, I think it would be difficult to get a VC to sit down in the room with me and listen to my proposal because I’m so young. I think because of my youth they may not take me seriously even though the idea is solid, potentially very profitable, and has IP security. ”
My advice to him was that if his idea was good, and if he could articulate it well, then he could make smart people interested in helping him. First he should get together a smart elevator pitch and then approach potential advisers who could help him evaluate his idea’s probability of success, firm up the business plan and then introduce him to capital sources and team members. I really think a crisp elevator pitch will be critical in getting experienced people to lend him a hand. (I guess I just articulated it better here that I did in my emails to him! Sorry Steve!)
But I think that an elevator pitch has an importance greater than just impressing investors. If you are a startup, no one has ever heard of you. No one knows what you are doing. No one knows how or why they should lend you a hand or buy your product or make an introduction to someone who could join your team. You need to be able to let people know what you are up to quickly, and interest them enough to get them thinking about how they can help you build your business.
Here is my take on how to get a good elevator pitch put together:
I don’t think your elevator pitch should be more than 30 to 45 seconds long. (And you probably don’t want to talk at light speed, unless you are pitching a speed speaking product – lame joke.) If the listener is interested then they will ask you questions and you can elaborate on the points that interest them.
I’m not convinced that my formula for a good elevator pitch is perfect, nor is it the only way to create an effective pitch. I’d love to hear other people’s ideas on elevator pitches that have worked for them.
Having spent some time over at TechStars, it is pretty clear that the TechStars founders take the elevator pitch very seriously. The teams are forced to play with their elevator pitch over and over – practice, modify, get feedback on and practice. These pitches are not focused for particular audiences – rather they are generic pitches that would be interesting to customers, investors and people who might want to pitch in with their time or introductions. My experience at TechStars has really re-inforced the impression that an articulate elevator pitch is very important for pretty much any entrepreneur. After all, you never know when you’ll bump into the person who will somehow help your startup take over the world!
I attended last week’s Web Innovators’ Group meeting, and I have to admit, I was a little disappointed vs. the previous Webinnos I’ve been to. I’m not going to pass judgement on any of the companies, because I think they were of the similar caliber to many that have presented before. Rather I was pretty let down by the quality of a couple of the actual presentations. I just didn’t think a couple of the companies put much effort into preparing to speak to such a large group.
I understand that the purpose of the forum is to allow up and coming web startups to get exposure to the wider New England web community, and believe that David Beisel of Venrock has done an amazing job creating a such a strong networking group. However, I wonder if the community would benefit from an established local internet company making a presentation every now and them. I, for one, would love to hear a talk by an executive from a company like RueLaLa or Logmein. Before anyone starts attacking me for going against the spirit of Webinno, let me explain a bit:
To summarize – Webinno is awesome, and I only want it to get better. It should be more than just networking, although, as Scott Kirsner points out, it does have some pretty good networking. I’d love to see an established company or two present occasionally; I think the group would enjoy it and the region’s entire startup community would learn a lot. See you at the next Webinno, if not sooner.
Properly supporting and working with the CEO is the most important action a venture capitalist can take after funding a startup. When I was a VC, I was very impressed with how often the partners I worked with would communicate and brainstorm with their portfolio companies’ CEOs. Part of the VC’s responsibility, and the board of directors’ responsibility, is to perform annual reviews of the CEO’s performance.
The CEO position of a startup is pretty lonely sometimes. Just because a CEO is in charge of a business doesn’t mean that his/her professional development is over – but getting the right feedback and guidance that can help the executive grow professionally can be challenging. Getting effective feedback from employees can be hard, since it is not always easy for them to speak “negatively” about their boss to their boss. And of course, your employees and co-founders are probably pretty busy trying to grow the company. Interactions with the board can be enlightening, but usually focus around discussions of strategic imperatives and operational milestones, not the CEO’s professional development.
While it is certainly the CEO’s own responsibility to try to grow as a professional, it is up to the board to provide the critical feedback and development. Some of the partners I worked took their CEO’s growth very seriously and ran rigorous CEO evaluation processes from the board level. This is a huge amount of work. Sometimes my partner would run the process, other times another VC on the board would, and sometimes it would be the independent director. This is not the same as the “hit this revenue number and these operating metrics and your bonus with be $XYZ” that is put together by the compensation committee. This is really a process intended to help the CEO become a better leader and manager.
I only got to see this a couple of times; I wasn’t a VC long enough to run through this cycle more than that. I’m sure that I am missing some of the important nuances (heck, maybe even some of the important macro-themes) of a CEO evaluation. However, from what I could tell this is what happened:
The CEO was informed by the board that one of the directors would be running a review process. That director would inform the CEO what the expected timing of the evaluation would be. The end product of this review would be a discussion with the CEO as to his/her performance for the previous year against the company’s stated goals and the CEO’s developmental goals from the previous year, critical feedback and the setting of additional goals/areas to for improvement for the following year. That director would also have a private conversation with the board alerting them as to his/her findings in this review.
To prepare for the review evaluation forms were distributed to each member of the board of directors (I’ve put an example of this form below – I’ve embedded it with Pixily’s document sharing/embedding feature). The director in charge of running the review would collect these forms and have conversations with the other members of the BOD as needed. The director would also do the same with critical members of the management team, such as the CTO, Sales VP, etc.
The evaluation focuses on:
I’ve put my own version of this CEO evaluation form into Pixily and embedded it below. This is not a perfect copy of what I’ve seen other VCs do – it is my own attempt to make a more clear, less overlapping review form. I’d love comments on it, as I’d like to leverage other people’s experiences to make up for my own lack of experience and then improve the evaluation form…
After collecting all of this feedback, the director would then create a master evaluation form that would be shared with the CEO during an evaluation. Read the rest of this entry »
Anyone else going to Webinnovators tomorrow? I’m looking forward to the presentations. Raj and the team from Localytics will be presenting in one of the side dishes. Localytics is a TechStars company that seems to be making some good traction with their product, a tool to help mobile app developers understand their customers’ usage of their mobile applications post-download/install.
I am a little late to the party, but earlier this week Dharmesh Shah posted on the “10 Things MBA Schools Won’t Teach You” if you are doing the startup thing. It was a great post and I agree with his points. I know I’m a bit new to the actually being an entrepreneur (ok, ok, pretending to be an entrepreneur), but I’ve thought about his ideas and came up with a few of my own. Keep in mind I can really only speak to my experience at Wharton; different MBA programs are probably pretty different and may teach these particular issues.
Sales – When I was a venture guy hanging around BOD’s, and now that I am trying to help Pixily with customer acquisition, it is quite clear to me that my MBA program lacked real “sales” education – yet this seems to be pretty much the most important part of taking a company from $0 revenue and product to $100 million and profitable. Selling is fricking hard. I thought selling money at Summit Partners was hard. Selling a product that has never been invented before from a company no one has ever heard of is really hard. You’d think that an MBA program would at least have some sort of a course on how large companies sell their product and:
Compensation structures – particularly for sales. There was certainly a class in one of our core courses around managing and incentivizing people, and I have to admit “Managing People at Work” taught by Peter Cappelli was one of my best courses (I actually dragged my wife to it a couple of times because it was so good.) However, compensation probably deserves its own course. Perhaps if I had been a management major I would have noticed the existence of a course on this topic… My experience as a VC was that a TON of time is spent setting up the correct compensation and incentive structure for the team and it doesn’t feel any less important from within an entrepreneurial venture.
Other major issues, not related directly to the course work, were:
Winner take all attitude – Too much emphasis on “being right” and not enough on admitting mistakes. Read the rest of this entry »
Venture capital firms with the most desirable addresses in the venture business – Sand Hill Road, Winter Street and the Big Apple – out perform VCs not located in venture capital centers. I’ve recently read a study produced by four researchers on venture capital as a local business that suggests that VCs located in the three US venture capital centers make better investments than VC firms based in non-venture capital hubs. (see my comments in italics at the bottom of this post for some discussion around the study’s methods.)
The study also suggests that venture capital funds actually seem to be more successful when they make investments outside of their home territory, despite the fact that VCs are notorious for preferring to invest close to home. The authors believe that because VCs are more hesitant to commit to an investment outside of their home turf then they raise the bar on these investments, thus becoming more successful when they make them. Additionally, it is possible that they face lower competition for deals in non-core venture markets. I can buy both of these arguments and would not be surprised if venture firms did better when investing in non-local startups.
The authors also reach another conclusion that I probably don’t agree with. They postulate that the superior returns delivered by VCs in SF, Boston and NYC are totally driven by their non-local investments out sided performance, “the out performance of venture capital firms based in the venture capital centers can be attributed to their out sized performance in investments made outside of the venture capital firms‟ office locations.” That is pretty hard to swallow. I’m pretty sure that many of the best venture capital investors make a ton of their returns from successful investments in their home regions. Local investments such as Sequoia investing in Google or CRV’s investments in EqualLogic probably drive more of their “success” than the sum of their other, non-local, investments.
One other interesting point drawn by the researchers is that the presence of a local co-investor does not raise the likelihood of success when a VC based in one of the venture centers invests in a non-venture hub startup. Many times, when a VC makes an investment in an area not close to home, they try to syndicate with a local venture firm. The theory is that this local firm can better help manage the investment, recruit talent local to the startup, coach management, etc. If I am reading the study correctly, these local firms don’t help the venture center VC. I guess this means that VCs based in one of the 3 hubs are just better investors than shops located in other areas?
But enough about venture capitalists. The more important fact to be drawn from this study is that it is easier for a startup to get funding if it is located in on of the three venture hubs. 49% of all VC investments were made in one of these three areas. If you are not based in a technology center and a venture firm appears to be interested, but asks, “where do you see putting the company’s headquarters,” or even more blatantly, “will you move the company to San Francisco after it receives funding,” you may seriously wish to consider indicating that you are open to moving the company. I understand that there may be reasons why this doesn’t make sense for your particular startup, but it will be much easier for you to get funded if you move.
Secondly, it appears from the study that VCs based in one of the 3 core venture regions are better investors than their less-optimally located brethren. This would suggest that startups not located in SF, Boston or NYC would be more likely to be successful if they take money from a VC located in one of these areas. This does fit in with some of what I observed during my time as a VC. We would often get referrals from funds not-located in one of those 3 markets looking for a syndicate partner for a particular investment. Many, many times these companies turned out to be “me-too” investments. By this I mean business plans that had already been beaten to death by Boston area VCs, but somehow still seemed like a good idea in a non-technology center. This is probably because the investors and entrepreneurs in those non-hub locations didn’t have the same level of access to deal flow as we did and so they didn’t realize that their idea’s time had come and gone. If investors in a hub area are saying that they’ve already seen your idea a dozen times then you should do a little more research into your startup’s competitive landscape.
A few things about the study:
This is a US focused study.
Success is defined as IPOs. This is a bit too narrow, but given the databases the researchers were using I understood why they did it. I don’t have enough data to decide if this makes the study meaningless. The vast majority of successful exits that I have seen have been exits through acquisition, not IPOs. However, I’ve only been an investor during a time when IPOs were not easy (since 2002, basically) so my viewpoint may be unfairly biases. The study looked back to 1975, I believe, so their view is much longer term than mine. They also can’t analyze differences in the level of success of an IPO – so Google’s IPO is as successful as an IPO for a company that later goes under. This is probably also a too great of a simplification, but I don’t know how they could do it differently given the databases they used. They also have tried to run the analyses again including the “merged of acquired” status in VentureXpert, but I do not believe that this part of the analysis is valid – in VentureXpert a failed company can be “acquired” by a larger player for peanuts. This happens often enough that I don’t think the M&A outcome in VentureXpert is a good measure of “success.”
Increasing the number of venture capital firms in a given CSA increases the number of new venture-backed companies. However, the SF Bay Area is 5x more productive in creating new venture-backed companies per venture firm than anywhere else. Also, regions with higher levels of “successful” investments spawn greater numbers of new venture-backed companies. This makes a lot of sense, given that entrepreneurs leave public companies and start businesses with their capital and knowledge, and that IPOs are inspirational to other entrepreneurs (and VCs) in a particular town.
The wrong investor can really traumatize a startup’s growth trajectory. Stupid questions, micro-managing/backs-seat driving, pig-headed insistence on the wrong strategy, forcing bad executives on the company, halitosis – it’s a pretty long list. If you are a startup founder about to take on venture capital financing you should want to know everything you can about your funding venture capitalist prior to accepting an investment. One of the most basic tests you want to conduct is to speak with some of the other founders who have worked with the VC. This isn’t that hard – most VCs will expect this question.
You’ll want to have an honest, founder-a-founder conversation. Your goal is to make sure that they venture capitalist is someone who you want intimately involved with your company for the next five+ years. Are they trustworthy, do they actively try to help the business, do they listen well, are they approachable and very importantly, are they NOT jerks.
Prasad has begun this phase of the fund raising process. I’m hoping he will have some insights to share on some of the conversations that he’s started to have. However, I think the basic questions that every founder should want to be able to ask other people who have taken the investor’s money are:
I am sure that other people have had successful conversations like this in the past and I’d love to hear what was asked and what was learned!
