Being on either the pitching or receiving end of over 200 venture capital presentations has left me examples of a long list of things that do not work. Unfortunately however, rarely do I get asked what does not work, more frequently I get asked what works.
And precisely, I get asked, what works in supporting valuations. Thank you to all those who have pitched me, or listened to me pitch enabling the 10 items below.
- Have a killer brand and image before you pitch -- investors know that commerce happens because of influence, influence is the currency of customers making a decision to buy. A good brand and a killer visual identity help investors "see the cognitive leap" customers will take to drive sales. I learned this from Chris Walsh in 2001.
- Do not overstate your total addressable market (TAM) -- overstating TAM is the easiest way to say to an investor, "I barely know anything about how businesses work, and will not spend your capital wisely." Pick a TAM that you can nail, and show an evolution to an increasing TAM, this way your valuation is solid and difficult to negotiate down, instead of inflated and a target for negotiation.
- Have a well-documented sales process in your pitch -- most investors ran businesses before and know that no matter what you build customers will not come rushing to your doors. You must demonstrate a well thought out sales process, one that shows you already understand customer's objections, resistance to your value proposition, and a commitment to making customers satisfied.
- Know where you are on the hype cycles -- nothing says to an investor "invest in me the founder" like a founder demonstrating deep and immersive understanding of their invention on the Gartner Hype Cycle, and an appreciation for how adoption of their invention will perform under the lenses of the theory of diffusion of innovation.
- Show that you prioritize with a focus -- while cash is king, focus is queen (thank you for teaching me this). Investors want to know that you will prioritize a client meeting over an investor meeting, or you will prioritize a partner/reseller meeting over a press opportunity. Don't chase the shiny objects, show focus and investors will believe in your value.
- Leave the CEO role open -- investors value companies that will grow to be successful over companies that have great ideas but may never get out of the gates. When an investor sees the CEO role open and vacant, they know that the founders will be willing to bring in talent to "grow the business" and hence they respect the valuation. If the CEO seat is filled, investors see a "battle ahead" of replacing the CEO, which says "RISK" and the default reaction is to negotiate the value of the company down to reflect the risk of the "battle ahead". This lesson came from Atul Chowdhry recently.
- Have a list of "BTDT" advisers -- I learned the phrase BTDT from the Irish Angels, a VC group in South Bend Indiana associated with Notre Dame in 2002. Been There, Done That; investors want to see advisers that have built successful companies before on your advisory board. Pick them wisely.
- Get more than press relations -- Companies succeed because influential people want them to. Show investors that influencers and analysts (this is your influencer relations and analyst relations) believe in our concept enough to write about it, and hence you have "IR and AR" credibility. PR, is not the same as IR and AR.
- Plan for pivots -- the best businesses in the word learn to pivot as a part of the plan. Investors want to invest in companies that will "pivot into the opportunity" instead of staying the course on ego. You pitch should show to investors that you have thought through alternative pivots, and... you are willing to spend their money wisely on opportunistic pivots over staying the course of your ego. This lesson came from Ray Wang, one of the best in advising pivots.
- React like a pro -- the last thing that helps your valuation is the way you react when an investor says "I think your valuation is too high." Don't defend your valuation, and for heaven's sake don't ask them why they think so; just keep a poker face and wait in silence. You will know the numbers better than any investor being pitched, let them voluntarily go down the dangerous road of trying to poke holes into your valuation. You have the upper hand in this debate because if your immersion in the numbers; don't give that away by speaking first.
Go raise money, and don't sabotage your valuation by not thinking through the 10 items above.
-- Richie