I just flew back from Europe and boy are my arms tired [insert rimshot here]. Actually, I just flew back from Europe and boy are my eyes tired. I have this bad habit of accumulating magazines until I have a long plane flight then powering through 30 pounds worth of reading.
My typical airplane reading starts out with a zillion of those alumni magazines we all get. If you can wade your way past the inevitable articles on anthropology, sociology and pop psychology, you can often get a first glimpse into some really interesting scientific and technical innovation in these magazines. I'm tempted to go get a masters degree in anything from Carnegie Mellon just so I can get their alumni magazine.
But the magazine I probably spend my most time reading, en route to wherever, is Wired. It is such a great combination of entertainment, info-porn, and deep dives into things that really matter. This trip I had managed to accumulate 5 months worth of Wired's -- good thing I was flying to Europe, there's no way I would have gotten through them by Denver or Chicago. (The other great thing about reading your way through so many accumulated magazines is that it is a little bit like eating your provisions on a long hiking trip -- my load gets noticeably lighter with each magazine I've finished and discarded in the seat back pocket in front of me.) While I don't always act on it, I often times find myself reading something in Wired on which I want to blog. I'll rip out the pages and then forget about them or just never find the time to write. But not this time. This time I'm going to remedy that by writing this post on the plane flight back home. Right now (Jeesh, I'm three paragraphs into the post and I haven't really written about anything yet -- my apologies to those of you who are looking for pithy commentary on technology and the venture community -- I seem less and less capable of pithy these days).
How to score venture capital.
August's issue of Wired this year was the "How To" issue. How to stop a fight. How to crash a party. How to twitter an event you're not even at. . . . One of Wired's how to's was "How to score venture capital." Now there's a topic near and dear to my heart. So I read on with great anticipation and discovered that whoever wrote this did not, in fact, know how to score venture capital -- at least not from me. So here is Wired's advice with my commentary.
1. "HAVE AN IDEA. We'd say it has to be good, but many Web startups demonstrate otherwise."
Despite Wired's snark about Web startups, there is a reasonable point in here. It is true that you need to have an idea -- you've got to build something and, eventually, you even have to sell something. But "good" is in the eye of the beholder. I think you would be hard pressed to find a single startup that managed to get a term sheet from every VC they pitched. One VC's next Google is another's wasted hour. That doesn't mean one idea is good and the other is bad. It just means that venture capital is still more art than science. Trying to pick winners is what we do for a living and some of us are better at it than others.
2. "STICK WITH what you know. If you've spent the past few years building MySpace plug-ins, don't propose launching a chain of bowling alleys."
On the one hand, it is true that VCs love the idea of "domain expertise." On the other hand, it is silly to say that you need to stick to only what you know. What if there isn't a business to be built from MySpace Plug-Ins? Are you doomed to never create an interesting startup just because that's what you know? Look at Joshua Schacter. What did Joshua know before creating Delicious? He knew how to build huge scale, high performance, enterprise applications for the financial services sector. Does that mean the VCs were foolish to invest in Delicious? Should they have urged him to start an enterprise software company? VCs love passion and energy more than expertise. I probably wouldn't fund Joshua to create the next generation nuclear power plant. Then again, he's a really smart guy -- if he spent enough time getting himself familiar with the space and thinking differently about the problem, you never know.
3. "SPEND an inordinate amount of time crafting your business plan's executive summary. It's the first thing VCs read -- and the last if it's poorly written or long-winded."
The two things that I look at when first getting up to speed on a company are either an executive summary or a PowerPoint. So it is certainly the case that you would be well served by a concise and compelling executive summary. On the other hand, you may well want to stop there. A full blown business plan is rarely necessary to raise venture capital. VCs tend not to read business plans because a) they are too long and b) your business will likely have changed by the time anyone gets around to reading your business plan So focus on the things that matter -- understanding your competition, building great products, innovating on your business model, etc.
4. "SEARCH FOR VC firms that have recently funded startups similar to yours. Then hit those firms' Web sites, where they'll likely have instructions for submitting business plans. Don't worry -- the best do actually mine their slush pile."
If Wired's advice falls on a spectrum from "sort of right" to "way off the money," this one is deep in "way off the money" territory. It doesn't start off terribly wrong. You should definitely do a lot of research on the VCs that you will approach for funding. And the ones who have funded related businesses in the past are potentially good targets for your business as well. But not always. Imagine you are building a gaming startup. Some VCs who have invested in the gaming space may be signaling to you that they are excited about the gaming sector and would be happy to fund other gaming companies in the future. Other VCs may feel that they have made their bet in the gaming space and will be hard pressed to invest in another gaming company. So previous investment can be a double-edged sword.
The place where this advice goes far afield is the suggestion that you should go to a Web site, find instructions on how to submit a business plan, and "drop it in the mail." Wired claims that "the best" VCs actually look at unsolicited business plans. It may be true that many venture capital firms look at unsolicited business plans. But rest assured that it isn't Mike Moritz or Dave Marquardt or John Dooer reading these plans -- it is the most junior person at the firm. More importantly, the way to get your executive summary read is to have it passed on to a VC by someone he or she trusts. This is a referral business. Your credibility as an entrepreneur will be bolstered by the credibility of those individuals who vouch for you. So rather than spending time writing a business plan, go spend time pitching your business to technology influencers who can help you build a business and can introduce you to the right people to fund your business. My advice would be to never ever submit a business plan through a Web site -- if you can't get it directly to the person who you want to read it, don't bother.
5. "ONCE INVITED to present your plan, remember that brevity is a virtue: Use no more than 30 PowerPoint slides, and keep your presentation under 45 minutes."
Yikes. 30 slides. Unless you are Lawrence Lessig, I don't think the words "30 slides" and "brevity" can possibly be used in the same sentence. I completely agree that you should aim to keep your presentation to about 45 minutes. If a VC gets excited about what you're working on, they'll spend more time with you in future meetings. But, as with entertainment, you are way better off leaving them begging for more. Get in. Pitch. Get out. There is no way that should take anywhere near 30 slides. I've blogged here before about the 6 -- yes, 6 -- slides you need to pitch your business. Even if you feel that 6 slides is too spartan, don't confuse quantity for quality. The fewer the slides and the more discussion the better.
6. "KNOW EXACTLY how much cash you need."
They waited until the final piece of advice to nail it. I just wrote a whole post about this. Don't just ask for a specific amount of money, explain precisely what it is you intend to do with that money and why it is the right amount of money. This should be the last slide of your PowerPoint presentation and is your chance to summarize the strengths of your company: you're building something important; you understand the competitive pressures and how they impact how much money your are raising and how quickly you are spending it; you have the right team to build it (or know where to find the right people to add to the team); and you can make meaningful progress on the very reasonable amount of money you are seeking to raise.
Those of you who are still reading have incredible endurance and I appreciate that. My apologies for further testing that endurance. (But have no fear, there will be no pop quiz at the end.)
How to get a plug on TechCrunch.
In the very same issue of Wired, there is a blurb on "How to get a plug on TechCrunch." The thing that I think is interesting about Wired's advice for enticing Mike Arrington into writing about you, is that it is better advice on how to get funded by a VC than Wired's missive directly on that topic. It isn't perfect advice for either getting VC money or getting written up in TechCrunch, but it makes some reasonable points.
1. "Casually mention you hold the women's record for javelin in Tajikistan. People (especially women and minorities) with unusual backgrounds pique his interest -- maybe enough to propel him past paragraph one."
The simple fact is that both Mike and the typical VC get pitched on a lot of businesses in any given year. So anything you can do to stand out is helpful. Maybe I shouldn't say "anything." There are all sorts of ways that you can stand out in a bad way. But if there are things that you have done that are both interesting and demonstrate major commitment to achieving a crazy goal, they will help get you noticed and give you a certain amount of credibility as a go-getter (you'd be surprised how many successful entrepreneurs are triathletes or have climbed Mt. Everest).
2. "Cozy up to his friends. Comment on their blogs. Meet them at industry events. An introduction from someone he trusts wins you a few extra seconds."
This is the best advice by far. But it sounds far more cynical than it really is. Don't confuse Wired's advice about "cozying up" to mean that you should suck up to Mike and his friends. VCs and journalists alike hate suck ups. But, as I said above, getting to know the right people who can help you build your business is essential to your success. That isn't "cozying up" in some cynical sense. It is about convincing other smart people that what you are building is meaningful and that they want to be involved in that success. Those people will then sing your praises to Mike and the VC community -- not because they're your buddy, but because they believe in what you are building.
3. "Get a pro to write your pitch. Arrington hearts good writing and catching intros. Sometimes all it takes is one great sentence."
Who doesn't like good writing? So much about building a startup is selling your vision. The better you are at doing that in person and on paper, the more likely you'll be successful. But don't trade your ability to articulate your vision for the ability of a professional scribe to do so. If you can't pitch your own business anywhere, any time, any how, you will not succeed.
4. "Minimize the chitchat. 'it's not like we're going to be BFF,' [Mike] says, 'Just get to the point.'"
This is where Mike and I may differ. Mike is going to talk with you long enough to understand what you're building so that he can write in an informed way about your business. But that's about it. He doesn't need to be your BFF. On the other hand, if a VC funds you, he or she could be working with you for the next decade and beyond (My partner Dave has been on the Microsoft board for 25 years -- after that much time, Gates is legitimately one of his BFFs). So the "chit chat" is important. We don't need to be your BFFs, but we do need to feel that we can have a great working relationship with you for many years to come.
5. "Then back off. If he doesn't respond, don't 'check in' again and again. He's just not that into you. Come back when you have a better idea."
This one is a delicate balance. I agree that Mike doesn't want to be bugged by an entrepreneur when he decides not to write about that business. The same is true to a point with the venture community. "No" really does mean "no" when a VC passes on investing in your company. And arguing the point will do you little good. On a number of occasions, I have passed on investing in a company only to get an angry response from the entrepreneur explaining to me why I was wrong to do so. Even if the entrepreneur is correct, that tactic will not likely get him or her funded. On the other hand, there are two sorts of "No's" in the VC community -- there is the "no, I am not interested in investing in your company" and there is the "no, I am not interested in investing in your company ." I will often say that I am not interested in investing in a company because of X, Y or Z, but if they make progress on any of those fronts, I'd love to hear the story again. When I hear back from those entrepreneurs it is very much welcomed. In fact, on more than one occasion, I have passed on the company in the first instance, only to give them a term sheet at a later date. So don't make a pest of yourself, but don't be sheepish about being persistent when the door is left open.
Well, I guess I've come to the end of this unruly post. Thanks for slogging through it. I hope it's useful. And I hope I haven't crossed the "fair use" line with Wired. I really have tried to use no more of their original article than necessary for my commentary (you worry about these things when you teach IP Law). Thanks to Wired for occupying my long plane flight and giving me such useful food for thought. I look forward to my next journey when I can again catch up on my magazine reading.
(Pop Quiz! Ok, I know I said there wouldn't be a quiz at the end of this post, but since you made it all the way through, don't you want to test your comprehension skills? Here's the question. Who is one of my partner Dave Maquardt's BFF's? :) Answer below in the comments.)