Monday, July 26, 2010

The Pitch IS the Packaging

It isn't fair but we all judge books by their covers. No matter who we are, what we do or what side of the bed we happened to awake from, we form our impressions within the first few seconds - and then spend the rest of the time either validating or refuting our initial impressions. Anecdotal evidence abounds about how investors - including the VANTEC angels - use their first impressions to decide whether they will listen to the rest of the entrepreneur's pitch, pursue the due diligence process, and then ultimately invest their funds in the entrepreneur's venture.

The Elevator Pitch is merely the packaging to the juicy contents inside; and it's also the first (and sometimes only) chance that an entrepreneur can interest a potential investor. It's not right but it's true that often the investors never go beyond this "packaging" if the first impressions don't entice them to pursue the venture further. Since we're not about to change human nature any time soon, let's just accept this as part of the fund raising terrain. So here's a quick guide to how entrepreneurs can pass through the "inner gatekeepers" in the investors' minds:

1. Why are you here? “We are here because ... [looking for CEO, looking for marketing planning help, looking for advisors, etc.]

2. Who are you? “We are [COMPANY NAME]. We make/provide/sell [COMPANY PRODUCTS/SERVICES] for [TARGET CUSTOMER] who need [SOLUTION] to solve [PROBLEM].”

These points should take no more than 20 seconds. One or the other (or sometimes both) is often enough to pique an investor's interest. If the entrepreneur is successful in eliciting a "tell me more" response, then continue with:

3. What is the market opportunity? Describe the problem that you are solving with your company products/services including size, why it hasn’t been solved yet, etc.

Pause for another "tell me more", then:

4. Why do you think you will win? “Unlike [COMPETITION], we [GIVE UNIQUE VALUE PROPOSITION].” Also, identify some management expertise you have or can access to deliver on your business model, identify your intellectual property strategy and other barriers to entry, etc.

Pause. Still interested? Then:

5. What do you want from us? Identify what your company needs in terms of “talent” (e.g. prototype development, marketing, finance, etc.) to get to the next level.

Pause. Did the above 2 to 3 minute exchange elicit even further interest? Congratulations on making a positive first impression. The entrepreneur's next meetings with the potential investors will go over the exact same 5 points - but in much further depth and details.

Good luck - may your audience be attracted enough by your "packaging" to delve into the content.

Monday, July 12, 2010

Future of angel investment

Last week the VANTEC angel investors relaxed over wine and hors d’oeuvres at the annual year-end Appreciation Reception at the Jericho Tennis Club for the sponsors and volunteers. We had seen presentations from 67 companies – prescreened from over three times that number – over a period of 11 months at the VANTEC meetings. If earlier reported investment patterns persist, then almost half of these companies will get funding through the VANTEC network; and some of these companies will eventually secure next-stage growth capital from venture capital firms.

All present agreed that the fund raising environment for entrepreneurs is very tough. While it’s generally acknowledged that the angel investment community in the province of British Columbia certainly stepped in to provide much needed capital for startups, the sources of capital are harder to come by – particularly for the beleaguered venture capital firms who have had a rough go of fund raising recently. Many wondered whether the local angel community can continue their level of capital infusion to the local startups. A lively discussion ensued about the future of investments amongst our local angels (in no particular order):

• NO EXITS! Lack of exits by current portfolio companies hamper the efforts of angel investors to “re-circulate” their investment winnings.

• No liquidity – Related to exits, this speaks more to the ability of the portfolio companies to pay back their earlier investors. One angel investor lamented that some of his investments are in their second decade and he has no way of liquidating his initial investments.

• Shrinking personal portfolios – Angel investors invest their personal monies in startups; unlike venture capital firms or other sources of institutional funding. This problem of smaller investment portfolios was particularly acute just after the economic meltdown in late 2008.

• Next generation of angel investors? Many of the VANTEC angels have been investing/mentoring local startups for a couple of decades.

What do you think? Please let me know your opinions about the future of angel investment in BC - and in general.