Venture Capital Elevator Pitches

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Venture Capital Elevator Pitches

I left my job at a venture capital (VC) firm in 2010. After freelancing for a bit I then worked with a high-technology company in the robotics space. I then started my own strategy consulting practice, which over the years has matured into an interesting blend of design thinking, management strategy and human behaviour. Three fields I am keenly interested in, and which I use to help companies. I help them understand their customers and customer needs better. I also help companies tackle complex problems or pursue opportunities and grow.

VC funding, business plans and elevator pitches however, are areas a lot of clients associate me with. My initial list of consulting services didn’t even factor business plans or elevator pitches. However, along the way, by heavy demand, it became a prominent service. I continue to get a lot of inquiries for elevator pitches. There probably will never be a shortage of companies aspiring to get their entrepreneurial dreams equity funded.

However, I have observed one common aspect across a lot of clients and prospective clients. It is in their view of what an elevator pitch is. Or should be. Given the overly enthusiastic, almost orgasmic effect that venture capitalists have on a lot of business folk and new entrepreneurs, they tend to assume that that’s what an elevator pitch is about too. That the brief time the pitch gets in front of the investor, with or without the entrepreneur actually being present, should blow their mind. And to achieve this, they start thinking like advertisers. They think loud. Or blingy. Or just outright abstract.

They assume the pitch needs to be all glitsy and filled with high quality images, video, and graphs! That’s it! And on occasion, it has been tough convincing them otherwise. Reasoning with them that having been an investor, I might probably have a better sense of what might bring out the core essence of a venture. And what might be outright distracting, or worse, confusing. But it doesn’t work often. They are so enamoured by a faceless and nameless investor who probably frequents their dreams, to reason.

Sometime last year, someone made Uber’s first elevator pitch public. For those working on their elevator pitches to seek investment, and if you haven’t seen this already, UberCab – Dec 2008. How many captivating images do you see? They seem to me like just random pictures pulled off a Google search. A few phones, a few cars. No plot, no sub-plot, no theme, nothing. Just a vision and a compelling business proposition and a plan on how to make it happen! Nothing else matters.

I have been quite blunt with clients when it comes to delivering a no-nonsense pitch. However, I have had my pitches go to design folk, artists, and even sent to experts in digital and web design to give them a ‘makeover’. And I’ve had others turn my pitches upside down to present what they believe is a better way to ‘pitch’. Only to then come back and use one previously made by me.

The reason being, at the end of the day, even if some people don’t agree, venture capitalists are humans too. They have similar attention spans. They aren’t fools not to spot a great opportunity, even if it is scribbled clearly on a restaurant napkin. And they certainly aren’t fools to accept a mediocre vision or action plan just because it was in a ‘beautified pitch’.

This is the third of a series I’ve written regarding entrepreneurs and VCs. In case you missed the first two, they’re here: 1. What’s Your Profession and 2. The Entrepreneur in a Venture Capital World

Hope you found these useful.

My attempt at sketching a puzzled investor.

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The Entrepreneur in a Venture Capital World

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The Entrepreneur in a Venture Capital World

Imagine a food connoisseur has a vision of opening a restaurant. Selling a carefully crafted list of delicacies, whose preparation has taken years to refine. This aficionado has thought of everything. The cutlery that would highlight the preparations, what the entrance to the restaurant would be like, the kind of chefs he or should would need. Everything.

Now imagine, you, as a customer, visit that restaurant. No guarantees you’ll like the food there. Or you might have preferred a better selection on the food menu. Now let’s say you, and your friends or family who have accompanied you, get to have a say in what the menu should be. Just because you’ll be paying the bill. Or simply because a local bank or relative bankrolled the entrepreneur’s dreams, they want to have a say in what food should be served.

Isn’t this the case with the venture capital investment ecosystem? They take a seemingly great idea, imagined by a dreamer. And after some funding, in an urge to “scale” it, they put it on steroids. Often at the cost of the original dream and vision. And with the VC community, their return timelines are shrinking, so their portfolio mutation is growing rapidly. They don’t care about profits. As long as there is sufficient sales and buzz, they’re on track. As opposed to keeping fund and investment choices a little more practical. So as to build a more, bottom-heavy business. On a steady foundation.

In a way, it would compare with a risk in the investment ecosystem called Maturity Mismatch Risk. This is a capital management situation that can disrupt business cash flows. It’s seen when assets held to meet future liabilities are not well aligned from a maturity time point of view. Short term assets should deployed for projects with quick returns. Otherwise, they could cause a financial crunch in the short term. ‘Entrepreneur-Investor’ relationship could be looked at in a similar way. Where an investor who is only there for a few years, sometimes changes the entrepreneurs long term strategy to suit their investment goals.

Now this might seem to contradict my VC related post from earlier this week. One where I said that the VC space seems to have more left-brained, finance, cold-numbers people, and less right-brained, creative ones who would appreciate a good, world-changing vision and back it up in a way that it really changes the world permanently. However, they are two sides of the same coin. Business models do take the world forward. But that doesn’t mean every other potential idea must first blow up with over-funding and investor control, and then explode! And all the while, the disinterested, minority stake-holding promoter is busy with other startups he or she has invested in.

Imagine a great idea and promoter being backed by an investor who actually sees the impact of the idea from the promoter’s perspective. That means, not just scaling an idea, but rather, letting it grow to have the impact it was intended to. Then maybe some of the great entrepreneurs wouldn’t actively shun investors and patiently bootstrap their way to world-change.

It isn’t just about the idea. The entrepreneur’s vision of how the idea pans out matters just as much.

I happened to see this post on LinkedIn when I was writing this post. While decisions like come on one end of the world-change spectrum, a lot of venture funded companies aspire to be on the other. In that they would like to achieve a strong global presence with the least marketing spend. And most importantly, make astronomical stakeholder returns. For the VC community, the ideal place lies somewhere between the two ends of this spectrum. Because in many cases, the entrepreneur sets out on a well-intentioned mission to fix a huge problem for a customer base.

Image source: link

Again, it isn’t just about the idea. The entrepreneur’s vision of how the idea pans out matters just as much.

The title image is that of a vulture. When I worked in the venture capital space, people sometimes referred to the community as ‘vulture capital’. Nowadays, looking at some investment decisions and entrepreneurs who focus more on personal investments rather than their own ventures, looks like vulture capital is contagious.

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Venture Capital – Between Returns & Fund Sizes

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Interesting article by Jason Rowley on the lack of a correlation b/w venture capital fund sizes & fund returns.

Venture Capital Is Boring

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Funny Side Up

All those moments that left you speechless…More like the dumbfounded speechless. I was just thinking about it today, and thought I’d share some such situations that I have been lucky (and sometimes not so lucky) to be stuck in the middle of.

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Funny Side Up

All those moments that left you speechless… (No, not like when you saw Claudia Lynx or  Mila Kunis on TV). More like the dumbfounded speechless. I was just thinking about it today, and thought I’d share some such situations that I have been lucky (and sometimes not so lucky) to be stuck in the middle of.

  • About two months back, I called my credit card company to tell them that I hadn’t received my estatement, and to ask them to mail it to me. The charming voice at the other end asked me some random questions just to make sure I was the actual holder of the card, and then proceeded to say that she’ll have the statement emailed to me. Then, as what I assume to be a part of the ‘procedure’, she thought of “confirming” my cell number, mail id, landline number, address (hey, don’t look at me, am still wondering about the logic behind it). Anyway, so when she read out my address, I realized that she’d got one alphabet wrong in the name, so I asked her to correct it. After that, again, as part of the procedure, she proceeded to fire a series of questions, about practically everything, just to (again) make sure I was me. The second last question, ‘what was the last amount billed to your card?’ Thankfully, since I had received a message when the transaction happened, I remembered and told her the amount. Last question, ‘where was that transaction made?’ How the hell would I remember, it was over 12 days ago. ‘No problem’, she said, cheerfully, ‘you can check on it, I’ll call you back tomorrow’. I completely forgot, so the next day, she called up as planned, but I didn’t have the info. ‘Not a problem’ she said again,  suggesting the same deal of me checking after I get back from work, and that she’d call the next day. Anyway, I checked that evening, but missed her call the next day. Next thing I know, I receive a letter from the credit card folks (the address on which, by the way, still happened to have the minor spelling mistake). The letter stated that “this is the last correspondence to your old address, and all further correspondence would be made to your new address.” Whoa. When did I change my address? And, if that wasn’t enough to leave anyone wondering, I received another similar letter the next day (with the spelling mistake rectified), informing me that my new address has been updated in their records and from then on, all correspondence would be to the new address.
  • Back in 2008, I got myself a Vodafone USB internet card after paying for a limited usage for the year (1GB free/ month). The little software which installs on your laptop, helps you connect/ disconnect, and also shows you the usage. So I’d keep the usage within limits, so as not to have to pay at crazy rates/MB beyond the free usage. And then, about 4 months down, I received a bill for Rs.200 for excess usage. As I saw the statement only on the due date, I thought I’d rather pay it and then look into the matter. So, I paid, but then didn’t bother check with Vodafone. Next month, I made sure I kept checking my usage. I’d used about 3/4th of my free limit for the next month, but I received a bill for Rs.1400. Ok, now things were getting serious. I went to Vodafone to find out about the screw-up. After the usual ‘Happy to help’ chat, they assured me it was probably a billing mistake. That it happened sometimes. The issue was that while my Vodafone software was showing my usage at 3/4 of the limit, on the company system it was registering a usage 40% or so more above the limit. Few days down, my connection was blocked. Next visit to Vodafone, the same exec apologized profusely. He said he had forgotten to log the complaint, which is why it got blocked. I told him to take care of it, n went my way. Next month’s bill was over Rs.1500 (Rs.1400 + late charges, service tax, the works). What followed was 2.5 months of constant comms with Vodafone, at the store, on the helpline, and to with every email id I could find on their site. They kept insisting that they’ve checked and rechecked, and that I would have to pay up. At the end of that time, I had pretty much had it, and so I went and settled the bill, so as not to let them torment me anymore, even though they still hadn’t realized that there was something wrong with their systems. Next thing you know, I receive a letter from Vodafone’s legal guys threatening to go to court if I didn’t pay. The @#$#.! I called the lady at Vodafone whom I’d been in touch with regarding this matter. She was, I think, some mid-level manager. She told me that they’d received the payment, and that I could ignore the letter. Then I happened to just discuss the problem one last time with that lady. Just to let her know the hell they’d all put me through for some mistake on the part of Vodafone. And when I, for the nth time, told her about the Vodafone software that installs on the laptop, I said, ‘you know, the little window that shows the level of usage, and other info’. Her reply was priceless. The Customer service something Manager told me she had never seen the actual software before. And she didn’t know what it did. So, I was arguing with about 12 different people at Vodafone for well over three months, had to shell out money for no reason at all, and all along, this lady, who was definitely at a fairly high up position, didn’t even know what she was arguing about or defending. No better way to kill customer care, eh? I guess all along, all they meant was ‘Happy to Help (ourselves to your money)’.
  • Several years back, my dad had applied for a car loan. So, as part of the process, the bank executive dropped by home one afternoon, to get some papers filled, and to collect the post-dated  cheques. While dad was signing the 59 odd cheques (5 year loan), the executive, with a concerned look, asks dad, ‘Sir, I hope you have the total amount (the loan amount) in this bank account?’ Dad, already a little irritated with all that signing, suddenly was at a loss for words. He tried his best not to show his disbelief at the question, which of course, didn’t work too well. He looked at the executive and said, ‘if I had that kind of money in the bank, do you think I’d be applying for a loan?’ It then struck the executive, who then tried his best to hide his embarrassment with ‘of course sir, well, I was just asking’.
  • As a kid, I used to frequent the Croissants‘ outlet near my granny’s place. I had many favourites on their menu. And we sometimes used to parcel plain croissants. A slightly microwaved plain croissant tastes great with tea, especially in the mornings. So one evening, mom sent me to pick up about 15 plain croissants. I walked in, to find that I was the only customer in the huge place. Anyway, so I paid at the cash counter, and then walked up to the counter for plain croissants and gave the attendant the little order slip. He looks at it, and then asks me, “Will you be having them here?” I looked around, and then asked him, does it look like I’ll be eating 15 plain croissants here, alone?” Talk about being stuck with your foot in your mouth =O
  • My job in Venture Capital too, made sure I got a regular dose of such situations. Like a few times when I’d get calls or even random visits from aspiring entrepreneurs. They’d go, “I’m planning to venture out on my own. How can your Venture firm help me?”, they’d ask, with a straight, I-mean-business sort of face. That would get me all thrilled, every single time. I mean, it takes a lot of guts and conviction for anyone to start a business on their own. And I admire that. So then I’d ask them about what the venture is all about. How much money they’d need, and all that. Then comes the priceless answer. Something that normally sounds like, “I have a few different types of businesses that I could possibly get into. Depending on which one, the venture funding I’d want would vary. However, I haven’t really worked out the exact funding that might be required. You see, I could either start with one of the businesses in one state, or cover like, half of India. So accordingly, the funding I’d need would vary. I wanted to know how your fund could help me out.” Huh.! I could’ve sworn the board outside my office didn’t read ‘Charity Venture’ or something to that effect. Then why.?

Lemme know bout your ‘at a loss for words’ moments…

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Way to go, Alok! The Venture Capital Differentiators

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Way to go, Alok! The Venture Capital Differentiators

A few years ago, I came across this interview with Alok Mittal on the internet. Alok is the Managing Director at Canaan Partners, one of the leading VCs in the technology and healthcare businesses, the world over. And in that interview, Alok was talking about their investment in techTribe a few years earlier. techTribe, by the way, happens to have a job referral service offering, similar to the incentive based job referral business model of the company I wrote about earlier.

Alok had publicly agreed that the incentive driving referrals was not going as expected. And that they have been planning to sell the company as the business model didn’t seem to work. I did feel a sense of pride and satisfaction that my gut feel and reasoning was in a way being backed by someone, who is to me, something of an authority in the field.

Then, something struck me. Here was a world where everything that everyone spoke about publicly was, like the Americans popularized, “good”. And amongst them was someone as knowledgeable, intelligent, and capable as Alok Mittal. It took someone humble, grounded, and true to his work, to openly talk about his mistakes. Literally in Rudyard Kipling’s words, he could ‘meet Triumph and Disaster, and treat those two imposters just the same‘.

Hats off to your humility and honesty towards your work, Alok.!

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Herd Capital

Everyone’s aware of the herd mentality. Be it iPods, bigger and bigger cars, or even a Twitter account.
I’ve noticed similar mentalities in the VC industry. Why do we seek the safety of the herd?
Here are a few examples of it, and also the effects of the same on industries.

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Herd Capital

Everyone’s aware of the herd mentality. Be it iPods, bigger and bigger cars or houses. Or even a Twitter account (which doesn’t really make sense if you’re not actually gonna use it). Hell, even I got a Twitter account that I don’t use.

And many a times, it takes a while before a smart management guru finds the method behind some of the madness.

I’ve come across a few similar instances of herd mentality in the Venture Capital industry too in the past few years.

Before I mention them, I’d just like to state here, that the views below are only mine, and I don’t, in any way mean to undermine or insult the knowledge and strategies of my fellow members of the VC community. I’m merely expressing my concern about something I’ve observed.

Herd Mentality. Hmm.

Here’s one such example that comes to mind. The textile/ garment manufacturing and associated retail industry back from 2006 through most of 2008. Companies saw several Million $ of investment, and were doubling and tripling their manufacturing capacities – spinning, weaving, dyeing, printing, stitching; you name it… not to mention the number of retail outlets, adding customers (read big brands in apparel) with demands going into astronomical numbers of pieces of clothing.

And obviously all of this took the valuations of these companies pretty high. Just to give some perspective to the quantum of investing, this sector saw around 3% of the total $5.6 billion of VC investment in just the first six months of 2007. That’s roughly a whopping Rs.750 crore.!!

And then, with the collapse of the US economy, textile exporters suddenly lost one of their prime markets. What followed, quite instinctively, is that many of them came back home and focused their energies and capacities on the domestic market. A domestic market that was beyond saturated with all the domestic expansions that were funded.

That led to more n’ more discount malls springing up, running on wafer thin margins.

Then, there was the mad rush after clean n’ green businesses. Of course, there’s nothing bad about investing in technology that’ll help conserve the limited resources of the globe. But from a VC’s point of view, it’s about making money too, right? The focus on making those returns should be a fine filter through which great companies and amazing business models must pass.

However, here’s what happens with the herd mentality. Some companies with limited knowledge or capability, get invested into. And that’s only because some VC was probably not approached by the best companies in the sector yet. Or the VC did not want to miss out on the ‘gold rush’. And so they end up investing in the 20th company in the sunrise sector at a ridiculous valuation. The VC seeks the safety of the herd. Everyone’s doing it, so maybe I should too. This makes the top team at the company over-confident of their supposed capabilities. What’s worse, it makes it tougher to raise its next round of investment. Because of the already sky-high valuation it got its first round investment at.

So, we end up with:

  • Just a handful of the numerous funded companies actually adding reasonable value, globally
  • Several overconfident funded companies that just trudge along, finding it difficult to raise additional money
  • The sector very quickly becoming over-invested and going out of flavor with the VCs. This is due to high valuation expectations by other companies. This is resulting in less investment happening in creating more effective and widespread clean and green technologies and applications; something that was needed by the world on an urgent basis, to begin with

It would help if VCs invested after a well thought-out strategy rather than almost on impulse. Irrespective of whether it means missing the bus on a fad investment sector. This would result in the VC not making losses on a bad investment. At the same time, she or he could focus on understanding the sector quickly and perhaps support young companies with innovative products or solutions that they feel might significantly help preserve the planet. Instead of dumping money into just another solar-cell manufacturer. Or another wind turbine manufacturer, or something like that.

In the end, all this could be herd mentality, or perhaps even the wisdom of the crowds.

Only time and lots of investing will tell.

[Again, these are just my views on it, being strongly based on my belief that known and stable businesses or mass producing of products should be funded more by debt; and the risk investing in paradigm-shifting technologies and solutions should be left to VCs. I would like to get the views of promoters and fellow VCs on this. In the end, it’s all a part of our learning process.]

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Dare to Venture?

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Dare to Venture?

“The best things in life are free,

But you can keep ’em for the birds and bees;

Now give me money, (that’s what I want) that’s what I want.”

– Barrett Strong

Lets see. First time entrepreneur? Maybe you’ve already taken the brave leap, but suddenly hit a roadblock for lack of funds to scale up? Or not enough to even qualify for an order? Perhaps banks wont help because your services or IT firm doesn’t fit into their way of doing things? Or even better, you have a crazy idea that could as well be the next big thing, only if someone would see the potential growth and the guts…

If you sniggered after reading any of the above, you’ve probably already had your share of knocking on doors in a bid to expand your business, or even just set sail…

I’ll give you a lil overview on venture capital, hopefully answering some of those questions you had about it…

  • VCs invest in ideas, businesses with a high amount of perceivable risk but also a potential upside
  • VCs invest towards buying a stake in your company (they buy shares of your company, without any collateral or pledge. That however, doesn’t mean that you don’t take their money or them seriously coz it appears to be tension-free capital unlike a bank loan.
  • Not wanting to alarm you, but generally the legal agreements with a VC are made in such a way that the VC has a significant powers where the company is concerned.
  • The powers and rights should be seen as a trade off for the risk the VC takes, and the collateral-free funds they bring into the company, and their time and effort.
  • And while certain clauses in these legal agreements might give some of you sleepless nights, many extreme measures are almost never exercised by the VC. They’re sometimes just there so that promoters don’t think of playing any tricks on the VC or the company.

Yeah I know this is a very basic and simple way of putting it. There is much more to it, but if I were to put more here, you’d be asleep before I’d expect you to scroll down…

Anyway, I’d just like to elaborate a bit on the last point in the image above. I think is crucial for you entrepreneurs to know when you plan to raise money from professional investors:

(ok, now I usually get extreme reactions to my comparisons/ examples, so even if you find the comparison absolutely insane, don’t miss the underlying message)

The relationship between a VC and the promoter/ management team…it should be looked at like a serious relationship, a marriage of sorts. Or even as though you were looking for your next best friend if you’d like. And as we all know, everything long term can’t be based on the trivial. Like ‘I love the way she looks n dresses’, or, ‘I think she’s my soul mate coz we look great together’. Or ‘she just has the most amazing expression when she’s trying to work the microwave while reading thru the manual’. Or some similar nonsense.

The long haul asks for bigger and more important factors to be considered.

Venture funding is never about the money as it is about the connect the promoter, the team and the VC share. You could probably raise capital from multiple sources. But nothing will compare to the magic the team of promoter and VC together can create.

And unlike relatives whom we don’t get to choose, promoters can and must take time to see if her or his visions, objectives and spirit matches are clearly understood and appreciated by the VC they’re in talks with. Coz otherwise, like good ol’ Axl Rose says, ‘nothing lasts forever…’ Things sure can get nasty between promoter and VC if they don’t share a similar vision. And they are bound to lock horns. In which case, they both suffer, along with the business, employees, customers, etc.

You wouldn’t really want a tug-of-war with the promoter trying to go global next year, and the VC ranting for a quicker exit.

Even if your business is strapped for cash, always choose your VC very carefully. And raise only the money you need. Gone are the days when VCs funded the Lamborghini’s of dotcom promoters.

I’m still just four years and learning in this industry. But if you do have any queries about venture capital, fire away. I’d be more than happy to try and help you out with it.

Happy fund-raising.!

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