March 26, 2013
We’ve got a few companies going through very important financing processes right now. Fortunately, these are really strong busiensses with great prospects. There should be no question as to whether or not they are successful in raising the money they need to finance their businesses.
But as we all know, raising the money is at best 49% of the battle. Who writes the check, and on what terms, will each have enormous impact on every shareholder’s long term prospects.
Raising money is an area that we tend to get pretty actively involved with our portolio companies. Unlike most of what these companies do, it’s an area we actually have some genuine expertise! And like just about everything else, this is a process that needs to be managed strategically, with clear focus and goals.
As a rule, entrepreneurs tend to do a very good job of identifying their best financing prospects. They know who the top firms are in their space. They focus on partners who have reputations for being great to work with, have portfolios full of relevant, comparable companies, and networks that can be helpful. Left to their own devices, our companies will generally identify a great list of top prospects.
And then they do the one thing that’s almost certain to screw up their chances with those prospects.
They hurry out and schedule meetings with them.
But what could be wrong with that? You think strategically about your optimal investor, you come up with a thoughtfully prioritized list of candidates, and then you schedule meetings to work your way through those top priorities, perhaps developing a list of second and third tier candidates to move onto if the first tier guys don’t work out.
Running a financing process this way would be like asking Mariano Rivera to go from a cold seat in the dugout straight onto the mound to pitch the ninth inning of a playoff game without first spending some time in the bullpen. Even Mariano, the greatest relief pitcher in the history of baseball, just wouldn’t be ready.
Trust me, I’ve made this mistake myself. I’ve raised money several times as both a VC and a CEO. I’ve had the fortune of being able to get meetings with the ‘perfect’ investor. And I’ve rushed naively into those meetings.
The good news is, you tend to learn a lot from your top prospects. The best investors are very good at poking holes in your strategy, sussing out your weaknesses, and pointing out missed opportunities. I’ve always found myself rushing back to the office after these meetings, scrambling to update my thinking, my story, and my materials on the basis of that feedback.
The bad news is that I had to get that feedback from my very best prospects. And in the process of poking holes in my business, they likely concluded that there were, in fact, too many holes in my business. Even when the story was pretty solid, I was still new at delivering the pitch, so it never came across as well as I would’ve wanted. So my best prospects said no, leaving me to move onto the second tier, now with a vastly improved story.
I always advocate the following approach. It may seem a bit overthought, but financing is a complex sales process like any other, and needs careful management to optimize the results. In fact, the following approach can apply to just about any sales process you might be confronted with.
Identify and prioritize your prospects, separating them into three tiers. Then do your best to schedule meetings in the following sequence:
- Have a single meeting very early on with a low priority, Tier 3 prospect. This is your absolutely zero consequences dress rehearsal. You need one you can burn. And with no consequences, you can feel comfortable experimenting with ways of delivering your story that you’re not quite sure will work.
- Then schedule 3-6 meetings with Tier 2 prospects. These should be firms and partners with whom, ultimately, you would be happy to work. Included in this group should definitely be some folks with deep domain expertise in your sector. People who will, with great authority, pick apart the details of your go to market strategy and likely have some good ideas for how to improve it. The point of these meetings is to impress some folks you’d like to work with while also taking a real beating. Make sure you leave plenty of time in your schedule here for rethinking and reworking your story and materials. If you’re listening and learning, you’ll want to have a different story for Wednesday’s meetings than you used on Tuesday.
- With the polish that comes from those learnings, now hit your top prospects. You should be very good at the pitch by now. You will have fielded 90+% of the zinger questions that are going to come your way, and you’ll be ready for them the second time around. The story will be tight, and you will be confident.
- Finally, revert to the balance of your Tier 2’s. Hopefully you’ll be able to get some additional interest from great potential partners here, and that will help to keep pressure on your top prospects, who are ahead in the process, but not by much. Finding ways to keep the whole process moving along is always critical.
- And of course, if all else fails, you’ve then got a really refined story with which to approach the remainder of Tier 3. Here’s hoping you never get there.
It sounds pretty simple, but it’s amazing how hard it is to stick to this discipline. When somebody offers a warm introduction to your dream partner tomorrow, it’s hard to say no, I need to wait.
Just remember Mariano. He’d never go to the mound needing that crucial strikeout without first getting in a good bullpen session. If you think you don’t need the same thing, you’re kidding yourself.
March 5, 2013
We had our annual Peak Pitch event last Friday at Hunter Mountain, a couple hours north of New York. Peak Pitch is our take on a mashup of business plan speed dating/elevator pitching and a day of skiing.
This year we had fifty VCs and angel investors and 70 entrepreneurs gather for the day at Hunter. The format goes like this: everyone wears a colored ski bib – investors wear gold, entrepreneurs wear blue. The mountain gives us one of their chair lifts for the day – a 7 minute ride to some pretty basic skiing (making sure the event is accessible to as many people as possible). In the lift line, you pair up with a bib of the opposite color, ride to the top, and the entrepreneur has a captive audience for 7 minutes to make his pitch. Get off the chair, ski down, find a new bib of the opposite color, rinse, repeat.
We give each investor a wad of “Peak Pitch Bucks” at the beginning of the day, and they allocate their Bucks throughout the day to reward the best pitches. At the end we tally up the Bucks, and the entrepreneur with the most is the winner.
This was our seventh annual event, and it’s been an absolute blast every time. The event is mostly about the networking value – it’s a rare thing to bring together such a big group of quality people, away from their normal work environment, where everyone can relax a bit. It’s a special day. As one notable (and colorful) NYC VC said to me Friday afternoon, “It’s just great to get all these Type A’s out of the office and in an environment where they can loosen their sphincters a bit.”
As I drove away from this year’s event, I was struck by the consistency of one truth that has held, year in and year out. I don’t think there’s ever been a runaway best business at Peak Pitch. But we’ve had a number of runaway winners. And the winning formula is the same ever single time.
This year the winning entrepreneur, in a landslide, was Brendan Burns of 1000 Museums. Brendan is a talented and experienced entrepreneur, and 1000 Museums is a fantastic concept that is having some great success. He was a very worthy winner.
But was he landslide worthy? No way. Brendan was without question amongst the best, but this was a very talented room, and should in no way have been a landslide.
So why the runaway victory?
As I explained to a handful of other investors over a beer at the end of the day, in seven years of running this event, there is one clear variable that predicts the winner every time. Brendan’s victory this year was no different.
What’s the secret to success? It’s dead simple, it’s a secret that applies broadly to startup success, and it’s also the Golden Rule of selling:
Ask. For. The. Order.
What Brendan did this year is the same thing that every other Peak Pitch champion in the past has done. He combined a great business with an effective pitch, and he topped it off with some hustle and the willingness to do what every single investor in attendance would full on expect him to do – after giving his pitch, he asked each investor for some of her Peak Pitch Bucks.
I rode lifts with 21 entrepreneurs on Friday (I didn’t get to ride with Brendan). How many of them asked for the order?
That’s right – 21 entrepreneurs who were there to try to win a contest and get the attention of prospective investors had me alone on a wind-blown chairlift for 7 minutes and not a single one of them did anything other than tell me their story. We’d get to the top of the lift and I’d say “Cool, thanks for the pitch. I’ll see you at the end of the day,” and ski away.
21 out of 21 let me get away without even as much as a “Hey, wait!” And 21 out of 21 came into the lodge at the end of the day, while Bucks were still circulating as investors made their final decisions as to who would get their votes, and chose not to corner me there and ask.
Ask for the order, people!
It’s a fundamental principal of sales, but it’s also a fundamental principal of all things entrepreneurial.
Whether you’re selling your product, pitching for financing, recruiting a star developer, or managing a team member, if you’re not asking for the order, you are irresponsibly adding a ton of unnecessary risk into the situation.
Believe it or not, people don’t actually get out of bed in the morning wondering what they can do for you. You’ve got to ask for what you want. Let the target in each of those situations know exactly why you’re there and what you’re hoping to accomplish. Make sure they know you want them. Tell them how much it means to you and what a great thing it will be for them if they say yes.
Ask for the order.
This game of building startups is god damn hard. There are elements of building any company that the entrepreneur simply has to will into being. Don’t make it harder on yourself than it needs to be.
Ask for the order.
Sure, you can’t be a bull in a China shop about it. And there are times when certain prospects need to be subtly massaged and engaged in a more nuanced sale. But in my experience entrepreneurs err way too far on the cautious side of the sale.
Think about this: We’ve run Peak Pitch seven times. That’s several hundred entrepreneurs in total. But I’d guess only 5% of them have ever asked for the order. And with all due respect to Brendan and the other winners, the singularly most promising business idea has not once won, in my opinion. Because they’ve never asked for the order.
Which goes to show you – as important as great ideas, great product execution, and great go to market strategies are, you’ll never win without great sales skills up and down your organization.
Please, people. Ask for the order.