Posts Tagged: Startup company

A good story is the key to any pitch

When it comes to putting together your pitch deck and preparing for an investor meeting, there are countless articles and advice you can refer to. For example, we have a list of articles on our Resources page (see under “Pitching”). And one of my favourite blog posts is Tomasz Tunguz’ “7 questions a startup should answer in their fund raising pitch.”

These types of articles do a great job of telling you what to cover, but they don’t necessarily dig into how to deliver your message. And let’s face it. Bullet points alone rarely inspire; it’s the way your pitch flows and how you unveil information that gets your investors and customers excited.

Each day we connect with multiple entrepreneurs. Without a doubt, the ones who stand out are the ones who share a great story. We are more engaged when we hear a narrative of events as opposed to a list of facts, because we immediately decode the words into something meaningful to us.

If storytelling can make or break a conversation, pitch, or demo, how do you make sure you are telling your story in the most compelling way possible? Here are a few tips:

1. Tell your organic story

Fifty start-ups may have a relatively similar business model, so what makes you and your team unique? As investors, we want to hear the back-story: how is it that you came to the idea for your product and startup? For example, were you looking to solve a pain point that you experienced firsthand? That’s a great validation of both the need for your product, as well as your understanding of the space.

In addition, tell us why you and your team will be the ones to solve the problem and transform the industry. Why are you passionate about this space? What do you know that others don’t? And what have you and your team learned along the way of building your startup?

2. Know your audience

Entrepreneurs often tell me that, “Every VC wants us to modify our deck and see different metrics.” That’s true: every investor will have their own focus and interests and a good storyteller knows how to cater the story to their audience.

Do some homework on each investor beforehand to see what makes them tick. I personally like data and one can easily find that out after spending a few minutes on Google or LinkedIn. If you can’t find any details on the investor ahead of time, start the meeting by letting the VC tell you about him or herself. Then, use your improv skills to describe your product in a way that s/he can personally relate with it.  Don’t make the mistake of assuming that the investor has experience with the pain point you are trying to solve.

3. Why, how, and what

There are 3 elements to your story…why, how, and what. “Why” is your motivation and vision. “How” is your plan to achieve the vision (aka, your roadmap). And “What” is the product itself. Great storytellers touch upon all 3 parts. It’s the “Why” part of the story that will inspire investors, teammates, and users, while the “What” grounds us to the reality of the goals at hand.

4. Find the balance between features and pipe dreams

Imagine an idea spectrum where on one end, the story is too small and on the other end, it is too big. You don’t want to paint too narrow of a picture where you’ll be perceived as a collection of features and specs instead of a company. On the other hand, good investors won’t take you seriously if you offer a naïve pipedream instead of a realistic goal.

A good storyteller can strike a balance by illustrating that their current product is an MVP with many opportunities to grow into the overarching vision.

5. Nail your one-sentence pitch

Conciseness is important. By the end of the pitch, investors should be able to describe your business in one sentence. You can accomplish this by crafting one sentence, key message, or tagline and weaving it throughout the presentation.

Be as original as possible. You don’t just want to be the stoppers that plug the holes of a leaky bucket. You want to be a new bucket. In addition, be cautious of using the “We are X for Y/This for That” taglines (i.e. “AirBnB for Boats”), since it’s hard for us to get excited about these comparisons. If you haven’t already read it, check out Fred Wilson’s recent blog post about this.

6. Open and close strong

As all good stories go, a pitch needs a strong opening to capture the audience’s attention right out of the gate. Come out with a lot of energy in the first few seconds. Most importantly, you’ll want a strong closing to bring everything around full circle. So much of investing is rooted in intuition. Think carefully about what you want the investor to feel as he or she leaves the meeting. Then, be sure your closing point does everything it can to foster this feeling.

Final thoughts

The perfect pitch doesn’t come naturally to anyone; it’s planned, practiced, and tweaked. Practice telling your story several times in front of different friends and colleagues. See which aspects resonate and where you start to lose their attention. When it comes to adjusting your pitch, use your best judgment: you want to be flexible and open to feedback, without straying too far from your vision.

 

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New investment: Figure 1, a healthcare photo sharing app

Over the years, we’ve seen web and mobile technology disrupt business, education, legal and many other fields as professionals adopt products that help them work more effectively and efficiently.  While the healthcare industry has always been more conservative, it is now primed for change.

At Version One, we have been looking intensely for investment opportunities in healthcare, believing that the leaders of this disruption will be companies that are able to connect people (doctor-doctor, patient-patient, doctor-patient) in a large, secure, and regulatory-compliant network in order to democratize medical knowledge and increase access to care.

Today, we are thrilled to announce our first investment in this space:  Figure 1, a safe photo sharing app for medical professionals.  The product is a mobile, crowdsourced platform where healthcare professionals can upload, tag and discuss images (for example, images of surgical procedures or rare medical conditions).

Doctors may already share images with one another while in the same office or medical facility, but Figure 1 now offers the medical community a way to collaborate and communicate around images, no matter where they’re located. It breaks down traditional information silos which is key to improving patient care and medical education.  The app already has users across Canada, the US, and the UK.

Figure 1 was founded in early 2013 by a super talented team:  Joshua Landy, a critical care physician; Richard Penner, a mobile developer; and Gregory Levey, a JD/MBA. We are co-leading this investment with Rho Canada Ventures and are joined by several angel investors.  We are really excited to be a part of Figure 1’s journey going forward!

To learn more, visit figure1.com or follow @figure1app on Twitter.

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How to really learn from your experiments

At any stage of a start-up’s life, there are dozens, if not hundreds, of different directions to take. In the early phases, you need to pick the right product direction and find your product-market fit. Later, you may wonder which marketing channels will work at scale and which ones won’t.

Since you never want to approach each crossroad blindly, the key is to continually test out the options. Success is often defined by how well you hone these experiments and learn as an organization. What separates great start-ups from the rest is how many experiments they can run at the same time, and how effective each is experiment is.

Building out your test

Approaching your experiment is not that much different than creating an A/B test – although you’re testing for a much bigger matter than tweaking the font and image choices on a landing page.

Any experiment needs to be well planned, grounded in a specific hypothesis and potential outcomes. Follow these steps to create your test:

1. Define the problem. What are you trying to fix or improve?

2. Define potential solutions. What are all the different possibilities that could solve the problem?

3. Define potential outcomes. What do you expect will result from your solution? What’s the best case scenario? The worst?

4. Run the experiment.

5. Analyze the results.

6. Double down on what worked, drop whatever didn’t. If the results were inconclusive, run another experiment.

For example: Let’s say you want to figure out if paid search marketing can help you scale your business profitably.

Wrong approach: You might be tempted to dive right in…start small by investing $50/day on Google to buy a few keywords and look at the results over the next few months.

This strategy won’t work for a few reasons. One, $50/day is too small an amount to derive any meaningful conclusion at scale. Second, it’s far too general: there’s no defined timeline and no defined outcome.

Right approach: Follow the steps above to fully define all aspects upfront: Define a meaningful budget (i.e. $500/day); define a specific timeline (i.e. one month); define the outcome (i.e. need to have a CAC of $50, otherwise this won’t be a profitable acquisition channel); and define different solutions (i.e. bid on general search terms vs. long-tail keywords).

Too many start-ups fall into the pitfall of running experiments for the sake of running them, and then never actually learn anything since the parameters were too fuzzy. Drive your activities toward reaching tangible learning milestones…as many as possible, as fast as possible.

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Never, ever outsource your core

It’s inevitable that any startup will lack expertise in some key areas needed to grow their business. The question is: should you hire and bring that expertise in-house or outsource it?

Just last week, two startups reached out to get advice on this hire vs. outsource dilemma. The first startup, a vertical SaaS company, wondered if they should bring someone on board to run their paid search marketing campaigns or outsource it to an agency. The second startup was struggling to find good mobile developers and debated outsourcing their mobile app development to an agency.

My advice to these companies, as well as any other startup facing a similar situation, is: never, ever outsource something that is core to your business.

Outsourcing a core function may give you a short-term uplift, but it also means you fail to build the expertise within your company. If you want to build a sustainable competitive advantage, you simply can’t outsource your core functions to another who may not be as invested in your success. In other words, you can’t build a great company on an outside agency’s stuff.

  • For most startups, the core areas to build in house include: product design, product development, marketing, sales, PR, and customer service.
  • Look to outsource the things that don’t create a competitive advantage, such as: legal, accounting, hosting, and analytics.

While those are general rules to follow, there are always a few exceptions. For example…

1. Initially outsourcing a position can help you create good leads for hiring someone full time. For example, you may initially contract your marketing to an independent contractor as a test run, and then bring him or her onboard if it proves to be a good fit. If you do go this route, make sure the contractor you’re hiring is open to becoming a full-time employee down the road.

2. Outsourcing core functionality can also be wise when you have a very specific need and the outsourced hire has the expertise to solve the problem and/or offers greater capacity to execute. For example, startups will want to outsource PR help for a launch or other large one-time event.

Building expertise internally is often the tougher road to take but will pay off in the long run. Focus on developing your core functions in house and leverage outside help for everything else.

How to deal with the Series A crunch

Since CBInsights released its report in December, conversations have accelerated about the pending “Series A Crunch.” With headlines declaring that more than 1,000 seeded startups will soon be orphaned, it’s only natural that startups are concerned about the future funding landscape.

While experts may differ on the implications or severity of the Series A Crunch, the numbers provided by CBInsights are straightforward. Seed financing grew from 89 fundings in Q1 2009 to more than 500 in Q3 2012. However, Series A fundings have remained fairly stable over this time. That means there are a lot more seeded startups out there: an excess demand for a limited supply of Series A financings.

I recently had lunch with an entrepreneur who asked what he should do. As I’m assuming this is a common question heard in huddled discussions in offices from San Francisco to Boston, here’s my advice on how to navigate today’s financing waters:

If you haven’t raised your seed round yet…

If you’re looking to raise your seed round, aim for more money than you had originally planned. Traditionally, I’ve advised startups to raise enough money to sustain them for 18 months. However, you should lengthen your runway in anticipation of having a harder time closing a Series A round. Startups should now be looking for seed funding to last them 24-36 months. For example, a startup of mine just raised a $3 million seed round.

In addition to looking for a large seed round, startups may need to put more thought into who’s funding them. For starters, it’s important to avoid party rounds in this kind of environment. Not having a lead investor in your seed round can make it tougher to pull together a bridge round or follow-on financing down the road, since no single investor feels in charge or vested in your success.

Do your homework on potential investors. You’ll increase your chances of getting funded beyond the seed round if you take money from VCs that are known to be patient investors and have enough funds reserved for follow-on investments. As an example, Version One has more than 50% of its funds reserved for follow-on financing.

If you have raised your seed round and are trying to raise a Series A round in the next 6-12 months

If you fall into this category, you should know that plenty of companies are raising Series A funds. However, you’ll most likely see more competition over the next year.

Your first step should be an honest assessment of your company’s chances to get Series A financing. Ask for brutally honest feedback from your seed round investors, advisors, and any other investors you know and trust.

The Series A Crunch has been compared to Darwinian natural selection, thinning out the weaker startups. In this environment, the startups that will struggle the most to get Series A financing will either:

a) Not have enough traction

b) Not have the right team

c) Not have a large enough market

So, if you find yourself falling into one of the three categories above, what can you do? Your chances will be rather limited to close a Series A deal – as a result, you need to get creative:

1. Lengthen your runway by cutting your burn rate: You’ll need to give yourself enough time to get to profitability or get traction in the market. Take a close look at your burn rate and determine where you can make cuts. Do you need to cut salaries or head count and start sharing office space?

2. Look for alternative sources of capital: VCs are not the only game in town and it is possible to fund your company without them. For example, look for strategic investors or another angel round. I even heard of one startup who successfully raised money from its suppliers.

Final thoughts
With more companies seeking Series A financing this year, it’s time to get smart. It may go without saying but the more runway you have, the greater your opportunity to gain traction and attract funds. Don’t be discouraged by talk of the Series A Crunch, but be realistic about your situation and plan accordingly.

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