"preparing the battleground ", part 3 of the series: six steps to venture capital

this is the 3nd part of the "six steps to venture capital" guide, where the systematic approach to get venture capital for a start.ups is discussed.

after the motivation got sorted out in step 1 and in step 2 the a-b list of potential investors (part 1, part 2) got started, it is time to "prepare the battleground".

it would not be wise, to contact the top 3 vc on the a-b list to start with. even after the excitement of achieving a list after quite some work, this would be a bad thing to do. first, because the potentially best investors should be kept for later, when a routine in pitching was developed. secondly because what would happen if a contacted (still potential) investor directly calls back and ask for the executive summary and you do not have one yet? and no, sending out something that was just compiled in a couple of hours, is not a good idea. not even for the bottom three vc from your a-b list.

following the advise of general sun zi (read more about sun zi, moltke & douglas adams für start.ups here) you should only go into a battle when you know that you will win. therefore preparation before contacting future financiers is key. there are four things that have to be in place:
1) investor picht slides (30-20-10),
2) an executive summary (2 pages, includes financials),
3) business plan (20 pages total, including all attatchments & 1 page financial summary),
4) references.
the best way now is to work through the list top - down.

plan to spend around one week on preparing your investor presentation and executive summary. follow 30 (minimum font size) - 20 (time of presentation) - 10 (number of slides) guideline from guy kawasaki. stick to this rule, do not try to improve it, it only reduces the chances of funding.
use the following headlines, kawasaki again: 1) problem, 2) solution, 3) business model, 4) underlying magic, 5) marketing and sales, 6) competition, 7) projections, 8) team & 9) status & time line.

the structure is the same for the investor presentation as well as for executive summary. for more details, read "the art of the start", or "reality check" from guy kawasaki.
the executive summary shall not succeed more then two pages. and that includes a summary of the financials (projections for revenues, number of customers contracts, personnel & other costs, number of employees, total cash requirements, sources of funds).

focusing that much requires a clear focus of the aim of the start.up and how to achieve it. if two pages are not enough, more thoughts have to be spent on the start.up.

based on the presentation and executive summary the business plan can be compiled. sticking to a readable 20 pages is key again. no vc will read a 60 page manifesto. after the focusing work was done in the executive summary, filling in the prosa can be done in 2 days. if not, going back to thinking for the exec. summary is imminent.

having followed the chronological order of the "battleground" preparation it is time to think about the start.up's references.
first, who can be the references? choose from former employers, colleagues which already made it, customers, former investors, well connected lawyers, reputable professors. whoever can give valuable, connected reference can make sense. a similar procedure as compiling the a-b list can be applied. not everyone which is known by the members of the start.up is a valuable reference for potential investors though.
as the executive summary is ready by now, it will be easier to get 2-3 references on board, using the key pitch topics is the thoroughly prepared "ammunition" at hand.

being prepared with all the materials required and the investor targets identified, it is time for approaching the investors. this will be the next part of the series, six steps to venture capital.

recommendation: while preparing the a-b vc list, create 1) pitch slides (30-20-10), 2) an executive summary (2 pages including financials), , 3) business plan (20 pages total, attachments & 1 page financial summary included), 4) prepare 2 to 3 references.

how to turn-off investors and what business plans & sausages have in common: best of web2.0 expo belin 2008

the second incarnation of o‘ reillys web2.0 conference took place at the bcc - well placed at the center of berlin, next to alexanderplatz.

the new location was a welcomed change to last years 60ies-bunker style berliner messe facilites like a „community lounge“ promoted interaction between attendees and with last year‘s food problems solved people were happy to focus on the topics at hand.

besides the „big pictures“ keynotes for tim o‘ reilly, john lily (mozilla), martin varsavsky (fon) et al., the show brought a wide range of in depth topics , ranging from business to marketing and design to development.

the collective presentations of the show can be found on slideshare, respectively on the conference website . going through the (until now) uploaded 42 presentations on slideshare is too much noise, so let‘s setup up best of the show. start with the five best events of the show:

1) pitch camp
pitch camp was a driving event. 12 companies were selected to pitch for two minutes each, in front of a 200+ crowd and a grand jury (ranging from techcrunch and venturebeart to accel and index ventures, see here).

the short intro giving on the art of pitching can be reduced to 3 points:
1) clear view of business
this is necessary to be able to communicate the start.up (business objectives, market segments, problems solved)
2) understand your audience and what they care about
who are they, what do they want, why would they care about you.
3) build 3 month, 9-12 mont and long term business objective

there were book recommendations as well, crossing the chasm (again!) & blue ocean strategy, chan kim, renee mauborgne, understand the problems of your market.

also interesting to note were comments by the jury what turns them OFF, when the listen to pitches.

investors

• lack of ambition displayed
• lack of character and leadership
• homework not done (not knowing the background of people start.ups pitch to, not done the business metrics, not having market figures, competitor ignorance, lack of execution plan, ...)
• lack of understanding potential customers, investors, partners

media

• old stories
• no potential to bring journalist on techmeme/digg for x weeks
• clones of anything
• no magic sauce begin

potential partners

• telling the potential partner how cool the start.up is
• not telling or not being able to tell what the partner will exactly (=cash) gain from partnership, when and how.
• unfulfillable expectations from partners (like: just put my link on the google landing page...“)

how to get in contact?

• through references
• email (keep it short, send a compelling 2 sentence pitching email)

not just also judging on the start.ups at pitch camp but also discussing on stage was:

2) keynote speaker yossi vardi

being a serial entrepreneur himself and a rather successful venture capitalists, yossi vardi gave some interesting statements at the discussion with tim o‘ reilly.
that at the end of the days successful vc just have luck, is quite a open statement.
also that it is very important to check the vc a start.up is interested in. is he friendly? do entrepreneurs work repeatedly with him?
and that business plans and sausages have one thing in common: only people who do not know how they are made eat them.

this made the 2nd of the best web2.0expo berlin events. read more about moo, user interfaces and user action through design in the 2nd part of the upcoming web2.0expo roundup.

„long tail“ financing? 2/2

second, if tackling the tail from the right end seems to take too long (either because the business opportunity is gone by then or by lack of patience), a 2 phase approach is possible

having a long tail business in mind, start with the sweet spot core business. after gaining grip there, reach out to the tail. amazon did start to sell books with the differentiators of free delivery, consumer reviews and easy search in the beginning. those provided an outstanding new shopping experience. successful growth in the core business brought in investors, closing the first phase. only after that, in phase two, the long tail got explored. (an similar approach can be expected with their web services.)

this requires a business, where competitive advantages already exist in the classical core business – and not only in the long tail. in that case, write your business plan, build your working prototype, bring along customers and core team. then approach venture capital (preferably through introductions).