I just finished reading Seth Levine‘s post $5k to Pitch Your Business? Who Falls For This? Which is about the 10th(?) post/tweet I have read about investment groups requiring companies to “pay to pitch.” Jason Calacanis has lead an interesting and vocal campaign against the practice going so far as to start the Open Angel Forum.
As vehemently as I have seen active investors (angel and venture) speak out about the practice, I have heard frustrated entrepreneurs ask what other opportunities are available.
Having just seen several of my friends close rounds (big and small), and spent the better part of the past three/four months raising money myself, I have come to believe this to be true:
Fundraising is about YOU. If you are not getting meetings, you are not trying hard enough.
There are two components to any fund-raise: the idea and the entrepreneur.
Investors tend to think about the following questions around the idea:
- Is it in a big market?
- Is the idea interesting/disruptive enough (IN THE OPINION OF THE POTENTIAL INVESTOR) to ramp users/revenue quickly?
- Is the idea innovative?
- Is it well thought out?
- Is it unique?
- What are the costs to getting the idea off the ground?
- Does it solve a REAL problem? (It doesnt have to be an IMPORTANT problem)
- Does it excite me? (Dont underestimate the importance of this. I have good friends that are VCs who are not investing in my project because its fundementally not interesting to any of the partners)
Investors tend to think about the following questions around the entrepreneur:
- Do I believe s/he can build this company to size?
- Do I believe that s/he will steward my investment properly?
- Do I believe in the entrepreneur?
- Can I work with them for the next 3-5 years?
- Do I believe that s/he can recruit a solid team/board?
More often than not, an investor will invest in a “B” idea with an “A” entrepreneur attached. Most investors will never invest in a “B” entrepreneur with an “A” idea (unless they feel they can bring in an “A” team around the entrepreneur).
But, what if you cant get the attention of any investors?
You arent trying hard enough.
Here is what I did.
- Made a list of everyone I thought would make a major difference as part of my investment group.
- Made a list of everyone that would be interesting in our NEXT round.
- Made a list of everyone that I wanted to pitch the concept to, whether they wanted to invest or not.
Then I called/emailed and asked for appointments. Where I could, I leveraged people I knew to make intros. I asked people I pitched to refer me to other people on my list (I had 4 different people introduce me to a firm that I think would be amazing in our next round, until they finally took a meeting.)
I called CEOs of companies that firms that I was interested in invested in. I pitched the concept to the CEOs to get their feedback on if it was interesting for their investors. In some cases, I got meetings because of that. In all cases, I got amazing feedback.
My pitch was refined after every meeting. I listened to commonalities rather than direct advice. Should I put my team slide early or late? Did it matter? Was market size really important? What resonated with potential investors?
I spoke to potential customers. I asked them what pains they currently felt. I asked for DATA. I spoke to potential users. I asked for more DATA.
Overall, I ended up speaking to probably 40-50 people. Maybe more. Some expressed interest in investing. All are people that I feel I could reach back out to for advice.
Quick note on my investment deck:
An investment deck should answer these questions (the order varies on whom you are speaking to):
- Whats the problem
- Why do YOU care
- Whats the solution
- Why is YOUR solution the best
- Product Demonstration
- Whats the market size/composition
- What are your revenue projections (3 years)
- What are your revenue sources
- Who is the team
- Summary (3 bullets)
- How much are you raising (and why).
My deck is 16 slides (including a title and conclusion slide). Not sure if its the best deck out there, but it worked for me.
When I graduated college and moved to DC with a friend, I had a place to stay for 2 months and $300 in my pocket. No job. My friend Larry and I decided that looking for a job WAS our job, and we spent 40+ hours a week, sending resumes (this was in the Paleolithic Era), walking into companies to ask what jobs they had available, asking interviewers to recommend us to other companies. All in June/July/August in DC. In sport coats and ties.
When you are looking for investment, that is YOUR JOB. Yes, you have to keep your company moving forward as well, but if you NEED investment, then its YOUR JOB. Treat it as such.
And remember if you cant find investors, its not their fault. Its yours.
BTW, those that know me, know that I am friends with the Foundry guys–Brad, Seth, Jason and Ryan–and David Cohen. I got exactly ZERO intros from them (I ended up not asking for any, which was probably stupid on my part) to my final investor group. In my investor group, there are two people that I knew prior to starting the fund raising process.
When I started this post, I didnt mean for it to be so preachy, but it really angers me when I speak to entrepreneurs that are having undue difficulty raising money. If you are struggling to raise money, look back at the decision points:
- Does your idea excite the people you are talking to;
- Do you excite the people you are talking to;
- Are you talking to the ‘right’ people (not the ‘easy’ or ‘big name’ people)?
There is money available, but it takes work to find the right investors, and paying to pitch is just a short cut that hurts your company in the long run.
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Have you heard of the new dance craze that all the kids are doing? Its call the Crowdsource, and it goes like this:
- Throw your hands in the air and scream “Man! We are super busy!”
- Shake your head and yell “Have you heard of the craze sweeping the nation? Its called the Crowdsource. The Crowdsource!”
- Shrug your shoulders and exclaim “Its cool. You get everyone else to do your work for you!”
- Then you clap your hands, smile and with a knowing, hip smile, laughingly announce “Lets do this!”
- Repeat until you realize that you are a moron and have no clue what crowdsourcing is.
In 2006, Jeff Howe coined the term in a Wired article. Referring to the practice of presenting a problem to an unknown group of people in the form of an open call. To be exact, on his blog he defines it as such:
Crowdsourcing is the act of taking a job traditionally performed by a designated agent (usually an employee) and outsourcing it to an undefined, generally large group of people in the form of an open call.
Jeff wrote “the” book on crowdsourcing and among other positives, crowdsourcing problems tends to be free and give real customer insight.
Those two points: insight and lack of cost have led so many companies to attempt to use the “wisdom of the crowds” to solve their problems. For some, like Threadless, it has been a wonderful success. For others, not so much.
One of the outcomes of the rise of crowdsourcing has been the proliferation of spec work (here is the video from a panel about Spec Work from SXSW 2009):
What seems to be missing from the conversation is that not any problem can be solved through crowdsourcing. For example, a friend sent out a tweet that said (paraphrasing): “I want to crowdsource this. What blogs do you read?” Thats not crowdsourcing, thats a survey.
I realize that for many crowdsourcing has jumped the shark, and this post is a bit late to jumping on the crowdsourcing has jumped the shark bandwagon (after all bandwagon jumping has also jumped the shark, and I believe if you look into your heart of hearts, jumping the shark has jumped the shark as well).
But, crowdsourcing, using your passionate users to make a product that they can be more passionate about is still pure genius. Here is a great example.
I bought a TomTom 740 Go Live and instantly was amazed by the accuracy of the trips. I had a Garmin Nuvi 1490 for a few days prior to swapping it for the TomTom, and I was really disappointed in the traffic and the directions. I have a specific route from San Francisco to my parents house in San Jose that after years and years of driving the route, I have determined to be the fastest.
The Garmin took the safe route. The TomTom took the “right” route. What was the difference? TomTom crowdsources its maps and directions.
Taking data from all the TomTom’s in use (sort of), they get the actual speeds of roads at certain times, versus the posted speeds. They also allow their users to submit map updates. In approximately 30 days, there were more than 6,500 updates to the maps. Include that with custom POI updates (I now have all the Apple Stores in the US), and you have a product made better by its users.
Thats crowdsourcing in a nutshell. Will asking your customers to solve a problem improve the product? Will you be able to put out a better product because your crowd (not any crowd) is involved in its growth?
You see, thats the secret of crowdsourcing. Effective crowdsourcing only works if 1) your community is passionate about your success; and 2) you have an existing open dialogue with your community. Threadless is a great example.
Build passion and communication with your community, and the ability to effectively crowdsource the solutions to important problems will be as easy as the box step.
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Night before last I went to see the Pinback show with my friend Eric Marcoullier . I almost didnt go. After all, I had just finished eleven straight days of travel, which included meetings in NYC, speaking New Orleans at Tribecon (an amazing experience!), my grandmother’s funeral in San Jose and the Techstars reunion in Seattle. Im glad I went.
The band was fun, the venue, the Ogden Theatre, is always great (sort of a large version of the Fox in Boulder). As the band began to play, Eric and I were about 5 feet or so from the front. Standing against the stage were three girls. Each under 20 (given the black X’es on the back of their hands), dressed as if this was their big night out and bubbly as if the band was the second coming of Jesus.
When Pinback started playing, the girls started to squeal. Loudly. It was quickly accompanied by dancing around and faces full of smiles.
I chuckled to myself watching them bounce around. You see, earlier that day I signed a termsheet for the project Im working on and found a senior technologist to join the team. If I wasnt so tired, I would have been jumping around.
All in all, I couldnt have picked a better place to be than in a place filled with hundreds of people expressing the pure joy I was feeling.
And as the band played, I was screaming like a girl. At least on the inside.