Swung too far (in the West)?

Jason Freedman has written an excellent commentary, Did everyone see what just happened.  The pendulum has swung., on recent investment fever around Y-Combinator out West.

“No business plans, not even pitch decks this time. One 2-1/2 minute pitch and a quick follow up meeting. Seven figure seed rounds that can be closed within days and oversubscribed 2x to 3x. Founders with no experience fundraising and no pre-existing networks, making connections with top tier guys. It was really a sight to see.”

Sight to see, no doubt!  And Jason’s own words about the pending “trough of sorrow” are well placed.  But what caught my eye was the close.

“And finally, a word to all the investors out there who are crazy-rushed right now with all of us. Thank you for your support. Thank you for putting your money into startups and not some other asset class. Thank you for spending your time on helping this new generation change the world. Thank you for your mentorship, both when we’re looking for it and when we have forgotten that we need it. Thank you for being there for us now when things are good, and thank you for being there for us later when things might not be.”

Let’s be clear.  I have not witnessed the same excited investment marketplace here in the good old conservative mid-Atlantic but I certainly connect with the final paragraph.  For us to collectively move the ball forward in innovation then we must invest in the entrepreneur-class.   We are talking about rapid scale, big dreams and a desire to “change the world.”  That comes with a swagger and unfortunately cost.  And while we observe the fever in certain areas of the world and potentially shake our heads at how could they do that?  That does not seem like a wise play?  (And in some cases that is exactly right)  We cannot overlook the long term impact of systems that capture belief and passion and attempt to nurture it forward.

A belief that I find well supported in concepts like Y-Combinator, TechStars, 500 Startups, and the Global Accelerator Network.  So, while I may write from time to time with my own healthy skepticism of deals like the billion dollar Instagram purchase by FaceBook, I never want that to dampen the spirit the lies behind the rush to fund mentioned by Jason.  Sure, it is a rush to maybe get even richer for many but I am choosing to believe it is a rush to believe that we can change the world.  In short, I will grab and alter a line from Rumpelstiltskin on  ABC’s “Once Upon a Time”:  “All innovation comes at a price, deary

The view from both sides of the table – facing angels (part I)

Recently I had the unique opportunity to observe an organized angel group listen to two new companies pitch for seed stage capital.  In this particular club, each angel is welcome to invest independently but the group must decide if it makes sense to engage in due diligence first.  This is certainly not an unusual setup.  What was unusual is that instead of presenting as a founder, I was on the angel side of the table watching the presentations and Q&A unfold.  As the companies presented I anxiously observed every word.  I know that for those presenters everything is being laid bare:  passion, drive, ideas.  It took me straight back to my times in front of such groups – and unfortunately – my less than successful times.  I knew as I listened why I failed to strike the right note for seed funding.  At least five lessons where on display, for good or bad:

Lesson 1:  Know the job your technology is being hired for

It is tempting to say ‘solve a real problem’ here but instead I will take a tip from Innovator’s Dilemma.  You see, my partner and I had created award winning technology.  We had clients and pushed the foundational technology on which we built our product to its limit.  We were going to change the way data was integrated, used and understood:  on the fly!  Sweet!  But I was technologist first and business problem solver second.  Oh, we did have a job our technology could be hired for and it would perform that job better than any existing solution back in 2007 and would still do a pretty decent job today.

You see, we had already won business in disease management and vulnerable population tracking.  We could grab mobile health information in the field and analyze it in real-time alongside a multitude of other health related data streams without every compromising the integrity of any given source of information.  Participation in data visibility with complete control for each participant.  The only problem:  it was on SLIDE NUMBER THREE!  If we were going to win the hearts and minds (and believe me you need a story that generates passion) we needed to tell a compelling solution story, not a technology story!  We needed to know that job and lead with it!

Instead, we were all too happy to share how our technology not only worked to perform that job better, but solved all kinds of problems.  Too numerous to count, so many it boggled the mind.  Which leads me to lesson two…

Lesson 2:  Clear focus

I know you think you have it as a leader, as a founder.  10 slides that follows the Guy Kawasaki formula (timeless).    You know the market, competitors, competitive advantage, barriers to entry and you even have a perfectly formed hockey stick of revenue with no end in sight.  Oh you have it all.  Including a message that tries to say it all.  In 20 minutes.  That weaves a complex story of technology, meets market demand, meets overnight star!  And it is just the tip of our ‘bowling pin’ plan. [Yes, I have used all those phrases and tried to tie off every detail in every area without taking a breath] See how many different use cases (did I really say use case, yes) we fit with our unique solution?  And after a confident presentation you step up to face the first question from the crowd:  What are they selling again?  Why exactly do I need this?  I see where you are going but…?

What happened.  Did you fail to live in the harsh world of the 5 second impression?  The 140 character tweet that must say it all.  A post from notable investor and business thinker Vinod Khosla’s Five-Second Rule challenges the limits of clarity, simplicity.  I know for a fact I failed the five second rule (and still struggle) – can we have 10 please?  And no matter what you think about explaining complexity you should never try to boil the ocean!  Even if you have a really large pot.

Share your passion – just make sure you share it clearly, with the focus and dedication it deserves.

Lesson 3:  Know your audience

Remember that presentation.  Full of awesome sauce!  You have practiced it a 100 times (and yes, I stopped in the 20s, another bad idea).  You have it nailed, it states that problem and your solution with crystal clarity.  You can bring it out time and time again.  But should you?  Do you know your audience?  I certainly could wax poetic about “mash-ups” and “semantic integration” but I failed to understand my audience did not always appreciate the nuance of lightweight, web service integration.  (Or even want to) No, they had another agenda.  Understanding how this turns the precious working capital they are about to fork over into a positive return.  Now that was what they wanted to know!  If I wanted to make a technology pitch then find technology-centric investors!

In short, know the audience first and while you still may need to check the appropriate boxes make sure you understand what they NEED and CONNECT with them first and foremost.

Back to Vinod Khosla (yes, I am a fan) for a little more insight.

Lesson 4:  Avoid that live demo thing

Ok, lesson 4 falls in the practicle category.  Before you throw over to your partner to show the ‘cool live demo’ remember you only make a first impression, once.  And you don’t want that impression to be a dropped wifi connection or “this was working when we practiced” comment followed by dead space.  If you have a compelling solution that is clearly great for the job it is designed to do, a clear focus and a bead on what your audience needs to know to help make you a winner don’t drop the ball by relying on the potentially reliable.  Should you have something real, no matter how small?  Probably!  Can it be a video demonstration?  Yes.  Pitched effectively from a few compelling screen shots?  Maybe. Then let yourself of the hook and run to toward simple!  And make sure that demo is telling the same story you are telling (with that clear focus, know your audience stuff)!

Lesson 5:  Never let them see you sweat

And one last note (one I actually did know way back when) – if you are going to ask for money, be confident, believe in your team and demonstrate your determination to win.  Transparency is fine but avoid dropping to one knee and begging.  Believe me, it will feel right sometimes when you look at that bank account but it rarely is!