Archive for November, 2007

Put Yourself in the Investors Shoes – An Exercise

My last post was running a little too long. Here is a short exercise that I have entrepreneurs do to help them understand what drives Angel investors. First, Angels invest their own money. Once they give it to the entrepreneur, it loses all value until the entrepreneur experiences some event that allows them to pay the Angel back.

I have entrepreneurs think about a situation where you just had a successful exit and now would like to take a million or so of the proceeds and do some early stage investments. Now you worked hard for that money and don’t want to squander it. So, you want to make sure that you are making good investments.

Now take a piece of paper and write down the top five things you would like to hear an entrepreneur tell you that would make you take out your checkbook and invest.

Now open up your presentation and look at the first 3-5 slides. How many of your list do you cover? If you are like most people I have done this with, there were few if any. Of course, you might conclude that you wouldn’t invest in yourself, but, more importantly, this shows you that you would develop your presentation differently if you asked potential investors what they think is important before you present.


Pitching Your Company To Investors

Although I have posted on this topic before, it was about 16 months ago. So, I guess it is time to bring it up again.

I regularly sit on panels and listen to business owners and entrepreneurs present their companies to investors hoping to gain interest and get some capital. Now I know that they have been working hard to get to this stage, but there is a difference between working hard and working smart! So, what is working smart?

From their presentations, I believe that less than one-tenth of one percent have spent any time trying to understand what investors look for. If they did, they would understand that we are not really interested in hearing about a company or technology before we hear about the business opportunity. If there is no clear business opportunity, then why spend the time learning about someones idea of a great technology?

I sat on a panel last Thursday. The CEO was energetic, slides were nice, he was able to explain his technology, but there were very few things that an investor would like to know in his presentation in spite of the fact that he believed that he had an Investor Level Presentation. He didn’t have an idea about how an acquisition would work for his company even though that is the exit he is planning on. He didn’t know what he thought is current valuation is, so that I could get an idea about what a $2M investment would buy. In fact, he didn’t talk at all about what he is offering until I asked him.

Oh yeah, a $2M first round. Who helped him decide on that number? It is at the high end of an Angel round and much to low for VC. Getting $2M from Angels might take forever. With an average Angel investing $25K-$50K per deal, he will have to convince somewhere between 40 and 80 Angels to invest. to do that, he will have to get in front of all the Southern California Angel groups. It will take forever and probably be extremely frustrating.

This CEO didn’t realize that he needed to, not only explain why his was a good deal, but why it was better than the six I saw two days earlier at a Keiretsu Forum meeting or the 150+ we are tracking at California Capital Partners.

One of the other panelists recommended that he not both thinking about his exit. It is too far away. He had to leave early, which is to bad since I disagree with him. I realize that things change and whatever he thinks today will probably be different in the future. However, I am interested in understanding how he is thinking. Is he saying he believes that he will be acquired  because someone told him to check this box. Or has he really thought about being acquire and how that might work. Equity investors, Angels or VC’s, want to hear about how a company can build a 5X to 10X return for them  in 3-5 years. Yeah, yeah I know that doesn’t always happen, but we do want to have someone focused on this type of goal in to beginning.

Let’s see, $2M investment, 5X to 10X return in 3 to 5 years; so I want to hear about a company that is planning to build to a point where an acquisition will pay out $10M to $20M. So, what’s their Proforma say? 5th year revenues at $24M. Hmmmm, not even close.  

What can the early stage entrepreneur do? Spend as much time learning about your potential investors as you do learning about your companies potential customers.  After all, investors are truly your first customers. More importantly, they have to buy into your company not just your products. Work smarter, do the research and find out what your investors are looking for and then tell them how your company will make it happen.

Al Gore’s Next Move, Not a Candidate!

Seems like Al Gore really does understand that he has a much better chance to influence public opinion than gain public approval. It was announced today that Mr. Gore is joining the venture firm of Kleiner, Perkins, Caufield & Byers and intends to be “hands-on” involved in their Green-Tech/Clean-Tech investments.

Hopefully, Mr. Gore will have more of an impact than Colin Powell has had. Although I must admit that he Powell could be doing lots of things that are just not publicized.

Recently, we have all experienced just how charismatic Gore is when talking about his passion. After all, he has won a number of awards for his work from diverse places like the Academy Awards and Nobel Prize.

My only question is just how hands on will he be if all the action is on Sand Hill Road and he is “kicking around Nashville where he plans to stay“. Maybe he can be a catalyst for using high tech products like conferencing systems to show others the advantages of these systems.

Picture Worth a Lot of Words, iPod Vending

cropped-vending.jpgThis is the machine. It is hard to imagine but the picture tells it all. It is about the size of 2.5 times bigger than the avarage drink vending machine.

I’ve Got to Get Out More!

Living in San Diego County and following lots of blogs, I thought I was pretty up on everything. I was walking towards the elevator in my hotel and something large caught my attention. As I looked at, I couldn’t believe it and then realized it was, in fact, a very large vending machine. Not for candy, sodas, day old sandwiches or various sundries. It was dispensing iPod accessories!

Touch screen, credit card reader, and a dispensing mechanism for earbuds, other headsets, cases and a number of other accessories.

I guess I’ll never get back to the farm after I’ve seen Paree.

Off To Blogworld and New Media Conference

Well I’m in Vegas ready for the first Blogworld and New Media conference, which is not the first blogging conference I’ve attended. What I found interesting was as I was packing I found I had a number of high tech gadgets that I hadn’t packed before. You would expect a laptop, but I also had an iPod, smart phone, digital voice recorder, spare microphone, Hard Drive Video camera, still digital camera, and associated cables. When I looked at the array of devices, I just had to laugh. I needed another case for all these.

I know, I can upgrade and get some new stuff that combines some of these in single devices, but all the things I have are relatively new.

I’m just glad I don’t do a lot of traveling and have to cart all these around.

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November 2007
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