Stephen's Rants

Tomorrow we are announcing Start Madness with a post on Beehive, and since I don’t promote this blog, I thought it might be a nice outlet to reflect a little on the journey so far. Two years ago, Clint Betts and I decided that we were going to throw a festival that focused on Utah’s startup and tech community, and make it the kind of event that we ourselves wanted to attend. We are now on the verge of our third such event, and I think for the most part we’ve been successful at that goal.

One of the ideas that we had within the broader event was a pitch competition where all the local venture funds participated. If you read this blog, it’s probably pretty clear that one of my obsessions is stripping away the barriers to understanding this obtuse type of equity financing. I think that venture capital, like any kind of finance is a very useful tool for those who understand how to use it. My hope with the event was to strip away the barriers of entry into venture capital. Sort of a “you too can raise venture capital! Yes, even you!”

What I didn’t know at the time was how bonkers what we were proposing to the venture funds was. We were essentially asking them to commit to a blind selection, hoping that at the end of it (we really didn’t know) they would get to put money into a company they were happy to be a part of. Thanks to a lot of cajoling, some phenomenal partners, and a little bit of FOMO, we pulled it off in a big way.

A pitch competition is to fundraising as Survivor is to hiking the PCT, but despite some of it’s obvious pitfalls if it is handled well, I hope it can be a boon to the founders in the event, and the community who are curious about venture capital.

On the eve of the launch of the third go round, my hope is that we can once again open the door and shine a light on the process of raising money through venture capital. Through all the cajoling, partnering, and FOMO-ing (ie. stress) by the end of it my face is always sore from smiling so much. The teams are wonderful to meet and work with, the VCs love the process too, and the audience is full of bright people with great ideas, that hopefully learn a little more about this crazy funding thing.

 

Utah’s tech entrepreneurship community is small, not as small as some, but still quite small compared to others. This offers enormous benefits to members of the community, as they can quickly become networked, have easy access to resources, and help lift each other.

The size also has drawbacks. Because it’s small, everybody knows, or thinks they know, everybody else. That sense of familiarity seems to give people entitlement to openly criticize. It leads to a crab mentality, where nobody is allowed to succeed without taking their lashes.

Criticism without suggestions is simply complaining, this is especially true when it comes to public criticism. If you don’t like the way someone is doing something, the first step isn’t to make hay out of it online, it’s to seek understanding. Why are they acting that way? What might be causing them to make those decisions? If you can’t understand where they are coming from, not only do you have no right to criticize, you aren’t in a position to make informed suggestions.

The most talked about topic within Utah’s tech community is the “community” itself. Entrepreneurs, investors, cheerleaders, and other interested parties take every hiring, firing, office move, and funding announcement through their “is this good for the community” logic tree. I don’t have a problem with this, and I’m glad that so many people care about this as much as I do. What I don’t think is helpful is the hurtful criticism and crab-grabbing disguised as a conversation.

I guess I’m saying, in your private conversations, go wild, be a jerk. I’ve been one before, and I’m sure I will again. But if you want to air laundry, be actually constructive, be genuine in your goals, and do your damn homework first.

Yesterday I wrote about how to spend the uninterrupted time during a pitch competition presentation. Tonight a few thoughts about how to spend your time during the Q&A. There are lots of things that you can’t fit into the few minutes during the pitch. I think it’s best to spend the Q&A filling in everything that you wanted to get to, but didn’t have time.

Be sure to talk about how your team is composed of individuals uniquely qualified to solve the problem you laid out in the pitch. Typically that looks like industry experience, technology expertise, and intellectual property.

Talk about your competitors, be sure that you know about all of them in detail. I’ve mentioned this before, but nothing kills a pitch faster than when a judge/investor knows more about the industry than the presenter.

Talk about how you are going to use the funds or title or whatever is on the line. Are you hiring specific people, or expanding to a new market?

How can you talk about what you want, instead of just answering the questions? Well, I know it’s annoying when done poorly (looking at you politicians), but when you get a question, answer and pivot to one of the thing you wanted to talk about (team, competitors, etc.).

Lastly, remember to repeat your Ask as you close out the Q&A. Always seems like a lost opportunity to me when presenters take a final question, answer it, but don’t close with the Ask. “I need your vote” or “I need your money” or whatever. Anyway, hope that’s helpful.

I mentioned a few posts ago that the art of pitching at a competition or demo day, or any on stage type scenario, is different than a meeting with investors. But it’s likely a skill worth perfecting during the very early stages of a company’s fundraising experience. There is a lot of great exposure and easy money at pitch competitions and similar events.

I spoke to a group of students at the U of U today about how to present on stage and thought I’d recap my presentation on this post.

I think the first step, The Introduction, has three basic parts and can be presented in any order. 1) Your name, 2) the Company name, and 3) the zinger. For example, “Hi, I’m Stephen Walter, the CEO of CatAttack where we’re making mail order cats as easy as a right swipe.” Or, “We are CatAttack, I’m CEO and founder Stephen Walter and our passion at CatAttack is to…” Or, “At CatAttack we give our users the ability to order a cat with a click. I’m Stephen Walter, the CEO and founder…”

The next step is to describe The Problem that you are trying to solve. For example, “Studies show that over 30 million Americans wish they had a cat…” If you can’t think of a way to describe the problem, you might recall how you came up with the idea in the first place. Like, “I was sitting at home and my lap was cold…” That seems to be the simplest way to describe the problem, and might explain why it’s so commonly used.

Step three is The Solution. As I told the class today, be sure that the solution that you are proposing actually solves the problem you put forward 30 seconds prior. You can’t believe how often presenters put forward a problem that they don’t actually solve.

Be sure that you are explaining the solution in a simple, high level manner. It is not a good idea to drill into the minutiae of your software stack, or the intricacies of your pricing model unless you think it’s absolutely necessary to set up against questions about your competitors. In my experience, it’s best to give a short explanation about how amazing your solution is and a brief explanation of how it works.

Step four is something that I rarely see but I consider crucial, The Progress. Ideas alone have negative value if any, judges and audience members want to hear about how far you’ve got on turning your solution into a reality. For example, “Since starting in … we’ve launched on both iOS and android and have … daily active users.” Or, “We have a fully functional prototype with … beta users.”

Step five, The Ask, has three distinct parts. 1) Repeat the name of your company, 2) re-state your zinger, and 3) make your ask. For example, “Thanks again for having us, we are CatAttack, getting lonely people cats quickly, and we’d love your vote for best presentation.” Or, “Your vote for top pitch will help us grow CatAttack to become the the…”

There are a number of other things that you need to do in a presentation at a demo day, but pitch competitions often have a few minutes of Q&A following the presentation and you can use that time to slide in responses that cover those things. I think I’ll try and cover that stuff tomorrow.

At UA2 we get probably 2-3 dozen form submissions to present every month. Because of this, you start getting a sense about whether a company is worth screening without even reading the words.

Elizabeth Yin from 500 Startups wrote somewhat about this recently, the email pitch. TLDR: It’s really difficult to do well. However, it’s worth learning to do well. I’ll bet almost all first impressions that startups get to make with investors are actually over email, especially at the seed stage.

When I get a form submission for UA2, the first thing that stands out to me is the length. (Again this is not fair, just trying to be honest with myself) Extra long email? Probably a scatterbrained solution, likely not solving a real problem. Extra short email? Founders aren’t far enough along (no product) to understand the complexities.

The worst, the absolute worst, are typos and sentences that make no sense. Again, I know this isn’t fair, the underlying value of a company or its investability should not be based on a short introductory email. However, if you don’t put your best foot forward, maybe re-read for typos and readability, you aren’t making it easy for the people on the receiving end of the email.

Another great tip from Elizabeth’s blog: use your @company.com email address. When I get a @gmail email, even if I know that someone is pre-product a lack of seriousness is conveyed.

Utah recently went through a rollercoaster negotiation with facebook to build a data center. New Mexico ultimately got the deal after essentially giving them an unbelievable tax credit. It’s a funny thing about politicians, they love ribbon cutting photo ops. Having facebook build a low staffed data center would be great for the county mayor and the governor. “I’m the guy who got facebook to come into the State.”

I’d love to see mayors and governors spend more time with startups. Pluralsight and Qualtrics seem to have figured this out with our current governor, but it seems like for all the hand wringing and hot air they could be doing a lot more for early stage companies that actually need the help.

Something free that states and cities could do is just lend startups some exposure. Get a PR focused member of the staff to work on ribbon cutting with local startups. Startups love PR. Help get them into local newspapers, magazines, and TV.

What about tax incentives? Facebook was being offered $240m in tax rebates, were not going to hire local contractors, and would have maybe a dozen employees for server upkeep. If that is worth $240m in lost tax revenue, then I’d think that GOED and city economic development could throw something at local companies.

Next week, or maybe the week after, I’m speaking to a group of U of U students about how to pitch before investors. I do this a lot and I think I’ve written about it a lot on this blog before. One thing they specifically asked that I talk about is the ‘worst pitch I’ve ever seen’. Luckily I can’t remember the worst pitch that I’ve ever seen, but I’ve seen some pretty rough ones.

Tonight I thought I’d make a list of the things that often happen during rough pitches, the kind of thing that will sink a pitch nearly every time.

• Lack of knowledge. When you are pitching a product and a market it’s expected that you have a depth of knowledge about both. Some of the most uncomfortable moments I’ve sat through are where an investor knows more about a product or market than the entrepreneur. Good investors don’t make a big deal about it, just suggest they read up on something, or even follow up with the info after the presentation. Not so great investors use it as an opportunity to show off to others in the room (especially true at angel meetings).
• No lead in. It’s good to jump right in, but be sure to round first on your way to second. I usually attribute this to nerves, but generally I see lots of entrepreneurs struggle with communicating the broad strokes of their plans. They spend so much time with their problem and solutions that their brain often occupies the fifth degree of detail on both. That’s great and normal, but be sure not to start there (also probably don’t go there until the fifth meeting). Easiest way to lead in? Just describe the problem you are solving.
• Defensiveness. If your idea is under attack, defend it! While doing that, try not to get defensive. I know it’s hard to listen to people who know less about what you are working on than you do, but your job is to sell them on you project and yourself. Nobody likes people who can’t take a question without getting defensive. Answer their question and move on.
• No executive bio. On thing that’s really frustrating is when presenters skip over their personal credentials. You hear all the time about how investors, particularly early stage investors, are looking for good people to invest in. Well, don’t forget to tell them about yourself. Often if the pitch is interesting enough the other question that bounces around an investor’s head is, can this person actually pull it off? Well, be sure to tell them you can and why.

Like most lists, I’m sure I’ll think of a more items right after I click Publish, but this is a good start.

Just a short blog tonight, had a conversation with someone at a tip-top venture fund today. They are based in CA and I asked what the view is of Utah’s ecosystem. He replied that it is not well connected to venture, full of obscured high-value companies that raise gigantic rounds out of nowhere. He also noted that Utah companies have a strange habit of bringing their lawyers and even investment bankers to these meetings.

Seems like the second observation stems directly from the first. If someone doesn’t run the traditional gauntlet of round-after-round of funding, I could see why they might feel somewhat unprepared to raise their first round at such an enormous valuation, like PluralSight, InsideSales, Qualtrics, etc. Even Domo’s first round was enormous, although early in the company’s lifecycle.

I wonder what it would take to change the narrative? Should it be changed?

 

I know a phenomenal entrepreneur who asked me an interesting question that I can’t stop thinking about. He’s a team building, product shipping, growth guru, who recently exited a company he successfully co-founded. He was, rightly, confused why he isn’t being courted onto another team or VCs on his next project. I was a little tongue-tied about it, but the truth was that nobody knew about him.

Because his company bootstrapped, he wasn’t thrown into the marketing machine powered by venture capital. He doesn’t drop by startup events, apply for awards, or participate in the local twitter-verse. Because of his focus on his actual work, he hasn’t been invited to take a victory lap in person, or online.

Seems like there are three types of marketing that companies need to engage in after joining startupland. The first is obviously for their customer, and of course there is a lot of marketing for talent. The less obvious one is the marketing of the business to investors. TechCrunch, TermSheet, VentureBeat, TheInformation, are singles bars for investors and companies. Here locally, Silicon Slopes, Beehive Startups, KSL, and twitter banter are where the same thing goes on online, and of course events, events, and more events.

No judgment either way, I actually think if you are going to run the gauntlet of taking venture capital you owe it to yourself and your team to put on your venture marketing cap. This kind of thing seemed maybe a little silly or pathetic to my friend, but I’m fairly sure that if he’d been doing it for the past few years, he wouldn’t be asking me where the love is.

I love movies, and I also love the insider perspective of movies that you sometimes get on podcasts and interviews. The stories of how something actually ended up on screen. Made me wonder what startups would be like if the workload was more distributed throughout the process. Instead of relying on a founder to carry a project from inception to liquidation, the auteur model, maybe there could be more of a distributed model.

Probably naive, but my sense is that under the studio model, a company like MGM would have lots of screenwriters, directors, actors, editors, grips, etc. on payroll. Now those jobs are scattered to various degrees of independent contractors and unions, all negotiating based on experience and availability.

I know lots of people who have genuinely good ideas, but little interest in carrying them out, just like screenwriters or spec writer. It might be interesting if someone could make a living selling startup ideas, to varying degrees of mockup. Just like a director shopping for scripts, the founder could shop for buy the startup idea, take it to producers (VCs), assemble a cast (founding team) and lead the product to its launch (through the shoot).

After the wrap party, lots of directors work to varying degrees of oversight on the editing of a movie. I heard once that Scorsese hands over his film completely to his editor. Seems like the founder in a distributed model could hand over the CEO position to a growth CEO, stick around on the Board to help the transition. The marketing, promotion, and release of a major film is a totally different skill set from the fundraising, casting and shooting, etc.

I wonder if we are setting unrealistic expectations by insisting on the auteur founder. There are very few Paul Thomas Andersons or Jeff Lawsons in the world, maybe it’s time to reconsider a model that is built around a single person for so many years and skill sets.