OPINION – A guide to Irish innovators on raising money

14 Apr 2012

Pictured: Silicon Valley venture capitalist Richard Moran outlines key rules for Irish entrepreneurs pitching in the Valley

In the second part of a series of guest posts Silicon Valley venture capitalist Richard Moran reveals the secrets to a perfect pitch for Irish innovators hoping to secure investment for their business ideas.

Richard Moran is a Partner in Irish Technology Capital, a member of the Irish Technology Leadership Group (ITLG) and the CEO of Accretive Solutions. He is a former Partner at venture capital firm Venrock. In part one of this series ‘Blind Squirrels and Acorns, A Primer for Irish Entrepreneurs’ Moran explored such topics as Being Irish, the Infinite Demand for the Unavailable and the importance of being able to explain what IT is.

Any Irish person employed by Facebook or Google or Twitter in Dublin, no doubt, has a good job and is the envy of the neighborhood.  Working at any of these companies should mean you are at the cutting edge of the cool new technology.  It does not, however, mean you are an entrepreneur or an innovator.  Entrepreneurs create companies and those companies are already created.  Ireland needs to create more companies through innovation and execution around good ideas.

As someone who has listened to hundreds of Irish entrepreneurs give “pitches” in the hopes of attracting investors my reactions have varied greatly.  I have been astounded with the passion of the innovator; I have wondered if the presenter is speaking English; I have delighted in the knowledge that a big idea came out of an Irish college; I have noticed that a lot of Irish men have had broken noses; and I have been impressed with the energy and focus of so many. 

Most importantly, I have seen and heard Irish entrepreneurs undersell their ideas and their capabilities.

Bullets for the perfect pitch

With these “bullets” I hope to pump more air into the tires of Irish entrepreneurs.  Ideas should get funded based on the strength of the innovator and the idea.  They should not get rejected based on the presentation skills or the naiveté of the innovator.

  • Simple is better, very simple – You may not even get enough time for the elevator speech so it is important to create metaphors analogies and simple statements. Think,  “As PayPal is to eBay, we are to xyz.”  Or, “our company is like Zillow for rugby jerseys.”  Or, “Our product will eliminate the need for lawn mowers.”   Stay away from “Our flux capacitor is the latest in a long line of double inverters that encroach on semi-conductor compliance meters.”  It just sounds too hard and too long to make happen.
  • Love your company/idea – Your idea is your baby.  You have to love your idea like you would your baby.  Anything less will be seen as weak commitment.  OK, maybe not your baby.  When you talk about building your idea into a company you should build to a mild state of arousal because you will have to convince others of your passion for investing and recruiting.  If you wait to get funded before you quit your job at the beer factory it will be seen as a lack of commitment.  
  • Explain how you plan to make money – Unless you are Twitter, having traffic with no revenue isn’t an equation for success.  The world might need a new flux capacitor but that doesn’t mean anyone will buy it.  Internet traffic does not necessarily equate to revenue.  A lot of attention from big companies does not necessarily convert to revenue.  Your Mom being proud of you does not equal revenue.  Customers who are willing to pay for something is what generates revenue.  Be sure to explain how the great idea will “convert” to revenue or you won’t get any investment money.
  • Give a magic number Are you raising a million, two million, or twenty million?  It is not an arbitrary number.  It is a number that shows how well you know your business and how well you know what investors will bear. The answer to, “How much do you need?’  is  a number.  What you will do with the money is worth describing.  The “Use of Proceeds” should be all about engineering and sales; not about office space or golf memberships.  The magic number for most Irish companies I have seen is between $3-5MM.
  • Know what time it is More than once I have seen a literal shot clock in the back of the conference room where investors give presentations.  Yes, the same shot clock used in basketball games. It starts at 45 minutes and works backward which, in general, should be pretty intimidating.  If you are still on page three of a fifty page presentation and the shot clock times out – you are done.
  • Say nothing crazy – “We will replace Google” or “We are the next Facebook” or “Apple is worried about us” will get you credit for gumption but probably not any money.  Aspirations are good and disruption of a market is even better but pick your spots.  Big statements and metaphors will help an audience know what you are thinking but don’t make the audience think you are clueless.  are great but make sure a metaphor doesn’t make you look clueless.
  • Never say there are no competitors Repeat, never say there are no competitors.  There are always competitors and you need to know who they are.  Somewhere around the world someone else is working on the cure for toenail fungus or virtual currency in poker games.  Investors know this which is why they are unwilling to sign Non-Disclosure-Agreements.  They don’t want to be stuck between your deal and one that looks just like it.  To insist on the no competiton theme could make people wonder, “If it is such a great idea, why is no one else working on it?” 
  • Don’t expect a decision It might take weeks, it might take months or it might take never.  Expect you will hear from investors if they are interested.  (There are exceptions.  I have seen investors bolt the doors shut so that the innovator cannot leave until a deal is made.)  If there is no interest, you may not hear and you will rarely get feedback.  That’s just the way it works.
  • Demos are not necessary – Investors will assume that whatever it is, it works.  Too often I have seen apologetic entrepreneurs fumble with cables and internet connectivity only to end up looking forlorn because the demo doesn’t work.  Unless it is a demo that replicates X-Ray vision or time traveling, describe it in such a way that the audience is dying for a demo – that you can show later.  Demos don’t get fnded; entrepreneurs do.
  • Angels are good – usually – Early stage companies would not exist without angels. Angels are often the only ones who are willing to fund an idea, sometimes out of blind love or loyalty.   We all love angels.  An angel can be Mom or Dad or Uncle Seamus.  Angels sometimes don’t expect any return; but if there is a return, they will take it.   And nothing motivates entrepreneurs more than taking money from friends and family.    There is a point of diminishing returns, however.  Having too many angels (like hundreds) makes for a cluttered group of demanding people who might get washed out in the next round of investing.  Keep the angel group as small as you can.
  • Tombstones and Pedigrees – The logos of where the team formerly worked and where they went to school does matter.  It may not be fair but it does matter.  Highlight all the brands and colleges that people will know.  If there is nothing that anyone will recognize, have an alternative good story that highlights some aspect that makes it easier to make an investment decision.

Innovators build economies

Ireland needs to build an economy that is not based on outsourced jobs from elsewhere.  Ireland needs to build its own companies through innovation which, in turn, will build the economy. 

As a country we need to be able to answer this question with pride, “Can you name one Irish company that started from scratch and grew into a big company recognized around the world?” 

Other countries can and we need to get going.

John Kennedy is a journalist who served as editor of Silicon Republic for 17 years