In the first in a new series of guest posts Silicon Valley venture capitalist Richard Moran points out to start-ups and innovators how they can better articulate their ideas to win customers and investors in America’s vibrant tech scene.
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.
Innovators and entrepreneurs are the new rock stars. The book about Steve Jobs sold way more than the book about Keith Richards in spite of the real life stories of sex, drugs and rock and roll in Keith’s book. Ireland has always had lots of the real rock stars; I want to help Ireland develop the other kind of rock stars – the innovators who have an idea and want to build a company around it. The people who will help build an economy.
Entrepreneurs are a group I cheer for every day. Entrepreneurs are people who left a cushy job where there was little or no risk and set off on their own. Lots of times the idea is funded by stretching the credit card to the limit and stretching the patience of the spouse even further.
I have been a part of the venture capital community in Silicon Valley for the better part of a long career and have sat through too many pitches from entrepreneurs to count. In the last few years, through the work of the Irish Technology Leadership Group and others, I have listened to hundreds of Irish entrepreneurs do their best to squeeze millions out of the purse of anyone who will listen. Just last week I sat through over twenty pitches from Irish entrepreneurs. Many of the ideas and deals I saw were great; some were not. Some could have been great if there was a more compelling story around the idea. The Irish are world renowned as storytellers. It is part of our DNA. We need to integrate that story telling trait into the innovator’s passion.
Venture capitalists talk about "pattern recognition". That is, after one sees enough deals, it is easier to ferret out the good ones from the bad. I have found an element of pattern recognition in listening to Irish entrepreneurs. That is, I have seen many of the same mistakes being made time after time. In the hopes of breaking that pattern of mistakes, the following advice is rendered in the hopes of yet another step in saving the Irish economy. It is not intended to be critical, and I hope it makes its way around the Irish horn.
Factors Irish entrepreneurs need to keep in mind when pitching
When giving a pitch to investors or describing your new idea to your neighbors, these are the factors to keep in mind, especially for the Irish.
- What is it? Have you developed a piece of hardware, software, a refrigerator or a cold fusion machine? Too often, a founder will be so excited describing the inner workings of a thingamajig that I can’t place it in the context of what I know. This is the ideal time to tell the story of the idea, how it came to fruition and how it turned into a product around which a company can be built. Describe what it does too, while you are at it. If you cannot explain what IT is simply, you have a problem. If I cannot understand what IT is, you have a problem. Never be embarrassed to just say what it is. The best investment I ever made was in a chip company. No, not semiconductors but a genuine potato chip company that uses special heat techniques to bake a healthier chip.
- Don’t tell me what I know. In any presentation when I hear the phrase, "the internet is changing the way the world works…" I will take out my iPhone and start responding to emails. Tell me what I don’t know about you or your idea or your aspirations or how you are going to change the world or at least save the Irish economy. What I want to know is, what is it about you or your idea that should make me want to give you a bundle of money. How big is the idea? Who will benefit? Why should anyone care? On the investor’s side I have often heard the phrase, "there is an infinite demand for the unavailable." By the end of an entrepreneur’s pitch I should be in a mild state of arousal.
- People get backed, not technology – Think of it like American Idol or Teen Idol Ireland or Britain’s Got Talent except you are not singing. Of course, the idea is important but the entrepreneur is the filter through which the idea will be viewed. The questions will be asked, "Is he/she backable?" The question is not "is the product backable?" Never underestimate the importance of the "show" to be put on and be prepared for it. If you can tell a good story in an investor presentation, you can tell one that will attract employees and customers too.
- Don’t discuss a trade sale – Too often I have heard Irish entrepreneurs describe the desired outcome as a "trade sale" to Google or HP or any big company. It is a case of thinking too small. Don’t think small; think big. Besides, once there are investors involved, that decision becomes a shared one. It is no longer up to you. Which is better, to own 10pc of a million dollar company or 5pc of a billion dollar company?
- Find a sponsor, listen – There are people out there who know how to raise money and take an idea and create a big company from it. Get to know these people. More importantly, don’t be stubborn about how different your approach can be. Listen to people who know and can help you and will cheer for you. You will need a PowerPoint presentation and it will need to be good. If your coach suggests you not run through the demo because it is too long or technical, don’t do the demo. Too often, I have heard Irish entrepreneurs say, "I should have listened to my coach."
- Assume everyone is smart/assume no one read anything in advance – A venture capitalist or an investor crowd may be a little different than the usual audience. In general, they are smart. That doesn’t mean they will be polite or interested or gracious or encouraging; but they will understand the deal if presented properly. Being smart doesn’t mean they will read anything in advance or that they will ever get back to you either. Don’t ask for feedback, you probably won’t ever get any. The silence may be all the feedback you will ever receive.
- Create an equation, If you give me millions, I will return – Make it easy to understand where and how any investment money will be spent. Investors are like entrepreneurs; they are dreamers and want to visualize a place and a team toiling away in a loft somewhere in Ireland. The equation should also include a return on an investment. Investors don’t care about percentages; they care about multiples. As in, an investment will return 4pc is of no interest. Instead, the message is an investment will return 4X your money.
- Always show a hockey stick, fib if necessary. There is always a page of financial projections and the line of progress should always be up and to the right. It’s ok if year one is projected to be a loss, year two might be about break even, year three should be about three million, year four twelve million followed by infinity and beyond. Even though I don’t think anyone really believes these numbers anyway, don’t make them too incredible. You are selling optimism and hope that there will be big return.
- Avoid Rat Holes – A question or comment from any audience can be distracting and everyone has someone to say about the Irish. Don’t take a comment about someone’s grandmother being from Limerick as an opportunity to discuss the Munster Rugby team. You are all about creating a successful company, not Irish genealogy. Don’t forget.
- No excuses for being Irish. Don’t say anything like, "I know you are not accustomed to investing in Irish companies." In fact, do the opposite. Play up the Irish. Throw a poem in there if you want. The Israeli’s boast of their ability to be tough to their advantage. MIT grads boast of their brilliance to their advantage. Use the Irish heritage to convey being a visionary and being tough at the same time. And always play up the Gateway to Europe deal. No need to talk about the favorable tax climate. Since there is probably no revenue, there are no taxes anyway.
In the second part of the series we will explore how to replace Google, the number of competitors out there and running a demo among other things. In the meantime, remember that blind squirrels do find acorns.