The signal to noise...

Buenos dias!

So, I came across some interesting reading the other week about the median number of pitches a VC hears before getting a (uno) single deal done.  Turns out that the number of opportunities a VC reviews before getting a deal closed is 87 (for those interested, the supporting research is here.)  So if you’re a startup, you basically have a 1% chance of ending up in a business relationship with a given VC that you’re meeting with and pitching.  I’ve written about this dance between VCs and startups previously, but there are many things you as an entrepreneur can and should do to optimize for success before and after the actual pitch (your approach) to increase this 1% chance.  

However, having been on both sides and more recently having sat through many startup pitches at Spark Capital or at business plan competitions or just informally, I remain surprised about how some basic mistakes are made in or during the pitch itself.  I will certainly acknowledge being guilty on a few of these and admittedly, some of these might be pet peeves that bother just me, myself, and I.  But in the spirit of continuous learning and improvement, for what it’s worth here are a few friendly and simple suggestions for do’s and don’ts for your startup pitch:

UNO

DO - verify the amount of meeting time you have.  Wouldn’t you change the speed of your delivery and what you’d cover if you knew you had 5 minutes of time versus 55 minutes with an investor?  So ask this right off the start and verify the time you have to present.  And be prepared for it all, from the proverbial 60 second elevator pitch to what you’d expand on in an hour. 

DON’T – create a mountain of content.  Even if you have 55 minutes versus 30 minutes, your presentation content should be the same.  This isn’t a lecture; you don’t need to double down on your 30 minute pitch if/when an investor informs you he/she has an hour to meet.  Be brief and succinct in your materials and delivery.  No matter ½ hour or an hour, you only really need to cover the basics (only 1 slide needed for each, 2 at the max): team, opportunity, market, value proposition, business model, go-to-market/customer acquisition strategy, competition (more on this later), progress, and funding.  And even if you get down to 10 slides (including a title/opening slide), please don’t have 20 bullets and 4 point font on each slide.  Concise statements and visuals are very welcome.  If you have data and statistics that you’re presenting, unless they are basic known facts (the population of the US is roughly 325 million people), cite the sources – it gives you points for research and credibility.

DOS

DO – introduce who YOU and the TEAM are up front.  This can be a voice over to start the meeting or can be laid out in the first slide or two.  Much of the betting early stage investors make is on TEAM, yet I’m always surprised by how many start-ups don’t introduce themselves or their team overviews until the end of the pitch. Think about it - if you’re waiting for the subway and begin to feel dizzy and faint, and a stranger rushes to your aid, which introduction would you rather hear?

a) hi sir, I’m an ER nurse, why don’t you lie down slowly, prop your feet up, and tell me when’s the last time you had something to eat or drink?

b) hey man, my nutrition teacher showed my middle school class this episode of ER last week and some guy was acting goofy just like you, so I think you should take a bite of my Snickers bar.  

Your background matters and helps provide context for the pitch.  Now, you yourself don’t need to possess all the relevant experience (subject matter, technical or otherwise), but hopefully someone on your management team or advisory board does.    

DON’T – NOT have a demo of your product or service.  Regardless of what your product or service offering is, have a demo or sample ready to reference.  I don’t know about you, but back in my day during elementary school, it was called SHOW and TELL for a reason.  No matter how great your elocution is, isn’t it always better to SHOW what you’re talking about to let people react to it?  Too often entrepreneurs worry about having the right business plan detailed out, the right graphics for the presentation or the right delivery for their pitch.  Investors get a ton of business plans in Word and pitches in Powerpoint.  These often look, feel, and smell the same.  But key differentiators in a pitch?  People and product.  We like to experience first hand what it is you’re hawking.  So be prepared not just to tell us what you’re working on, but also show us. 

TRES

DO - show energy and passion in your startup and pitch.  Imagine that you’re the keynote speaker, center stage in front of a large audience.  You don’t want to bore your audience to sleep, you want to engage them and have them sitting forward in their chairs.  To do this, you need to show some life and excitement!  Who would you rather listen to during a pitch: Ben Stein from Ferris Bueller’s Day Off or Billy Mays (no matter what he’s selling)?  Now, don’t go drink 3 Red Bulls before your meeting and get revved up to the point you’re bouncing off the walls and screaming instead of delivering your pitch, but definitely show some passion for the space, the opportunity, and your startup.

DON’T - have your cell phone out…or your iPad out for that matter (unless you’re using it to present or showing a demo).  Regardless if it’s a 1:1, 1:many, many:1, or a many:many pitch, realize that you (and your team) are at an audition or an interview.  This means you should look people in the eye when talking, be focused on your audience and fully engaged in the conversation without any distraction.  When’s the last time you saw a keynote speaker take out his cell phone and check a few messages during the middle of his presentation?   Unless you’re expecting a call from the President, the Pope, or your 9 month pregnant wife, don’t have your phone out or anything in front of you that could be a distraction.  BTW, the under the table covert phone checking doesn’t trick anyone.   

CUATRO

DO talk about the competition.  It’s okay to have competition, direct or indirect, and there’s no harm in acknowledging that.  There’s a reason our government doesn’t allow monopolies, because competition encourages innovation.  It’s almost impossible for any start-up to come up with a totally revolutionary idea that has no direct or indirect competitors.  There are many intelligent people out there, and odds are if you’ve seen a market imperfection that presents an interesting new business opportunity, someone somewhere on planet Earth probably has too.  You might not know of every single competitor in the market, but you should know the landscape and where you fit in.  Be smart enough to acknowledge the indirect competition, and confident enough to show how you are differentiated from the direct competition, and why you and your team can and will win.  In this day and age of the internet, blogs and Twitter, even if you don’t have direct competitors today, you certainly will soon after you launch.  That’s okay – again, early stage investors bet largely on the team and their ability to execute in a market and against competitors. 

DON’T waste your time doing a 5 year P&L showing gross and net margins and FCF.  If you’re in an early stage startup, particularly one that is tech/web based, you might not even have a ready to ship product or service to sell yet.  Lots of people get advice from business schools and advisors about the importance of having a 5 year P&L projection.  But if your startup is pre-revenue, and in some cases even pre-product, unless you’re Nostradamus - you won’t have any clear idea what your margins in year 1 will be, less in year 3 or 5.   Now, you should have an idea of what the unit economics might look like, what the total addressable market is, and be prepared to discuss those.  But if you’re raising an early seed round, don’t fret the 3rd or 4th year FCF.  Estimate what capital you need to reach meaningful milestones and what the capital will be used for (infrastructure, hires, marketing/PR, etc).  Then focus on building your product or service and creating something that customers will love and want to have and use.  Figure out the margins later when you have more traction and data from the market.  5 year financial forecasts are nice to have, but don’t sweat them. 

CINCO

DO practice your pitch ahead of time.  Yes, we’re talking about practice.  Please do it.  Practice with other startups, friends, and friendly investors as often as you can. It’s also helpful to practice in front of folks who aren’t native to the space your startup is in; if you can communicate effectively to a stranger from off the street whereby they understand what you’re doing, you’ve succeeded in creating and honing a simple story. Practice certainly doesn’t guarantee perfect, but it will give you a better sense of what content works, whether you are articulating your vision well, what slides aren’t resonating with your audience, and what types of questions are being asked.  That favorite, soft comfy t-shirt from college wasn’t born that way, it evolved through many cycles of wash, rinse, repeat to become your go-to lazy Sunday shirt.  Your pitch will also get more comfortable, easier to deliver with repetition.      

DON’T deliver a pitch if you’re sick.  Investors admire hustle and can-do-it attitude, but when you’re sick your pitch is impacted.  Every start-up is eager to get going and hopes to raise/close capital quickly, but the fact of the matter is that it takes time.  Better to be at the top of your game, lucid and on point for your pitch.  Think about it - if you don’t ingratiate yourself with your friends or family when you insist on showing up to a dinner gathering when sick, do you think you will really ingratiate yourself with potential investors if they don’t want to shake your hand or sit near you?  Odds are probably not. 

Eso es. Feliz Cinco de Mayo!

-cch

I’ve had the fortune of working at Spark Capital since finishing up an extended tour of duty in grad school this past summer 2010.  I frequently get asked by folks, both aspiring entrepreneurs and aspiring VCs, 3 questions in one form or another (related to Spark specifically and then VC generally):

1. “How did you get into VC?” or “How did you get your job?”
2. “What’s it like?” or “Are you liking it?”  
3. “How are you doing?” or “How is your performance measured?”

Lately, I’ve had a marked increase in this holy trinity of questions because Spark is hiring and because it’s now second semester for business schools, where 1st year students are starting to look for summer internships and 2nd year students interested in VC are ramping up their efforts on finding a full time job post graduation.  I’m regularly in touch with a bunch of folks focused on entrepreneurship and VC at my alma mater and got a series of these questions in person over dinner and drinks last week with some current students, but figured I should share my thoughts here to help “demystify” things for anyone interested in VC.  By the way, there’s also a good blog faclitated by Professor Wasserman from HBS that is meant to serve as a dialog for the issues that young VCs face which is a helpful resource as well.

Regarding #1: “How did you get into VC?” - my friend and sectionmate Adam from grad school beat me to the punch and wrote a nice post on this recently, so I won’t go too too deep into this answer but instead will expound a bit on Adam’s post for a couple of additional points I think are important considerations, mainly around his first instruction to “become fluent”.  

• Context - know what’s happening in the VC landscape. At a macro level, this means be aware of all the players in the investing landscape and how angels, super angels, micro VCs, and traditional VCs are acting given the state of the financial markets and the proliferation of resources and tools available to both entrepreneurs and investors thanks to the web and social media.  At a micro level, this means be knowledgeable about the specific VC firms you’re talking with; where they are in the their fund life, what their past and present portfolios look like, what their brand represents, are they a two and out type firm, etc.  If you’re looking to cross a river, there’s a variety of ways to do it, but it doesn’t make sense to jump on the first ship you see, especially if there are signs that it’s a sinking ship.     
• Fit - if you’re a small skinny guy, does it make sense to wear big baggy and oversized clothes?  Conversely, if you’re a larger, more portly guy, does it make sense to wear slim fit European cut clothes and suits comfortably?  We each have our personal fashion taste, but knowing who you are (or having friends and family that know you well) helps ensure you’re best prepared and dressed with good close that fit and match your body type and style. Similarly be sure the fit is right with the VC firms you’re interested in working for, across a few dimensions: stage and sector focus, career path/development, and lastly a personal and cultural alignment.    
• Focus - all of this then dovetails into the last point, which is focus. Finding any job is a full-time task that requires time and energy.  I’m not sure how you can balance work (or school), personal life, and conduct a networked job search with 75+ different firms. Or balance it well.  So I would urge people to use the above to help filter your target VC list and then hone in on the 20-25 firms that meet your criteria.  If you’re in a rush to get into VC no matter firm, location, stage, role, etc., I think you’re decreasing your odds for happiness and success, not to mention your firm’s. 

As for #2: “What’s it like?” or “Are you liking it?”, I will punt on this for now.  I think this response is very contextual, specific, and personal, so will be happy to expound on this later in a future blog post.  But in short - perhaps like many other fields (banking, consulting, even entrepreneurship), there’s a fair amount of experiences that are great and desirable, but there’s also a lot of stuff that isn’t so glamorous or exciting.  But I do like it a lot, there’s a ton I’m still learning and getting exposed to, and it’s helpful that there are a group of smart, opinionated, and passionate people that challenge me to think about new businesses and industries on a daily basis.   

Now - #3 ”How are you doing?” or “How is your performance measured?”, which is the main question I actually want to address in this post.  My thoughts here are not necessarily those of Spark’s or any other firm specifically, but drawn upon reflecting with some other friends from business school who are still “young VCs” (having been in the field for a few years).  It’s hard to truly quantify success in twelve or even eighteen months, since you’re ultimately judged on the financial return you provide to your LPs and fund for deals you’ve sourced and companies you’ve helped grow. In venture it generally takes about six to seven years for an exit and hopefully it’s a positive one.  So, here are some thoughts on how a young VC (analyst, associate) is assessed absent a successful exit.  I think broadly speaking, there are three main measurement criteria for a young VC:

1. Deal flow - quality is key.  Major attributes of deal quality include fit with the firm’s thesis, sector, and stage focus, strength and capabilities of the team and resources, company vision and growth potential.  Just as b-school professors say at the beginning of the term as it relates to class participation, quality is more important than quantity.  Spending $100 on a single constructed, sealed, and water tested boat is better than buying ten planks of wood at $10 each to get across that river.   
2. Approach - how you go about finding deals and analyzing opportunities is also key.  Have you studied a market thoroughly and developed a specific theme or thesis that you are focused on for investments or are you just pinballing around a sector you think is hot?  Are you proactive in your diligence, using your network and resources to serve as skeptics and references or do you wait for a list of customer and personal references provided by the NewCo before starting to dig in?  Do you socialize the deal with your colleagues and partners to get additional feedback on the opportunity and diligencing or just try to power through deals on your own without additional champions?   
3. Building the firm’s brand - it should be noted that building the firm’s brand is tied to building your own brand.  Do you actively find ways to enhance the firm’s brand and are you generally willing to dive in?  A simple example of this would be by helping out and adding value to existing portfolio companies, for instance through recruiting for team needs or facilitating introductions to potential business partners.  Another example would be by finding ways to streamline and standardize processes for the firm, be it LP year end reporting or the tracking and documentation system for leads.  Are you engaged in the start-up ecosystem where you went to school, live, and work and are accessible to the community at large?  Building your own brand and your firm’s brand then contributes to a virtuous circle, feeding into #1 and deal flow.     

 In closing, sticking with the three theme, my pieces of general advice to anyone “young” in their career regardless of industry but especially for those interested in VC or entrepreneurship.

1. Find a mentor.  This is very much an apprenticeship business.  Find someone senior who’s been successful in this industry, been at it longer than you have, and absorb as much as you can.  Ideally you can establish a meaningful relationship with a mentor both in and outside your firm.  Having a champion within your firm is key, but getting objective advice is also valuable.    
2. Find trusted peers.  Young VC life can be, at times - lonely.  It’s helpful to find peers in your cohort you can trust and share openly with the ups and downs.  Most VC firms don’t recruit multiple hires at a time, and so obtaining advice from peers (period) is important.  This is very much a networked business, and while sometimes it’s way more fun to meet with cool entrepreneurs and hear world changing ideas, it’s also important to build relationships with peers at other venture firms.  
3. Take time to reflect personally.  It’s good to take a pause every now and then to stay grounded and ensure you’re happy with the balance and tracking of your professional and personal life.  There’s only so much time in the day, there’s always something more you can do work-wise, and there’s always trade-offs.  Carve out regular time for personal assessment else before you know it, time will have flown right by.  These six months at Spark surely have.  

-cch

you probably were asked this many times in elementary and middle school by parents, relatives, teachers, and guidance counselors.  but do you remember what your earliest response was?  

here’s my first response (at least what i can remember).

still with me?  for me, no, it wasn’t i wanted to be Tom Cruise per say (and i’m entirely comfortable saying this movie was his prime), but a Navy fighter pilot of an F-14 Tomcat?  heck yes.  i had a bunch of model F-14’s that i pestered my parents to buy and help put together for the express purpose of me flying them around the rooms and floors of the house, pretending that i was a naval aviator.  i drew countless pictures of F-14’s, often with my dad or my brother or friends as my co-pilot.  to this day, i’m pretty sure i can sketch a profile of a Tomcat pretty quickly.  and i will freely admit that watching a few of these Top Gun movie clips still gets me excited and awed about the profession.

so, where am i going with this? well, i was back at school the other week to serve on a panel for HBS - a health care VC/Entrepreneurship panel.  and i got asked a few times, first as a panelist and then in some follow-ups after the session, a variant on the title of this post, in present day terms of course.

“did you know you always wanted to do VC?” or “what do you do as a VC?” 

i’m not going to answer the former, click on the above you tube link for the answer to that question. (Note - in my more mature teenage and young adult life i’ve also harbored a desire to be an ESPN SportsCenter anchor, but ummm… let’s not go there right now) but regarding the latter, i will expound a bit more on this, particularly for those who are presently students or those thinking about a career switch.  of course, all VC firms are different (think about stage and sector focus of a firm, and role one has at said firm), so take this with a grain of salt.  for those who were there at the HBS session, i’m expounding a bit more on my response, but the theme is basically the same.

what do i do as a VC or what does a day in the life of a VC look like?  at a high level?

P-P.  that’s right (say it aloud).  

Process and Prioritize.

For my job, i have to PROCESS a LOT of information.  With the Internet + social and digital media + mobile technology, there are so many sources of information in a variety of formats and outlets to process.  This could be news stories on-line, it could be twitter updates, it could be blog posts, it could be e-mails, it could be (gasp) actual magazines and books.  But there is a ton of information to process day in and day out.  Let’s just take the “news”.  Let’s see… there’s business news, local Boston news, VC news, M&A news, health care and technology industry news.  One could spend an entire day just getting caught up with general and industry news that is directly relevant to their job. That’s not even getting to other news of interest (sports, entertainment, etc.)!  More importantly, that’s not even getting to firm specific news/updates, portfolio company updates, or communications from entrepreneurs and start-ups you’re interested in.  (BTW, if anyone has a tool or app that “tags” interesting tweets to read later at the end of the day instead of in real time, let me know.  i’m willing to pay.)

Then, for my job i PRIORITIZE on how/what to tackle that day (night) based on that processed information.  if there is an active deal i’m working on and we’re at the point of exchanging a term sheet with the start-up, i’ll spend time meeting or talking with the founders/management to understand what parts of the deal are important to them and negotiate a balanced and structured term sheet that aligns their interests and ours.  if i hear or know that a few companies i’m interested in will be at an event or conference, then i will plan my day around that event and ensure i make time to connect with the founders/management while still benefiting from a panel session or speaker.  if a portfolio company needs to hire and recruit a new member of the management team, i’ll work with the chairman/ceo to sketch out the profile of an ideal candidate for the job and then try and find a bunch of candidates for the role.

bottom line, day in and day out, things can change slightly… it can be more of the former and less of the latter or vice-versa… it never is an exact 50/50 split.  i would venture to say (opinions welcome here), the best VCs are ones who can process rapidly, and then prioritize accordingly.  

i’d guess that even for Maverick, it’s also all about p-p.

-cch 

p.s. sorry for the delay between posts… i’m going to do my best to post at least 1x per week!

In the beginning…. there was my mom and dad.  Here they are (Janie and James) back in Taiwan on their wedding day.  A few years later, after my older brother Chris and a journey to the US, I came around.

Hi - I’m Charles Huang. You can find out more about me on the links above, but as an intro this is my new blog.  I’m just getting started here, so bear with me as I still very much have my training wheels on.  (BTW, comments and suggestions always welcome).  

I quick intro about me and my interests - well, I guess I have a lot, but personally and professionally I’m super interested in innovations in health care, in particular start-ups.  In terms of my interests in health care, it goes back a while.  In fact, it goes back to my early, formative years… and to my dad.  He’s got a PhD in Biochemistry and has been involved in life sciences/biotech as far back as I can remember.  Some of my earliest memories are working with him to review his work memos, presentations and grant proposals.  Granted, I’m not a basic scientist like him - but I remember an early career lesson from him - in science and health care, there’s an opportunity to do well and to do good.  

So, for me and perhaps many others out there - my pop influenced me heavily in terms of my professional pursuits.  My mom of course gets a lot of credit too for instilling work ethic, character, and values.    So to mom and dad - thank you.  I probably don’t say it enough, but I appreciate the guidance, learning, and foundation you all provided me.

That being said, I believe that a lot of change will come in the near future for the health care industry in terms of use of technology and social media and social networks.  Innovations in health care and cool new ways to improve health care access, quality, and efficiency are things that get me excited.  Obama and the PPACA hopefully will help spur innovation in this important sector which will benefit not only the US, but also other countries.  So hopefully this is the start to something good.

I will be back here and then to share things I find interesting on this blog… mostly health care or start-up/venture related (I presently work for Spark Capital, an early stage venture capital firm here in Boston that invests in technology, media, and entertainment sectors, but is also exploring overlaps between these core sectors and health care and education).   I will post and share other things as well that I find interesting too. I will try and do my best to keep things succinct since there are so many different data, news, and social media streams and stimuli out there.  

Anyway - thanks for visiting.  More soon.

Be well,

-cch