I’ve had the privilege of working in venture capital for the past few years, starting at a very young age with little mentorship in the beginning. As a result I made a ton of mistakes – and learned a great deal making them. Below are a few of the more important lessons I wish someone had told me on my first day:
- Don’t be a generalist (focus on a space you care about). Don’t be afraid to limit the scope of what you’re willing to spend time looking at. I’ve actually found that the more specific I was about my area of interest, the more deal-flow I would see in a given space (e.g. education). The logic is simple: when I see a good deal, I want to send it to friends. But when every one of the 100 VCs I know has told me to send them stuff I like in ‘mobile,’ who do I send it to? I can’t send it to all of them, so I end up sending it to (a) the guy I saw last week that’s top of mind, and (b) the person who told me they’re super passionate about that specific space. There are plenty of startups in spaces you care about – focus on those.
- Say no quickly. Early on I had this misguided notion that every deal we were sent we had to deeply examine, and I would therefore spend far too much time researching and sorting each out in my mind. Just because something looks like a good deal doesn’t mean it should be pursued. If you aren’t really passionate about the space – or haven’t taken the time to truly understand it on your own –, don’t waste an entrepreneurs time with weeks or months of due diligence. They have a business to run. I try to say no in the first meeting (or even before that) to most of the stuff we’re sent, while pointing them in the right direction and providing a few thoughts if I know something about the space. I’ve found that the best entrepreneurs will come back and try to prove you wrong (and tenacity is a very good sign).
- Make sure you can really add value. If you can’t add value (beyond recruiting) on an ongoing basis, you won’t stay relevant to the team and will be out of the loop – even if you’re on the board. (Side lesson: the most important decisions are made before and after board meetings). Stay a part of the conversation and in the know by making sure that you’re constantly engaged with the team and helping out. This is another reason why it’s important to be specific in your investment screening – if you care about the space you will have an easier time staying actively involved.
- Invest in teams with an ‘unfair advantage.’ Because of simple web languages, an abundance of APIs, and open-source content, it’s easier than ever to build a web product quickly. The teams you want to invest in are those who have an ‘unfair advantage’ in two areas: (1) in their deep understanding of the space – the competitors, partners, and customers –, having lived/worked in it for years, and (2) in their *proven* ability to build beautiful products people love. A deep understanding of the space provides them with not only the knowledge to navigate it but the right relationships to sell into it. This understanding, combined with an ability to craft great products, makes for a huge competitive advantage. It’s easy to build a product, but difficult to build one that the right people will care about enough to pay for.
- Invest in (technical) novelty. I don’t believe venture capital dollars should go to companies that are building a ‘me too’ concept for a different geographic region or demographic (see the Founders Fund Manifesto for more on this). Invest in big ideas that will really pave a new path and radically change the world in a positive way, and in technology that took more than a weekend to build. There’s no problem with simplicity, but generally it takes a while to get an idea right for a specific space. It’s not about the pure technical complexity of a product, but rather the fact that the team has slaved away on it long enough to know exactly what features and technology is required to solve the core of the pain-point for their target demographic. In most cases there’s a pretty strong correlation between the time it took to build the product and how long before you see serious competition.
- Don’t be pressured into closing fast. It always takes a few in person get-togethers for people to show their true colors. Make sure you have enough time to really get to know the entrepreneur (see this post by Mark Suster), and to do your homework. Generally there’s no way that you’re going to have time to properly reference check and diligence a person and concept if the deal is closing in a week. I make this clear to entrepreneurs upfront, and its one reason why I frequently say no fast.
- Involve your partners early and often. I’m a pretty independent person, and in the beginning I lost a few great opportunities because I worked alone and tried to present my partners with a pretty package at the end, only to be met with a lack of excitement or confusion. Don’t expect your partners to jump the moment you show them a deal. Make sure they ‘get it’ early and often, and don’t assume they’ve read the due diligence and understand the intricacies. Most importantly, figure out what your partners are looking for. Ask what they need to see for it to be a rockstar in their eyes.
- Manage Entrepreneurs’ Expectations. All too often my excitement would translate into mixed communication with an entrepreneur, and a misguided notion that it was a done deal. Make sure they’re aware that it’s a partnership decision, and that you speak for yourself, not others.
- Make sure your vision of the product is the same as the entrepreneurs. And that they have a strong vision to begin with. Coming from the entrepreneurship world, I tend to have a very ‘big vision’ way of looking at things, and sometimes get caught up in my own ideas for where something can go. Make sure you’re not projecting your vision onto their startup, and that you’re on the same page.
- Don’t screw entrepreneurs. Keep deals simple, and give founder friendly terms. (It will come back to bite you – trust me).
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I’ve officially joined the Enterproid team this week, and I could not be more excited. I’ve worked closely with the founders over the past year since our investment, and have just been blown away. The technology is impressive, and the guys are among the brightest I’ve ever worked with. (Comcast, Qualcomm, & Google Ventures agree.)
While I’m moving back to the light side, I will remain a partner of BOLDstart Ventures (so please keep sending opportunities my way!), continuing to work with Eliot and Ed, who have both been awesome mentors for the past few years. I’m totally committed to continuing to actively support our entrepreneurs – I am, as always, still happy to hop on a call or meet up at any time to help out. Several of the projects I will be working on for Enterproid will be highly relevant to other mobile startups (more on this soon), and should enable me to provide a lot more of that elusive venture capital ‘value-add’ to the companies we work with.
Those who know me well know that I love to build, and that since putting my last startup project on hold to join the venture world I’ve been eager to get my hands dirty again. I strongly believe that to be a great venture capitalist you need to deeply understand what it’s like to work at and start a venture yourself. I’m hoping that Enterproid will be the first of several opportunities to make myself a better investor, and a better entrepreneur.
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There’s no reason why 30 students should sit in a classroom and be lectured on the same thing at the same time at the same pace when everyone learns differently. There’s no reason why the tens of thousands of algebra classes are each being reinvented right now across the country by teachers of variable skill levels. There’s no reason why college students should go into hundreds of thousands of dollars of debt for courses and a diploma that may not take them where they want to go. And there’s no reason why teachers should waste time conveying materials that can easily be found online, when instead they could be inspiring students to be curious, discover themselves, and apply what they learn.
Despite how huge the education market is (estimated at $750b in the US alone), many VCs are afraid to invest in ed-tech because there was a lot of ‘road kill’ in the space after the dot-com bust. But much has changed in the past decade: the addressable market has expanded dramatically (10x more people are online, have 10x as fast connections, and are connected at least 10x as much), and we’ve recently seen a proliferation of internet-enabled mobile devices, data storage and processing innovations, and the spread of open source content that have brought about great efficiencies in content distribution, consumption, and production.
The importance of the Internet in changing education is more relevant than ever: we continue to move from a manufacturing-based economy to a knowledge-based economy at a rapid pace, yet our school system is still stuck in the Industrial Revolution.
There are a great diversity of opportunities to innovate in the education realm. On the learning side, we need to create new ways to make it:
- Fun. All physics lessons should be as fun as Angry Birds.
- Ubiquitous. I should be able learn anywhere and everywhere, taking full courses on my iPhone or any other device.
- Adaptive / Customized. Machines should learn how I learn and teach in a way that works best for me.
And on the accreditation side we need to find ways to get people credit (/certified) for practical skills they enjoy in a much faster, cheaper, and more accessible way than is provided by the accreditation bodies who hold a monopoly on the education system today.
I’m not arguing that we should try to overhaul the current system and force schools to adopt new technology and ideas, but rather that if we create compelling learning and teaching products outside of the school system we can push change from the outside, in.
- Fred Wilson and Brad Burnham on hacking education (especially the comments)
- Khan Academy (watch the videos!)
- Sir Ken Robinson & Jane McGonigal's TED talks
- A Mathematician’s Lament (PDF)
- Turning Learning Right Side Up
- And many others (ask me!)
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Venture capitalists are not rational: you have to be at least partly insane to believe you can pick the next Google, Fedex, Netflix etc. There are a lot of great resources out there to help startups create pitch decks for investors, but almost all miss the bigger picture: you have to emotionally connect with investors and appeal to that irrational part of their brain, while at the same time appeasing their rational fear.
Three key principles for your pitch deck:
Tell a visual story. Human beings are visual creatures that like patterns and structure. A graph/picture will always tell a story much more effectively than a page full of text. Try not to put more than a line of text on most slides, team page aside. You also need to hold your investor’s hand through a continuous narrative that is clear and backed up by data. Your basic story should look something like this:
- Intro (one line/graphic on what your startup is and nothing else)
- This is who we are (with enough info on each of the core team members such that I sit up in my chair and understand why I should pay attention)
- This is what we’ve accomplished so far (# users/growth rates/engagement metrics)
- This is the problem we see (in a bit more detail, maybe even an example)
- This is our solution (preferably with a screenshot/demo of the actual product)
- This is how serious/big/immediate the problem is (market-size)
- This is how we’re going to solve it (go-to-market strategy)
- This is who else is doing it (competitive landscape), and why we have an ‘unfair advantage’ over everyone else
- This is how we plan to make this a real, big business (monetization plan)
- This is what we want from you and what we plan to do with it.
Keep it short. We have short attention spans. If it’s longer than 10 slides, it’s probably too long. The more slides you have, the longer it takes to get through it and into the conversation with your investor (we like to hear ourselves speak). If you want to include more information, no problem: create an appendix and send it as a separate PDF along with the deck (or better yet, after sending the deck as a follow up).
Pull at their heartstrings. A few key thoughts around team, product and market: First, we’re investing in YOU above all else. Show us why you’re the one who can tackle this problem, and, equally important, that you would be a fun person to work with for the next few years. Be passionate, and let your hunger and enthusiasm show. Second, show us why the pain point that your product/service addresses is so painful – and immediately in need of resolving – that people won’t understand how they lived without your solution. Third, engage our imaginations, and show us a big vision while at the same time being realistic as to how you plan to get there. Finally, be sure to show us the product! We want to see it, touch it, play with it, and understand it. Eventually you’re going to have to get someone to use this product/service – show us why they’re going to love it.
The ideal pitch:
The ideal pitch is comprised of just three items:
- One sentence describing what your business does in simple language. The less adjectives you have in there, the better.
- One sentence giving a (real world) example of the pain point you’re solving (why the status quo really, really sucks). People should have an ‘ah-hah’ moment once you say it.
It should be so quick, simple, and easy to understand that you can tell everyone: your local barista, the cleaning lady, and that hot girl/guy you want to pickup at a bar. (Really, you should always be pitching). The beauty of 2 sentences is that you can then pause and let people ask you about it, both (a) quickly revealing what’s unclear about your value proposition, and (b) turning it into a conversation rather than a one-sided attack.
Additional Pitch/Deck Resources:
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As a follow up to a request from a friend, here are a few that immediately come to mind:
- Insisting on meeting before sending a deck. I love meeting entrepreneurs, but often there are time constraints and it’s best if you don’t force a meeting without first establishing fit. Also, meetings are much more productive when we can dive into the materials ahead of time and come prepared.
- Sending a 50-page business plan before our meeting. While I want info ahead of time, I just don’t have enough time in the day to read a 50 page plan before every meeting. Realize time constraints – and the fact that most investors are illiterate – and send a short 10 slide deck instead. Plus, detailed business plans are mostly useless anyway.
- Not letting us keep the deck. Do you trust the investor you’re pitching? If not, don’t pitch them. I will not share your deck without your permission. You not letting me keep it hinders the due diligence and decision process I go through with my partners. I’ve seen this practice derail many a financing.
- Not knowing the focus/interests of our firm and partners before reaching out. Most VCs have a very specific focus. I won’t invest in a pet grooming franchise, so please don’t pitch me one. You can easily figure out what I care about by googling me, checking out my firm’s website, and taking a look at my AngelList profile.
- Asking me to sign an NDA. This has been covered many times. Don’t do it.
- Not being transparent about the syndicate. This is a controversial one that deserves more discussion, but not being open to sharing certain information is an easy way to start off our relationship on the wrong foot.
- Not giving investors enough time to do proper due diligence. I generally can’t and won’t make a decision in 24 hours. The best thing to do is to establish a relationship early, and give us advance notice of an approaching deadline.
- Not making the pitch/presentation a conversation. Most investors have a very short attention span (I was never good at paying attention in lectures). When you pitch an investor – formally or in an elevator –, pause after each slide or thought, and try to engage your audience. Don’t be afraid to let them hop in, and just be prepared to ask them if you can address a non sequitur question later on.
- Not keeping investors looped. If you don’t send us updates on at least a monthly basis, we can’t help you, and you’re no longer on the top of our minds when we meet potential hires or strategic partners. A great example and writeup on this topic can be found here. You don’t have to spend more than 30 minutes a month on it, and it’s a highly worthwhile investment.
- Not sending materials well in advance of a (board) meeting. Board meetings can quickly shift from awesome to terrible – regardless of content – if you don’t prepare properly, and don’t get to the main points fast. I’m not yet an expert on this, but I’ve seen that the earlier you send materials the more prepared and engaged your investors can be.
- Not being super transparent about numbers. This happens rarely, but it’s surprisingly easy to fudge or float over key numbers and metrics when you want to avoid conflict. Take the high road and be transparent - it will help us better help you.
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Juventas Fugit is designed and written by Justin Wohlstadter, who, when not writing in the third person, can be found in a coffee shop talking about startups, thinking about the future of education, and generally procrastinating something important.
- Passions: startups that positively affect the world, education innovation, good design, learning, and meeting those with an equally insatiable curiosity.
- Play: working on something really neat....
- Previously: was director of product design at Enterproid. Before that I built the early-stage venture arm of Penny Black and co-founded BOLDstart Ventures, where I was lucky enough to invest in some awesome startups including Rapportive (sold to Linkedin), Blaze (sold to Akamai), GoInstant (sold to Salesforce), Klout, Indiegogo, Enterproid, ShowMe, LocalResponse, and many more. And before all of this I was involved in a bunch of other crazy, less successful startup ventures involving fire extinguishers, measuring philanthropic impact, and creative spaces.
- Pedantry: most of the important stuff I taught myself or learned from friends, but I’m fortunate to have also (barely received) degrees from Harvard and Oxford. At Oxford I wrote my dissertation on how internet innovation will disrupt access to higher education.
- Procrastination: can be found on Twitter, Linkedin, AngelList and other web spaces, and be reached via email at my first name at this domain.