DFJ Gotham's Mark Davis on Pitching VCs: How Not to Look Like a Bozo

Markdavis

New York venture capitalist Mark Peter Davis of DFJ Gotham writes a blog aimed at helping entrepreneurs put their best feet forward when raising money from VCs.  We publish some of Mark’s thoughts here, and you can also check out the blog: Get Venture. Last week, we published Mark’s thoughts on 1) the first meeting, 2) the  “investment overview” slide, and 3) the importance of knowing your competition:

Assessing Management Competency (Yours): How Not to Be a Bozo

In your first meeting (and thereafter) a VC will be looking for two key qualities in your management team: competency and compatibility.  Your team can demonstrate competency in a few ways. If you’re not on your third successful startup, the best way to do this is simply to be  prepared. Know your industry, know your business model, have a clean presentation, know your barriers, know your competition, use an addressable market – not a “market size” and look as though you really know what you’re talking about. When a VC sees this they will gain comfort with your team’s ability.

Note that being prepared doesn’t mean that you need to have every answer. It’s OK to not know some details off hand or to not have conducted an obscure analysis before the meeting. And don’t b.s.: It’s no big deal to circle back on some of the questions that a VC has, but giving the wrong answer can destroy trust.
Perception is reality. Be sure to demonstrate your team’s competence by being prepared and honest…

After reading my post Management:  Competency one reader asked the following question:

How much of a weighting do you put on an executive’s technical knowledge, or lack thereof? I’m the non-programmer CEO type, and have recently begun teaching myself programming so I can understand better the work of the technical team. I don’t intend on spending time contributing to the code, per se, but I have heard from one potential investor that I shouldn’t even take the time to learn anything because it will distract me from my real duties: running a business.

It’s generally a good idea for managers to understand what their colleagues are doing. This enables them to manage more effectively by supporting and appreciating the efforts of their team. Additionally, this is critical for innovation – having a handle on what’s possible is a key to thinking out of the box and creating something special. 

However, this doesn’t mean managers need to be able to do each other’s jobs. Without specialisation within a management team, everyone would be doing everything poorly.

VCs are looking for this balance between understanding and specialisation in management teams. CEOs don’t need to be functional in the CTO role, but it’s very helpful when they can understand what a CTO is doing, what the challenges and opportunities the CTO faces and ultimately how they can help the CTO.  Note that the level of understanding required to identify opportunities and be helpful likely varies by the technical complexity of the product.

While having an understanding of other people’s roles is important, the CEO should also be careful not to invest too much time in understanding the CTOs work.  Time is a finite resource and the CEO needs to be focused on CEO activities.

In sum, you don’t need to have all of the skills required to run the entire company by yourself.  Nobody is superman. The key is to recruit partners and employees that complement the areas where you are not strong.  It’s the collective skill-set of the management team that counts.

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