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’ll be posting some of Mark’s thoughts here, but readers who want to catch up on all of his thinking should check out the blog: Get Venture. For today, here are excerpts of Mark’s thoughts on 1) the first meeting, 2) the critical “investment overview” slide, and 3) the importance of knowing your competition:
The purpose of the first meeting is to get a second meeting. The purpose of the first meeting is not:
- To secure an investment from the VC at the end of the meeting, or
- To tell the VC everything there is to know about your company.
VCs are too busy to dive deeply into every business that they see. As a result, in the first meeting the VC’s primary objectives are:
- To verify that your plan is realistic and based on solid research and strategic thinking, and
- To see if there is a fit between your business and the VC’s investment criteria.
The high-level characteristics that VCs test are the ones that you listed in your executive summary, as well as the competency and compatibility of the management team. VCs test these characteristics by identifying critical assumptions and asking you direct questions about them. VCs will listen to your overview and then dive into specific areas that interest or trouble them. When they ask questions, they are testing you as much as the plan.
Your objective in the first meeting is to help VCs get comfortable with the high-level aspects of your business and you. If the VCs believes your vision and if your business aligns with their investment strategy, they’ll invite you back for a second meeting. Focus on crawling before walking – (i.e., getting the second meeting) — and you’ll be on the road to being funded.
The “Investment Overview” Slide
The first slide of your presentation is by far the most important…
I’ve been in few meetings where an entrepreneur has been able to run through their presentation from start to finish. Frankly, it’s very rare for many slides to be viewed at all, and even more rare for them to be viewed in order. There’s a good reason for this: Like you, VCs are busy.
The problem is confounded by the fact that VCs often immediately start asking questions that pull the presentation in a new direction. If you are telling a multi-slide story, therefore, you may never reach the punch line. While there is no presentation format that will work for everyone, there is one tactic that can help: start the pitch with an ‘investment overview’ slide – a single slide with short bullet points that addresses all the key questions. Include the following:
- Value proposition
- Addressable market size
- Barriers to entry
- Major achievements to date
- Overview of funding status
There’s nothing earth shattering about this idea, but it’s rarely done. This slide has several benefits:
- It enables you to provide an agenda for the meeting – since you will be asked to provide more detail about each category on the slide.
- It allows you to get even the most rushed VCs interested early in the meeting before they take the conversation down one narrow tangent.
- It shows the VCs that you understand their point of view – that you get it. This makes the case that you are a good management team.
Even with this ‘investment overview’ slide you should still have all of detailed slides that you might need at your disposal. You may only talk through the ‘investment overview’ slide and a demo or you may end up presenting every slide that you created. Either way, better safe than sorry.
After you have set the stage with your Investment Overview slide, be prepared to take a deeper dive into the competitive landscape. More often than not, VCs won’t know the competitive landscape for your marketplace off hand so be sure to have information about all of the existing competitors.
However, provide more insight than a mere list of other firms. All too often entrepreneurs only provide a slide of competitor logos or a brief description of each company. While that’s helpful, VCs also want to know how those companies are positioned relative to yours. Make sure that you explain why your model is better and how you’re going to beat them. This will help VCs appreciate your business and demonstrate your effectiveness at communicating as a manager.
Also be sure to provide information about your competitors that will make it easy for VCs to conduct due diligence. VCs are going to do the diligence whether you make it easy for them or not. However, by making it easy VCs will appreciate your ability to operate as a partner.
A great way to present your strategic positioning is through the use of a 2×2 matrix. I found a webpage on the University of Cambridge’s website which describes these (click here). These diagrams help investors understand what how you are differentiated from the competition in terms of two key facets.
Mark Davis has been active in the venture community as an entrepreneur, advisor and venture capitalist. He currently works at DFJ Gotham Ventures, a leading early-stage IT venture capital fund based in New York City. In addition to working in venture capital, Mark is pursuing his MBA at Columbia Business School, where he is the Co-President of the Private Equity and Venture Capital Club and the Founder of the Columbia Venture Community. Mark also helped organise the DFJ East Coast Venture Challenge, the largest business plan competition in the country. Earlier in his career, Mark advised Fortune 1000 and private equity clients on the strategic and financial attractiveness of acquisition targets as a project manager at both Bain & Company and KPMG LLP. Mark received his B.A. in Economics with a minor in History at Duke University.