Post from: MAPpingCompanySuccess
Today’s guest post is from Igor Sill, founder of Geneva Venture Partners in Silicon Valley and an active angel investor.
The Start-Up Venture Pitch That Gets Funded
Virtually all of the start-up funding presentations I see by newly minted, bright eyed MBA entrepreneurs are certainly well presented, but are nothing more than just another “idea”.
An innovative technology with a new business model disrupting a huge and growing market idea is great, however, a fundable company it does not make. Evangelistically presenting a slide deck borne out of a great idea is, essentially just that, an idea. It may be your “baby” but it’s just one piece of the overall entrepreneurial pitch. Unless the other start-up propositions are addressed it rarely finds funding.
There are several risk factors associated with funding early stage startup ventures, as evidenced by the 9 out of 10 failures. There’s:
- the founder risk,
- the technology risk,
- the consumer adoption risk,
- the market size risk,
- the future capitalization needs risk,
- and, most importantly for me, the execution risk.
Let’s look at the technological risk first. If the technology doesn’t work, generally there’s no money left to start over or re-engineer it. It may take years to solve the technical issues, and generally some other entrepreneur working on it will inevitably get it done. Generally, it’s not about technology, as a competent group of engineers can usually program web-based projects, or find portions of the code that have already been developed and then quickly “put together” a working prototype via royalty sharing deals. So, essentially, the technology risk tends to be minimal.
Of all the failed internet businesses that I have invested, the culprit is usually a result of the lack of customers, or as some may tell you “it’s the inability to quickly penetrate the addressable market”. Business success is all about gaining customer traction, rapid market adoption and offering a compelling business model. Simply put, internet businesses fail due to lack of customers.
When I reflect on one of the biggest internet successes I funded, from zero revenues to IPO, then growing to $16B in market capitalization within 6 years, I recall that their first product offering was absolutely horrible and the beta customers were less than enthused. Lots of technical assumptions proved false in the real world. However, those customers offered key insights into their businesses and the improvements they truly needed—essentially taking a pretty good idea and turning it into an industry changing stellar solution. The start-up team learned the real value proposition to the customer’s pain. So, the second iteration grew from a dozen or so customers to hundreds, then thousands, then tens of thousands. More insight was gained, more customer satisfaction was earned, much greater value was delivered which evolved into higher product prices, more attractive business terms, bigger margins and an acceleration of both, customers and revenues, then profits.
The key lesson: all start-up ideas evolve based on customer usage and feedback. Generally, your business will evolve into something much more compelling, much more disruptive and industry changing—all of the great internet successes went through a very similar process.
During this stage of the growth process, the entrepreneurial founder’s leadership and company-wide execution was the key to overcoming the early risks, “crossing that chasm” and scaling that business successfully. The returns to investors proved phenomenal.
So, back to that slide presentation. Show your prospective investors that your idea was refined via actual customer usage, that you learned great insights and evolved them into a meaningful value proposition for your customers. That your customers benefitted geometrically and that you can now scale that into hundreds of new paying customers, increasing the profit margin as you grow, and your company’s market valuation. That you know the sort of talent you’ll need to grow the business to a leadership role and that you’re capable of recruiting and leading that talent.
Essentially, an investor needs to grasp how rapidly you can validate, learn, deploy, evolve and scale that business into the leader of a large, growing market. Investors typically extract that from how committed smart founders are about learning their customer needs and the correlation of market trends and dynamics. It’s not solely about a brilliant idea and a smart entrepreneur. It’s not about how great you are, what school you graduated from or that “J” curve chart you displayed in your slides. It’s about how prepared you are to attack a huge market, your ability to learn from your customers, evolve and design new solutions, and, it’s about people. Think Steve Jobs, Bill Gates, Larry Ellison, Marc Benioff, Tom Siebel, Larry Page, Sergey Brin, Bernard Liautaud, Marten Mickos, Peter Thiel, Evan Goldberg, Reid Hoffman, Mark Zuckerberg to name but a few. A clear pattern starts to emerge.
Remember that 9 out of 10 startups will fail. So the real question is how are you going to continually learn to solve your customer’s biggest problems while minimizing the market risk and scaling your business? Now, go put those ideas on your slides.
Igor Sill, is a Silicon Valley venture capitalist and founder of Geneva Venture Partners. He is an Angel investor, and Limited Partner in Goldman Sachs Investment Partners, Benchmark Capital, Norwest Ventures, Brentwood Associates, SV Angels, ICO Funds, The Endowment Fund and Granite Ventures. Sill was educated at the University of California, Berkeley, received his MBA from the Said Business School, University of Oxford and is a member of Merton College, Oxford University. He also attended Harvard Business School’s Venture Capital Program, Stanford Graduate School of Business Advanced Management College and Stanford Law School Directors College.
Image credit: Geneva Venture Partners