The Seed Stage Pitch:Mastering the Art and the Science

Monday, April 15th, 2013

General Assembly Seminar

Insights on successful pitching from an active angel investor

and fellow entrepreneur

Tom WisniewskiRosePaul Investments

To all who attended Mon night at GA: Thanks! Hope you enjoyed it and gained something. Feedback welcome. Know any great start-up or founders? I would love to hear about it.

If you send me an email, I will put you on my list for occasional updates. Follow me on LinkedIn and/or Twitter for updates, etc. (Page 16 of this deck has my details)3.Cheers, -TW

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Agenda

I. Kick-off and Introduction

II. Pitching to Prospective Investors

III. Additional Q&A, Feedback and Beverages&&&

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I. Kick-Off and Introduction

What’s the Problem?

� The odds are against you as an entrepreneur pitching investors: the "1 in 100 get funded” ratio is a reality. Raising seed-stage money is tough.

� Poor communication is perhaps the most important driver of the dreaded investor "pass", the "ding", the un-returned email.

� Having experienced (and delivered!) a lot of *bad* pitches, I have become a "student" of the pitch and of effective communication generally.

� Entrepreneurs make a lot of avoidable mistakes and miss opportunities. � Pitching is more than a good 10-page PowerPoint. � There is *no* shortage of advice on how to pitch, but it is often conflicting and

overwhelming. (WTF????)

What would help?

� Understand the basics.� Review some examples the good and the bad.� Understand the rationale, the "why” � Study. Practice. Pitch. Repeat.

Everyone can improve their pitch. Channel some energy and become a "student" of the pitching

Seminar Rationale: Why are we hear?

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� Better understanding of pitching.

� A set of specific insights that will *change* your pitch.

� A “to-do” list: starting point(s), actions, things to try.

� A set of recommended resources to consult and learn more

from.

� A few new relationships with others in the NYC start-

up/fundraising ecosystem: fellow entrepreneurs, investors, etc.

� Answers to specific questions about pitching that you might

have.

What would I like you to walk away with?

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� After B-school: joined a start-up management consulting firm Mitchell Madison Group; focus on Strategy/Operations/IT for financial services, tech, outsourcing, private equity/VC clients (1993 to 2000)

� Walker Digital: helped set-up and run an early “internet incubator” (2000)

� Independent Advisor / Turn-arounds: Advised VC and PE Firms on portfolio company strategy and new investments; joined the management team of two companies

� Currently: • Early stage investor and advisor to start-ups • Investor and advisor to VC and PE funds• Member and director at New York Angels

� Recent Investments: LiveLook (Saas, live collaboration, co-browsing); Movio(Digital “RedBox” ); Bizodo (Saas, paperwork automation); Wanderu (“Kayak” for Ground Transportation), Social Starts (seed fund for start-ups); Brooklyn Bridge Ventures (Charlie O’Donnell); Entrepreneurs Roundtable Accelerator (ERA)

Tom Wisniewski: My background

� Born in NYC; grew-up in Montclair, NJ

� Physics and Philosophy major undergrad (Clark University); MBA at Tuck School (Dartmouth)

� 1st Job: Programmer at Morgan Stanley then moved to Investment Banking

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So&.what questions do you have about Pitching?

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� Jen How detailed financials ?� Olga: How to pitch before reves and product� Ranjan: How much focus on team vs. ???� George: What’s more effective call or email?� Alex: How should a deck be?� Maury: How not to get screwed? � Deekron: Exit scenarios?

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II. Pitching to Prospective Investors

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Communication is Critical&Why?

� “Finding Diamonds in the Rough” problem. There is no shortage of supply: lots and lots of ideas, pitches, people, etc. • The problem for investors is finding the “diamonds”.

� The “first minute” problem. If you loose someone’s interest in the “first minute”, you usually loose them.

• “First minute” = “first minute”3sometimes first 30 seconds!• “First minute” = a conversation, a meeting, anything• I need to quickly figure out whether I should “spend” more time/effort with you,

or move on to something else.

� The “0 to 60” problem. Potential investors (or potential employees, customers, etc.) usually start out knowing nothing about you or your venture.

• Getting someone “from 0 to 60 mph” is very challenging: too much to say, don’t know where to start.

� A Pitch is a “Sale”. You not just trying to “describe”, you are “selling”. Easy to tell people what you are doing; harder to get them to ‘buy”.

• You are selling your “product” to prospective “customers”. Product = your company and the opportunity it presents.

• You are interviewing for a new job. Product = you and your team.

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Principles of Communication: A Starting Point

� Audience. Who is the audience? Who are you selling to? &If you don’t understand someone's “perspective” you will be ineffective• For example: “they have 6 Saas investments vs. they can’t spell Saas” • People generally understand things by association (to things *they* know).

� Messages. What points you are making? What is the single key thought you are trying to impart with each page?

• “the market is huge and growing” is a message; a chart, some stats, some explanation is what makes up the page

� Storyline. What is the narrative story you are building with the collection of messages? Does the story flow well and get to your conclusions?

� Goals. What is the goal of this specific meeting?• Unlikely it is getting a “check”. Getting to the next step in the process.

� Situation. What the format of the pitch? What are the constraints?• 2 minute elevator pitch vs. 10 minute Power Point pitch vs. email attachment

To start, lets use a simple framework: Audience, Messages, Storyline, Goals, Situation.

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The Communication Pyramid

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Level of Detail in DifferentDocuments

1 page summary

10 –page deck

20 –page deck

20 page deck, +++

Level of Detail in a Document

The Executive Summary

First Page of Each “Chapter”

Each Chapter

Each Chapter with all the Back-up

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“Good” Pitch Deck

From “Triple Play” of VC Presentations by Mark Suster (former entrepreneur, now VC)

� Slide 1 – Team Bio� Slide 2 – 50k foot view of your company� Slide 3 – Problem Definition� Slide 4 – How do you solve the problem?� Demo Web Version and � a Demo Video Example� Slide 5 – Market Sizing� Slide 5 warning: (Market Sizing Pitfalls)� Slide 6 – Competition� Slide 7 – Customer Adoption / Traction� Slide 8 – Team� Slide 9 – Financial projections� Slide 10 – Use of Proceeds� Slide 11 – Fund raising process / Next steps� Appendix – Back-up slides� How to deal with the dreaded question of

valuation?

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http://www.bothsidesofthetable.com/pitching-a-vc/

Adapted from “10 Slides to an Awesome Pitch” by Dave McClure, 500 Start-Ups

1. Elevator Pitch2. The Problem3. Your Solution (Demo Here!)4. Market Size5. Business Model ($)6. Proprietary Tech7. Competition8. Marketing Plan9. Team / Hires10. Money / Milestones

http://www.slideshare.net/dmc500hats/how-to-pitch-a-vc-sept-2010

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Examples of “Good” Pitches

� http://bitly.com/bundles/royrod/2

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Common “Forms” of Pitch Communication. What are they? Which should I use?

“Document” Simplistic Description Common Situation/ Use

1-pager “1 pager Exec Summary, Word doc”

• Email attachment or handout• Online platforms e.g. Gust, AngelList

Email Brief “Teaser paragraph of text / bullets” • “In the intro email” (w/ attachments)

Business Plan “10-40 page Word doc” • Detailed discussions (similar use)• Stand-alone, due diligence

Pitch Deck “10 page PowerPoint presentation”

• “15 minute stand-up presentation”• Email attachement

Long-Form Pitch Deck

“20-40 page version of 10 pager; PowerPoint presentation”

• “60-90 minute follow-up meeting with smaller group”

Elevator Pitch “No document, just you talking for 60 seconds”

• Your quick intro after you meet someone in person

“Video” Pitch “10 minute video of your deck/ demo w/ you voice”

• Email attachment• Online platforms e.g. Gust, AngelList

Due Diligence Docs “All the detailed spreadsheets, data, etc. that back-up your pitch”e.g. Financial Projections, Sales Funnel, Legal Docs

• For detailed discussions with interested investors, usually post-term-sheet

• Online platforms e.g. Gust, AngelList

The Good News: • you don’t need to have all of them (maybe ever, certainly 1 or 2 to start is fine) • much of the content, messages, storylines can be shared and reused• Preparing thoughtful docs 33refines your thinking and your venture.

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� Find Fit. Does this investor have “fit”? Do they invest in ventures like

mine?

......if not, then move on. (or at least prioritize accordingly)

� Prepare! Don’t be lazy; invest some time.•Steve Jobs: 30 hours to develop, 30 hours of practice330 minutes of presentation.

•For example : “Audience”. What have they invested in? Recently?

What can you find out about their background? Interests? Hot

buttons?

- How? Duh3.Google: Blogs, Quora, YouTube, CrunchBase; talk to people they know, better3talk to those they have invested in.

� Pitch, Get Feedback, Revise. Repeat. No venture idea was built in a vacuum. The ONLY way to develop business ideas is to share them, solicit feedback, make adjustments, develop/refine/add and3..DO IT AGAIN!

• 1 part “studying” pitching, 1 part “doing” pitching, 10 parts repeating both33this is becoming a “student”

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Key Success Factors and Take-Away’s

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� Better understanding of pitching.

� A set of specific insights that will *change* your pitch.

� A “to-do” list: starting point(s), actions, things to try.

� A set of recommended resources to consult and learn more

from.

� A few new relationships with others in the NYC start-

up/fundraising ecosystem: fellow entrepreneurs, investors, etc.

� Answers to specific questions about pitching that you might

have.

What would I like you to walk away with?

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III. Additional Q&A, Feedback and Beverages&&&

Feedback on this class:

� What did you like most about this seminar?

� What could be added and improved to make it better?

� What other topics would you like to see a seminar conducted on ?

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Thanks! Thomas Wisniewski Contact Info

Email: twisniewski@newyorkangels.comLinkedIn: http://www.linkedin.com/in/thomaswisTwitter: @thomaswis

This presentation: http://www.slideshare.net/Thomaswis/

New York Angels www.newyorkangels.com

New York Angels Educational Meetup: http://www.meetup.com/NY-Angels/

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Additional Slides

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Sources of Investment: Seed Fundraising, Angels and VC’s

Stage (Pre-Round):• Expected to

have:

• An idea, initial/rough b-plan

• Initial founders, key advisors

• Path to ???

• Detailed b-plan, • Key founders (bus & tech) full-time• Prototype/alpha done and tested, • Some piloting (paying?)

customers, some revenues?, • All legal documentation in place,

board of directors • Path to break-even or next funding

• Significant variation among firms but3. Angel req. +:- Anchor clients on board, revenue

growth (B2B), - Growing base of users, with strong

usage trends (B2C)- 3..Growth potential! Credible

path to $100M Rev

• Don’t Expect: • $ Rev, Customers, Minimum Viable Product (MVP); full legal documentation

• Income (e.g. cash flow positive); all key management ; completely developed business model (e.g. understand it will change)

• Income (e.g. cash flow positive)

Who/what are they?

• People you already know, that trust you, and (maybe) understand your venture

• Experienced early stage investors (individuals or a group)

• Accredited Investors.• Angel investing is not their “job”;

may not be F/T endeavor• E.g.: NY Angels, GoldenSeeds

• Firm with multiple professionals that raises, invests and manages individual funds (other people’s $)

• Working F/T (this is their job3)• E.g.: Greycroft, RRE, Union Square

Angel InvestmentFriends and

FamilyVenture Capital

“You”aka Bootstrapped

Earlier Stage Later Stage

Round Size $: • $10’s of K to $100K

• $100’s of K to $1M+

• $500K to $1.5M

Investment Size $: $5K – $10’s of K • $25K – $75K • $250K-$750K

Valuation (Pre-Mon):

• < $1 M • $1 – 5 M • $5-10 M

II. Pitching to Prospective Investors

“Traditional Series A” VC

• $5M-$15M

• $3M – $5M

• $10 – 25 M

“Seed”

“Seed” VC

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Given this landscape, how do I get to the pitch?

� Who are the “right” investors? Where is there a “fit”?• Reality Check. “people invest in things that they understand and have experience with”

- Target find Fit: Find investors that come from industries, sectors, business models etc. that are same/similar to your venture and your customers

� How to “get” a pitch meeting?• Connect. The hard part.

- Avoid “cold-calls”; look for “warm introductions”- Networking. Who do you know that knows them? - Find them at an event. (Email sucks!)

� Really you should be thinking&How do I build a relationship first?• Pitching by its very nature can be awkward. “This guy wants something from me.”• Most investors mean-well, and would like to help3but are busy

� Solution: Build a relationship before you need to pitch. OK, How?• Give, don’t Ask: what can you do for them?• “Ask for advice, not money” • Debate / Discuss a topic, Ask opinion about X. • Find ways to “show” rather than “tell”:

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Who are these “Angels”? What do they look like?

� Experienced, successful entrepreneurs: frequently multiple exits

• Some from “tech-start-ups” some from other businesses

• Usually some link to

� Successful “corporate” business people: CEO or CxO-types

� Older: most are in the 40-60 age group. But there are also notable angels

in their 20’s and 30’s e.g. newly minted start-up millionaires

� 3 – 10+ Angel Investments

� ~10% of investible capital in Angel Investments

� Differ *widely* in: Industry/Functional Experience, Investment Expience,

Interests, Target Sectors/Stage, Investment $, Risk Tolerance, personal

do’s/don’ts and hot buttons.

� Lists? Not many. All are partial. AngelList? Gust? Other?

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NY Angels Profilewww.newyorkangels.com

� Member Profile: ~80 investor/members; several early-stage funds; Member backgrounds are generally representative of the tech / entrepreneurs / industries in NYC: software, e-commerce, ad-tech, finance, media

� Sector Focus: Internet, e-commerce, new-media, software; B2C and B2B. Mostly NYC Area.

� Stage. Mostly early stage (with some customers/revs), some seed stage (pre-revenue)

� Valuations/ Investment Size: NYA pre-money valuations tend to range from $1M – 4M; investments tend to range from $250K to $1M+;

• For larger rounds, NYA often leads the deal and helps find the rest of the capital by sharing/syndicating the deal with other Angel Groups

� Group Structure / Investment Decisions. NYA core structure is as a group of individual investors. Individual investors “opt in” to deals and make their own investment decisions.

• Typical member invests $25-50K in a deal.• In addition to the core “opt-in” model, NYA has just closed a small seed fund that will

operate in parallel (using a “democratic model” for investment decisions)

� History/Background. NYA has invested $45M+ in 70+ companies.• We are very active in the NYC entrepreneurial / early-stage ecosystem

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Variations on the Theme: Other Players

� “Super Angel” (vs. Angels, Angel Groups). Sophisticated angel investor with a large portfolio of early stage investments (30? 50?) and that is investing frequently (10 + per year). E.g. David Rose, Fabrice Grinda

� Microfund or Micro VC Fund. Small VC fund ($1-10 M) often run by a single person typically making “angel” size investments in early stage companies.

� Seed Fund. VC fund focused on “seed” (aka Angel) stage investments: often pre-revenue, pre-product. Some VC’s that typically invest in “Series A” rounds will reserve a portion of their fund for seed investments: e.g. $250 – 750K investments at $1-5 Million valuations

� Incubator/Accelerator. Entity that provides non-monetary support/services (in addition to $’s) to early stage ventures. Typical support/services can include: space, IT infrastructure, shared admin service, advice/feedback, introductions/networking. Public vs. private, independent vs. captive. Examples: TechStars, ER Accelerator, DreamIT, Y-Combinator

� Strategic Partner/Investor. Some operating companies will invest in ventures. Typically it is in an industry/ sector / product-space similar to theirs (sometime with an eye toward potential acquisition in the future)

� Crowd Funding Platforms. Currently this is financing via donation or “pre-sale” of products. Equity financing under JOBS Act is TBD. Not obvious this will be a good match for most Tech

� AngelList. Similar to an angel group, but without centralized control. More of a open “marketplace” of individual investors and ventures to facilitate funding.

� Gust. Software platform that most angel groups utilize (and many small VC’s) to run their investment process and connect angel groups together to share deals.

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Additional Thoughts&..

� Lots of start-up advice out there. Lots about the art of fundraising. • Huge volume of blogs, articles, Quora-posts, etc.• Well33.that’s good, right? Yes.• But why doesn’t it help?

- Overwhelming- Conflicting- Not specific- Not enough context- It’s just advice, ideas, 3..not interactive, not experience.

• Need to understand the “why” behind it all and adapt it to your venture, your situation.

� Beware of simple answers, absolutes. As you are reading and listening to all these opinions, data sources

• For any “fact” “rule” “truth”3 if you don’t understand how it is both true/false, you don’t really understand the point.

- Under what circumstances is this “rule for fundraising” “true”? Where does it apply well With whom?

- How and when is it not true (Or less true)?

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