The 3-Point VC Pitch
The 3-point VC Funding Checklist
I’ve spent the last several months with the VC/private equity community, and with entrepreneurs/owners that want to take their business to the next level. These posts have been about today’s disconnect between investment opportunities – which are currently very good – and available capital in this regional market, which has been better.
In talking with entrepreneurs about getting funded, the conversations keep coming back to a 3-part model that gets drawn on the best available napkin. Nothing really original, it’s kind of a strategic mutt that gets to the heart of any funding discussion. The three elements:
The 1) Team and the 2) Technology make a business interesting, investigable. As an entrepreneur, no one cares about your model or sector or idea without knowing about your people (smart, good track record, sector expertise) and technology (for competitive entry barriers and exit valuation). But if the team and technology check out, then it’s the 3) Model that makes your deal investable.
A common phrase in VC pitches is that “this will be a great little business”. This is spoken without knowing that across the table your audience just mentally closed your file. (“Run Away! Run Away!”) If the sector is not large enough to support nice growth, or is not itself growing, or the business does not scale profitably, then that deal is in the large class of “great little businesses” for the principals to earn a living, but not for investors to earn a return on exit that matches the investment risks:
These intriguing blurry thumbnails are from a presentation made last fall to the Dallas alumni of Monterrey Tech. The full image won’t post here, but email me: ‘Southwestventure’ at Gmail for the powerpoint version. The point, and I do have one, is not to get too lost in pitching the wonderfulness of your widget or idea, at least not until the answers to these three questions are convincingly made. Or else that exit your audience is planning may be from you.
-JR