Robert Kibble made an unlikely investment in High West Distillery in Park City, Utah a few years back.
“The last thing in the world I’d think of investing in is a restaurant or a distillery – combining the two of them seemed absolutely insane,” said Kibble, co-founder and managing partner at San Diego-based Mission Ventures.
In spite of that, he spilled money into the whiskey-making biz on a personal basis simply because High West’s business plan was so well written and thought out.
“In a business like that, that’s so competitive, you’ve better thought through every single issue,” said Kibble. “After two years, it’s profitable. It’s the only ski-in, ski-out distillery in the world.”
Kibble and other local venture capital experts distilled advice and the harsh realities about scoring money at the World's Best Technologies (WBT) Innovation Marketplace, an annual conference that unites entrepreneurs, emerging technologies and undiscovered startups.
The three-day conference at the San Diego Convention Center wrapped up on Friday.
Kibble said it’s surprising how many entrepreneurs can’t answer the seemingly fundamental question: “Why is anyone going to buy your product or service?”
The rule of five minutes is about how long a venture capitalist will take to decide whether they are excited and want to learn more about the business, said Dave Titus, president and CEO of the San Diego Venture Group (SDVG).
“You really have that first five minutes to make them go, 'wow,'" said Titus.
Peter Shaw, managing director of San Diego-based Shaw Management Advisors International LLC, has an even shorter attention span. He wants the entrepreneur to convey what they do and why it’s important, or what the problem is and how do they solve it, in 30 seconds flat.
“If I look around this room I bet there are 10 people who really don’t care about what I am saying because they are on their Blackberries or iPhones,” he said. “I or the panel haven’t said anything to make you listen and sit up.”
The reality is that small venture firms are getting harder to find, with 80 percent of the money being controlled by firms who raise an average of $700 million.
To have a successful $700 million fund, that means investors need to get $2 billion to $3 billion paid back.
“I am not going to do that by making 100 investments that pay back $20 million each," said Titus. "I am going to make it by having three or four big investments that pay back $500 million for my share of your company."
That means the company needs to be worth hundreds of millions, if not billions, of dollars.
“The most successful entrepreneurs, when it comes to raising capital, understand how the process works, how the game is played and what it means,” he said.
They get how financings work and aren’t trying to reinvent the wheel. With the dawn of Google and contact emails listed on venture firms' websites, finding a venture capitalist these days is easy.
“Getting their attention to listen to you is the hard part,” said Shaw.
But early stage companies should be wary -- not every VC they come across is a good fit.
Check out their websites and look at their portfolio companies to find out if they invest in similar areas, advises Kibble.
“Make sure they have money. A lot of VC funds frankly don’t have money today,” he said.
He suggests scrolling through their press releases, finding out when their last fund was raised.
“If someone hasn’t raised a new fund in the past four years, they are not making an investment – they don’t have the money to do it,” said Titus.
One mistake entrepreneurs make is linking up with those time-wasting VCs anyway.
"People in the venture business love learning about new stuff and meeting entrepreneurs. It’s fun and interesting, and besides, they've got to do something with the day," Titus said. “But that doesn’t help your goal of getting financed and finding a partner.”
Instead, he suggests asking those VCs if they know anyone in the business who does have the backing. Titus compares linking up with a venture capitalist to high school dating.
“You want to find Robert’s friend and find out if he thinks Robert would like you, then you have the friend introduce you,” he said.
Once the VC firm is located, the next step is mastering the pitch, or opening line.
It’s shocking how bad people are at making a pitch about their company, said Titus, who is constantly exposed to pitches via programs run by SDVG.
“This week I will read 100 pitches for a competition we are having,” he said.
Entrepreneurs need to lock down at least three pitches in their minds: a 60-second elevator or hallway pitch, a five-minute pitch that explains what their company does and why it is interesting and compelling, and a longer one for a real-life meeting.
Titus begged the crowd to learn how to write.
“I could hand out 100 executive summaries and somewhere between 30 and 40 of them, after you have read the first two to three paragraphs, you would have no idea what the company does,” he said.
He provided a cringe-worthy example of a terribly written executive summary: "They are changing a global paradigm in a rapidly evolving market with unique innovative technology that will help capture dominant market share in this explosive opportunity."
“Learn how to say what it is you do,” he explained.
Shaw says executive summaries should be short and sweet, using a literary genius as an example. When Mark Twain apologized for writing a long letter to a good friend, Twain said, “If I had more time, I’d make it short."
Another pitfall entrepreneurs run into is telling investors there is no competition; that either means there’s no market for the product or service or there’s a lack of understanding.
“And I really don’t want to invest in people who have neither of those two things,” said Titus. “If you want someone to buy something from you, you have competition for their money. If you want someone to spend time on your website you have competition for their time.”
Kibble calls himself “old fashioned,” when it comes to materials he wants from a potential portfolio company.
He prefers to see a 15- to 20-slide PowerPoint presentation, three-page executive summary and a full 60-page business plan. A lot of companies today, however, raise money based on the first two.
“I don’t think that’s as good as it could be," he said. "The discipline of writing something in detail under each function of the company – engineering, customer service, marketing and sales – really forces you as an entrepreneur to think through the issues."
The presentation should be half an hour, maximum, with 15 minutes for questions.
"Get them committed to taking the next step of them saying 'I’m going to talk to my partners,'" said Kibble.
Some concepts simply fail due to bad timing, he said, citing two startups that were both trying to be like YouTube.
“One was too early and the other was six months too late. We missed the critical moment,” said Kibble.
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