I’ve been very busy this week reviewing 20 applications for MIT’s Demo Day and 8 applications for MIT Sandbox funding. Wow! I’m blown away by the incredible creativity and deep technical understanding of MIT’s students, faculty and alumni. The students amaze me the most, as MIT is notoriously difficult and to take on a startup while carrying a full time course load is challenging, but I never hear a complaint!
For confidentiality reasons I can not share either the MIT Venture Mentoring Service Demo Day application nor the MIT Sandbox funding application. But I think I’m on safe ground writing about some common problems I see with these applications. In case you don’t know, the VMS Demo Day is for companies that are ready to pitch to investors – that’s the audience at Demo Day. And the Sandbox applications are all pitches for modest amounts of funding for student projects. So I’m going to put myself in investors’ shoes with these comments.
- Market size and growth rate. Failure to clearly demonstrate the total addressable market is the number one problem I see. Too often founders just grab a number on the total market for their product, or often, just a related product. That number is always in the billions of dollars! Taking a small percentage of a very large market is not the way to go. You need to do a bottoms up calculation: what portion of the total market will you be actually able to communicate with? That’s where your marketing plan comes in. That’s market reach. Just because there are a billion Apple devices out there doesn’t mean that an email and PR campaign would reach them all! In other words market size is the product of your marketing plan X the total market. Market growth rate is almost always skipped. Why? Because that’s even harder to figure out than addressable market. You need to really dig into analyst reports, news reports, etc. Google is your friend! But it’s ok to use some anecdotes if you can’t find hard data. In fact stories can be more powerful than bland statistics.
- Traction. Too often founders see an opportunity for something like Demo Day and apply even though they have zero traction. This is a huge mistake! One, it’s a total waste of time and energy, as reviewers like myself will immediately reject a company with no customers or even users out of hand. And you will hurt your reputation with reviewers and others who are aware you are applying when you are not ready for prime time. Focus on building your product and getting customers. There will always be another entrepreneurial contest! As the saying goes, “keep your powder dry.”
- Competition. Nothing makes a reviewer see red like the statement “we have no competition.” There is always competition! Even if it’s only a set of substitute products vs. a single product. A good competitive analysis will impress investors that you know your market. The best applications carefully elucidate their competitive advantages over existing competitors and beyond that, explain how they will continue to stay ahead.
- Team. I see teams with outstanding education and experience. So what’s the problem? Failure to define roles for one. Yes it’s hard to say your buddy should be CEO, not you, but investors tend to focus the majority of their attention on the CEO. In fact Paul Maeder of Highland Capital once told me that the team is the most important determinant of whether he will invest or not and the CEO is 70% of the team. So be sure to choose the best person on the team to be CEO and detail his or her experience and qualifications accordingly. If you don’t have a CEO candidate, that’s ok. Say so, but outline your plan for finding one. Recruiting CEOs is something investors can help you with. Too often I see both a CEO and a COO. Who needs a COO in a startup? No one! The last issue I see is no one responsible for sales. Again if you don’t have a sales gun on the team that’s ok. Say so, but outline your plan and timing for hiring one. Attracting a great sales person will help validate your business!
- Business model. Too often I see tiny startups planning to partner with large established companies for distribution and customer acquisition. This can often be a waste of time, as big companies tend to be risk averse and difficult to do business with. The other problem I’ve had personally is you work for months to develop a relationship with a product manager only to see that person be promoted, leave the company or move to a different division and you need to start all over again. Channel partnerships can be powerful, but like strategic investments, they are best saved until you have a solid product, customers, and revenue.
- Vision and product roadmap. Very surprising how few applicants outline their vision.The reality of investment if that it’s a bet on the future. Your goal in securing an investment has to be convincing investors that your future is so compelling that they can’t afford not to invest in you. Having a compelling vision will drive your product roadmap, which again is often a missing element. Remember, it’s not just where you’ve been, or where you are today, but where you are going that’s important.
There are probably hundreds of articles about how to pitch. But here’s one I highly recommend. The Quick and Dirty Guide to Creating a Winning Pitch Deck by Alex Chuang on StartupGrind. Alex, like me, has reviewed hundreds of pitch decks. What makes his guide so valuable is he provides very clear and helpful examples for each slide in the deck. Your most important slide is the first one. What’s the problem?
Slide 1: Problem
This is probably one of the most important slides in your deck. The reason why Dave McClure advocates, “pitch the problem, not the solution,” is because too many entrepreneurs try too hard to sell their solutions without educating their potential investors on what the problem is.
In this slide, you will need to address the following questions as simple and concise as you can be:
- What is the problem?
- How do you know if it’s a problem? Do you have primary or secondary research to back this up?
- Who are you solving this problem for?
There are over 3 million freelance lawyers and small law firms in North America and many of them are spending more than $500/month on expensive project management and billing softwares that are not helping them to do their jobs more efficiently.
We’ve surveyed 100 freelance lawyers and they spend on average 2 hours everyday just to process billing and filing their cases. 98% of the lawyers we’ve interviewed agreed that this is a major problem in the industry and they wish they can process their administration work faster.
Finally, note the excellent graphics Alex includes. As I tell my mentees, people including investors, don’t read! And they often don’t listen. But they do look! You must include compelling graphics in your deck. They help tell your story. If you aren’t a whizz with graphics investing in hiring someone who is to help turn your ideas into exciting slides is money well spent.