It’s pitch scrub season!

lyft

Every year MIT’s  Venture Mentoring Services selects a number of its ventures to present at Demo Day. A number of us mentors help the presenters by doing a two part pitch scrub for them in preparation for Demo Day. On day one of the pitch scrub they present their decks and we give them feedback, on every slide. They then take a day to revise their decks and present to the same group of mentors again. The changes are always amazing, as they far exceed our expectations. If you can say one thing about MIT affiliated entrepreneurs they learn and learn fast. And they can apply that learning superbly.

But it never hurts to get some tips, especially from Carmine Gallo, who is an expert on presentations and the author of several books on presentations that I highly recommend, including The Presentation Secrets of Steve Jobs.

Lyft’s anticipated IPO roadshow kicked off this week. Carmine extracts five communication strategies from Lyft’s 24 minute presentation.

1. Start with the inspiration behind the product.

Origin stories as they are known, are powerful  ways to open a presentation. They quickly answer the “Why should I be interested in this presentation” question. “Why does this product exist?” Co-founder John Zimmer studied hotel management where he learned about occupancy rates, a key metric in the hotel business.

“Cars are occupied only 5 percent of the time. The other 95 percent of the time they’re just sitting there. If you have a hotel with a 5 percent occupancy rate, you have a failing business.”

It you don’t have a good origin story that’s ok, but you will still need to quickly answer the “why” question. One good way to do this is to present a surprising statistic about your target market or customers. Such as, “Do you know that X% of bicyclists fall at least Y times in their first year of competitive cycling?” While personal stories forge the strongest connections with your audience, stories about your customers can also work well.

2. Frame the opportunity.

While  journalists call Lyft a “ride-hailing company,” the company does not position itself that way. I prefer the term “positioning” to “framing” as it tells the audience what you are and what you are not.  The two co-founders position Lyft as “On demand peer-to-peer ride sharing.”  Your positioning or framing basically answers the question, “What is it that your product does?”

This is also a good time to answer questions about your market opportunity: what’s its size? How fast is it growing? What are its dynamics?

Lyft does a great job of this:

“We have an opportunity ahead of us to deliver the largest shift to society since the invention of the car” and “Lyft addresses one of the largest market opportunities of our lifetime; a shift from car ownership to transportation as a service.”

3. Create simple lists.

People do love lists, as evidenced by the thousands of listicles begging us to click on them. Carmine Gallo notes how Lyft makes use of lists, by creating a list of why Lyft is a good investment. As I advise my mentors, Mr.Gallo advises you to keep your lists short, no longer than three to five points.

4. Focus on key metrics.

Investors need to see the numbers, and that’s never more true than at an IPO Roadshow. Lyft’s Chief Marketing Officer compares Lyft’s market, transportation to three other markets: healthcare, entertainment, and housing. Comparisons between the known and the unknown – your venture – are a powerful way to help the audience visualize the opportunity before them.

5. Make it simple.

This tip may be last but it is not least! At a pitch scrub yesterday with group of research scientists the words “you need to simplify your slides” were said to every presenter! I advise you to limit yourself to one point or message per slide. That can be conveyed in two parts, a text header and an illustrative graphic or even very short (15 – 30 second) video. Even more importantly, your product must be simple to use. If possible you should be able to demonstrate that ease of use and simplicity as part of your presentation.

It’s highly unlikely any readers of this blog will be presenting at an IPO road show any time soon. It usually takes years for a venture to go public. But these tips from Carmine Gallo will benefit any presenter. And do follow the links to watch the video of Lyft’s road show presentation. After all, if a picture is worth a thousand words, a video is worth a thousand pictures!

An outstanding example of the one-page executive summary

HodlPal Executive Summary (no phone number)

What I’ve been seeing a great deal of in the past two and a half years is a lot of emphasis on pitch decks, which is fine, everyone needs a good pitch deck. But there’s little help for the founder on how to approach investors.

Too many times I’ve found that entrepreneurs will email their entire deck to a VC.
Don’t do that!

If you send your entire deck in advance of meeting with an investor they may have gone through it and robbed you of the opportunity to show your pitching skills. Your investor meeting will quickly turn into a shooting gallery, as the investor fires questions at you based on going through your deck.  And if you have followed my pitching advice, your deck is NOT meant to be read, it is a vital complement to what you say when your present to an audience, be they investors, job candidates, or partners.

This is where the one-pager comes in. People don’t read, as you may have learned from my earlier posts, and since investors are people, ipso facto they don’t read either. But a highly graphical one-page summary of your business plan will get read and will help you get the meeting. And getting the meeting is the goal of your email to your prospective investor. In fact if you have done a very good job of your one-pager, as George has done, it will likely to sent to other partners in the venture capital firm or other angels in the angel group. The job of your one-pager is to capture the attention of your investor and prime them for your meeting.

It is worthwhile walking through the elements of George’s deck:

  • At the top left is the HodlPal logo, and since most people read from left to right, your logo will be the first thing your audience will see.
  • Second is your company name, tied into the logo
  • Third is your tagline, the very short and punchy summary of what you are. Your investor should want to read on to find out what a trust-driven social network is.
  • Next is the company mission: what do they do and who do they do it for: in the case of HodlPal they are building a trust-based social network for members of the crypto community.
  • As I tell all my mentees, the most important part of a pitch to an investor is the team. Note the photos of the management team with their credentials, followed by other team members with their name and credentials. At the bottom are the logos of the management teams alma maters. So fully one third of the one-pager is devoted to the team
  • The second panel to the right has the next most important thing for any investor to see: What is the problem HodlPal is solving, neatly summarized in four bullet points
  • Next is how do they solve the problem.
  • The last section of the second panel is the secret sauce, the magic that powers HodlPal. Note how the problem and how they plan to solve it takes up the entirety of the middle panel.
  • The third and last panel begins with the market opportunity and their revenue model, the size of the crypto investor market and HodlPad’s revenue model and the size of the much larger influence market they have their sights on
  • Next are HodlPal’s competitors, followed by their competitive advantage over those companies
  • Next is the Ask: not just funding, but partnership and advice – the value add of the investor
  • Next is HodlPal’s vision, the mega trend that they will help make happen
  • And last and is the contact info for HodlPal.

That’s it. A very attractive summary of the company’s business plan on one page. Of course, you might want to layout the elements of your one-pager in a different order, perhaps your vision is first followed by your mission. But lead with the team.

You aren’t quite done! You need to carefully craft a 25-word email to your prospective investor. The job of that email? To get them interested enough to view the attachment – your one-page business plan. I’ll tackle that in the next post. Stay tuned!

Has all the low hanging fruit been plucked?

unicornsIf you believe The New York Times article The Next Wave of ‘Unicorn’ Start-Ups – Uber and Airbnb were part of an early generation of tech start-ups that quickly reached $1 billion in value. The up-and-coming generation is looking very different.

The author Erin Griffith, seem to think so:

… the easy opportunities for disrupting old-line industries are drying up. Now, many of the up-and-coming start-ups that may become the next unicorns have names like Benchling and Blend. And they largely focus on software for specific industries like farms, banks and life sciences companies.

But that’s not just her opinion; it is based on an analysis for The New York Times by
CB Insights, a firm that tracks venture capital and start-ups. CB Insights used a variety of data — including financial health and the strength and size of the market a company serves — to identify 50 start-ups that may be on a path to achieving a $1 billion valuation (though there is no guarantee they will get there).

For you entrepreneurs that are looking for the next industry to disrupt, here’s the CB Insights’ list of 50 startups that may become the next billion-dollar valuation unicorns. You might want to stop reading here and figure out which one to emulate!

For those of you with a bit more patience, here’s a bit more on the subject of unicorns. The number of companies with $1 billion market caps – unicorns – has gone from 131 in 2015 to 315 today!

So where are the next wave of unicorns coming from?

… a new class of software start-ups as different industries adopt more technology. Mr. Green, the venture capitalist, said it’s become clear that software aimed at niche sectors offers larger opportunities than previously expected.

“Health care, automotive, retail, consumer packaged goods, advanced manufacturing companies — they’re all trying to figure out how technology helps reduce costs or how technology is going to help them build their next business model,” said Mr. Sanwal of CB Insights.

This jibes with my experience as a mentor. I  haven’t seen any startups attempting to compete with AirBnB, Uber, or Pinterest. But I have seen startups targeting farming, for instance. Aside from finding new industries to disrupt, like farming, there’s also the “picks and shovels” startups, those companies providing services to today’s unicorns.

The rise of companies like Uber and Airbnb has created its own mini-economy of start-ups.

One of those is Checkr, which was founded in 2014 by Daniel Yanisse and Jonathan Perichon, who worked as software engineers at Deliv, a delivery start-up. Both had become frustrated at the slow-moving background checks for the delivery drivers they wanted to hire for Deliv, so they created their own business to expedite the process.

Now Checkr works with Uber, Lyft and Instacart. It has also added other types of customers like the insurance company Allstate.

The term “picks and shovels” refers to the California gold rush, where smart merchants sold picks, shovels, and dungarees to miners, rather than attempting to mine for gold themselves.

The megatrend that the article skips over is the rise of AI – the new electricity, and the blockchain/crypto revolution. I’ve been waiting since 1985 for the rise of AI! That’s when I joined Addison-Wesley Publishing Company, as General Manager of their Educational Software Division. My colleague, Bill Gruener, had built the best computer science list in the publishing world. I was reading books on AI, in particular what were called expert systems, by computer scientists like Patrick Winston. In fact, it was reading those AI books, that took about a year to go through the python of the A-W copy editing, proof reading, typesetting, printing, and distribution to reach readers that gave me an idea for a startup: Why not enable computer scientists like Winston to publish their books on computer science online, so they wouldn’t be out of date by the time A-W brought them to market? Unfortunately in those days the Internet was not available for commercial use – it was restricted to academics (and the military). Our only options for online publishing were CompuServe, AOL, and Prodigy. After studying them all and seeing if there was an alternative we decided that my idea was just too far ahead of its time – which has been the problem with many of my startup ideas!

But I’m far from convinced that all the low hanging fruit has been plucked. I believe applying AI and/or blockchain technology can totally disrupt large extant businesses like banking. So while I would encourage any would-be founder to study the CB Insights list for ideas, I would also encourage those with computer science educations to also study how some of that low-hanging fruit could still be pluck by standing on the AI or blockchain ladders.

Quora – a great resource for founders!

quora

If you aren’t familiar with Quora you should be. In their words “Quora is a place to gain and share knowledge. It’s a platform to ask questions and connect with people who contribute unique insights and quality answers.” But the reason I highly recommend it to founders is that there are many founders, technologists, and even investors who answer questions. Often there are even multiple answers to a question, providing valuable perspective.  I believe the reason Quora has so many users from the startup/tech community is that is the founders came from the Silicon Valley community and they started the venture with their own community  – a good lesson for founders. Quora is sort of a Wikipedia for Q & A.

Quora was founded in 2009, so it’s in its 10th year of operations – quite an achievement in my book! You can answer as well as ask questions. Quora provides a feed based on the topics you have searched which is quite useful if you need find further information on your question.

The one weakness I find is that there is virtually no About or Help to be found on the site! It has gotten very complex over the years, adding features like followers, sharing links, upvoting answers, sharing answers, etc. However, if you click on the Ask Question of Link the pop up window provides some guidance: Start your questions with “What”, “How”, Why” etc. and gives you the option of adding a link.

If you click on an answer you will find related questions, which is a very useful feature.

But I realized I could use Quora to find out how to use Quora! Here’s the first of a very helpful 3-part answer:

1. Quora works by having the community ask and answer questions. When you want to know more about something, Quora delivers you answers and content from people who know the answer – like real doctors, economists, screenwriters, police officers, and military veterans.

You can learn more by following these links:

There are dozens of questions and answers about how to  best use Quora, which I admit I have not delved into.

Here’s a brief story about how Quora was useful to me. Working for MIT Sandbox I had a mentoring session where the issue of a founder’s agreement came up. Surprisingly Google and startup books were unhelpful. But searching Quora for founders agreement lead me to multiple highly useful answers, which I passed on to Sandbox.

If you aren’t using Quora you are missing out on a wellspring of great information on starting and running a new venture and many other topics as well.

 

 

The founder flood – good or bad?

silicon

The barrier to entry for founders barely exists. With a laptop, internet connection, and some AWS storage, virtually any programmer can build a mobile app thanks to all the tools from Apple and Google.

As a result I’m see a flood of founders. But many mentor meetings are one and done. Of course, we don’t know what happened to these founders, but follow ups show a number have decided to work for someone else. Of course, that doesn’t stop them from trying another startup in the future.

I fell in love with entrepreneurs at my first company, nearly 40 years ago. The founders were brilliant MIT grads who had hired other brilliant MIT programmers. But it took a Prime minicomputer to develop VisiCalc – not cheap! Having attempted to start a sound reinforcement company in my early twenties, I was too green to realize that I was entering a capital intensive business with no capital. I ended up working for two different sound reinforcement companies. As so often has been the case, I was recruited into my second job, where we sold headset systems for communications between the stage and the mixing desk for bands like the Grateful Dead. But in addition to learning how to solder and how to mix house sound and monitor sound, I learned the downside of a small business. Jeff Beck went back to England without paying for the thousands of dollars he owed us. Collections can be the bane of a small business.

Why am I attracted to founders? They are very smart, usually well–educated, and often charismatic, like Mitch Kapor, founder of Lotus Development. But that’s all the ante as far as I’m concerned. What I look for is fire in the belly: unquenchable desire to build something based on their vision of the market. Incredible enthusiasm and energy. Not willing to take “no” for an answer. Passion for the product or service. Unworried by competition. Able to stretch the dollar until George Washington yelps.

Unfortunately what I’m seeing a lot of these days is not passionate founders but partners who just want to start a business, some sort of business because they can and everybody else seems to be doing it. Not because they need to. The term I hate – “pivot” – is endemic and shows me that many founders lack the one trait I find indispensable in founders: persistence.

Of course, at MIT VMS and other places I’ve mentored we try to help every founder who asks for our mentoring services. So what are the pros and cons of this flood of entrepreneurship? On the pro side very smart men and women now want to found companies rather than go to Wall Street to make money or to a big consulting firm, to make money. Many of the founders I see are driven by social impact: getting clean water to those who need it, helping veterans get a job when they transition out of the service. I’m constantly amazed by how many founders want to help people, not just go for the fame and money that the media endless tout.

But wannabees take up valuable time away from the real deal founders. Other than that I really don’t see any negatives to the flood of founders. And who knows, maybe they will some day actually find a problem they are passionate to solve.

The law of large numbers says that at least a few of these hundreds of startups I’ve seen will succeed, and perhaps inspire other bright people who just a few years ago aspired to go to Wall Street, where nothing is built – it’s all financial engineering. I’m seeing quite a few fintech startups, so instead of going to Wall Street these founders want to disrupt it!

I can’t blame would be entrepreneurs for jumping on the startup bandwagon. They are young enough not to have families to support or even a mortgage, so they have little to lose and a lot to gain. Even if their startup fails they can take what they have learned to a job with an established company and perhaps infuse it with some entrepreneurial zeal.

All I ask of founders is two things: one is be passionate and engaged with the problem they are trying to solve. The other is that they do a minimum of market research to ascertain whether there are competitors and if they present a barrier to entry. You would be amazed at the number of founders who never Googled their idea. I’ve seen this done by mentors during a mentoring session and what they find dismays the founders who thought their idea was unique.

If you are interested reading more about the founder flood I recommend the article The Explosive Rise Of The Entrepreneur by Check Warner on the Forbes site.

 

Should you join an accelerator? It depends

accelerator

I’ve posted previously about how accelerators don’t have a lot of value for serial entrepreneurs. But for newbies, that’s a different story.

Shourjya Sanyal‘s article in Forbes, 5 Reasons Why Your Startup Should Join An Accelerator does a good job of outlining the benefits. As usual I’ll annotate his points.

1. Provides an ecosystem of support

This is generally true, but entrepreneurial ecosystems are to be found around the country from Silicon Valley, to Austin, to New York and Boston and places in between. However, the support can certainly help first time founders. Other startups and mentors may well be willing to give your product an off-Broadway tryout before you try to take it to the Great White Way. And new founders, don’t underestimate the time an effort saved by providing infrastructure, though new co-working spaces like WeWork do an even better job than accelerators. In fact they can be co-working spaces can be a good alternative to an accelerator, which are often quite selective. Where accelerators can really add value is when they are designed to focus on a particular industry like  Dreamit HealthLuminateRebelBio.

2. Develop skills for the founding team

The one skill I do believe accelerators develop in founders is how to pitch, as most accelerators culminate in a demo day. But otherwise it’s BYOS – Bring Your Own Skills. If you don’t have engineering or sales chops you won’t develop them in the three to six months you spend in an accelerator. What you will find out is what skills and experience are lacking in your management team and how to recruit to find those necessary complementary pieces for the startup puzzle. And don’t underestimate learning how to pitch. Most people are terrible at it. Founders need to pitch from day zero to an exit, be to a potential acquirer or to bankers on the IPO roadshow.

4. De-risks future investors

In my experience in the startup world, no one likes to go first. By gaining a modest investment from an accelerator your venture gains more than money, it gains credibility. The accelerator goes first, even if that first investment is only in 5 figures. Angels and early stage VCs may follow on, depending on how your demo day pitch goes. There’s a reason VCs like founders who went to Stanford, Harvard, MIT or other elite schools. It’s a stamp on the founder’s startup passport that they have been chosen by a highly selective institution. And VCs are highly selective.

5. Funding

Not only do accelerators invest actual cash for a small amount of equity, they provide non-cash value by providing office space, discounts on cloud platforms and software tools, and other amenities – all saving founders not just money, but also the time it takes to spin up necessary tools and infrastructure for a new venture. According to the author accelerators can also help with grants. MIT does this with its I-Corp program, a program of the National Science Foundation.

In addition to pitching to traditional VC firms, accelerators often mentor founders on how to apply for government grants (Such as Small Business Innovation Research grants in U.S. and Horizon2020 in EU). Such grants are often the seed round of funding for technology or social startups. In-fact business accelerators and incubators based out of universities are particularly designed in helping startups to secure these grants.

Way back before anyone but Bill Gross of Idealab had heard of the concept of an accelerator or incubator I was running one with my friend Kevin Donahue, called HyperVest. We even had VC money from Morningside, the venture arm of Chinese billionaire Gerald Chen, an acquaintance of Kevin’s. The .com bust busted us, but I did learn a bit about accelerators, including that our idea of finding CEOs to run with Kevin’s startup ideas was not a good model. Founders generally want to found and follow their own vision, not follow someone else’s vision.

Observations from 2018’s mentoring sessions

All the year-end wrap-ups have inspired me to do a wrap-up of 2018 from the viewpoint of a mentor. Here’s a few observations:

  • Engineers continue to dominate the founders group – not surprising as MIT is a technology institute after all. However, I see relatively few Sloan business school students. Occasionally they are brought on to a startup team, but I see very few Sloan founders.
  • Many one and dones. I do a lot of first meetings and for a variety of reasons these would-be founders never schedule a second meeting. Some realize that their idea isn’t really venture-ready, others decide they aren’t cut out to be entrepreneurs. Perhaps a few decide that they don’t need mentoring or find it elsewhere.
  • The rate of new MIT-affiliated companies continues to rise. This data may be confidential, so I won’t share it here except to say that I’m doing more first meetings than ever.
  • Sales still gets short shrift with new ventures. Almost never do I see a sales person as a founder or co-founder. The founders I do see don’t put a lot of thought or effort into customer acquisition. Typical teams have CEO, COO, and VP of bus dev – no sales, marketing or finance executives! Perhaps as these companies grow they will realize the importance of sales, but early stage companies are virtually all product-driven.
  • A large number of startups are social impact ventures. I’ve even seen a few non-profits (501c3 companies) for the first time. It’s admirable that the vast majority of founders are not wannabees, nor focused on trying to get rich quick. To the contrary, most are working to make the world a better place – very inspiring for mentors.
  • Mentoring continues to be popular. Several new mentors this year and very few leave, usually because they are relocating.
  • Developing pitch decks is SOP for founders. Very rare to see a new venture without a deck. Unfortunately many fall into the same PowerPoint-driven trap of being text-heavy, bullet point-laden and better designed to be read than as an aid to presentations.
  • I catalyzed a new program for MIT VMS – pitch scrubs on demand. I don’t have any data on how popular this new service is, but I was pleased to see how quickly the idea was pursued.
  • Founders continue to ignore founder’s agreements. Deciding who gets how much equity is not a pleasant task in a startup. Obviously it’s a zero-sum game. However, mentors are very good about reminding founders of the necessity of forging a founder’s agreement early on to prevent problems or misunderstandings down the road.
  • Too many founders are fixated on raising money, not acquiring customers. Most will find that they are far from venture capital ready. The rule of thumb for VCs is that they  are looking for grand slam home runs – companies with a billion dollar market cap. That usually translates into yearly sales of $100 million or more and a hockey stick growth rate. I’d like to see more founders realize they have something to contribute but since they don’t fit the traditional VC model either licensing their tech to another company or selling it outright. Only a tiny percentage of startups reach unicorn status, just like very few baseball players make the major leagues. That shouldn’t discourage entrepreneurs.
  • The best source of financing continues to be customer revenue. I’ve been glad to see a few bootstrapped ventures. Generally the founder/CEO of these ventures has real sales ability to accompany their technical chops. A very rare combination!
  • This year saw a strong interest in incubators and accelerators. MassChallenge dominates the New England accelerator scene as it continues to grow in size and influence.
  • Mentoring has become SOP for startups, though many may look to their investors, their professors or other sources of mentoring than formal organizations.
  • Virtual mentoring continues to be a non-starter, as the very few instances I come across are aimed outside of the entrepreneurial world, mainly for students or minority groups. There seems to be no substitute for face to face mentoring sessions for founders.

While this has been a challenging year for me personally as I had to stop mentoring at the MIT Sandbox fund due to health problems it’s been a rewarding one psychically. Helping entrepreneurs succeed is fun as well as rewarding.

Boston continues to play second fiddle to New York and Silicon Valley. The local politicians refusal to do away with non-competes will continue to handicap us. Not that doing so would magically turn Boston into the hub of entrepreneurship, but it would result in more spin offs from existing companies, which is the life blood of new ventures.