April is the cruelest month, wrote T.S. Eliot. It also marks the end of Q1 in a year abounding with unicorpses, so this may be a good time to take a look at the startup and investment landscape. Especially since, as CBInsights recently pointed out, many paper unicorns will be looking for more funding very soon (D-Day for Unicorns – When Will We Know if the Bubble Has Actually Popped?) and it’ll be interesting to see what happens, especially considering layoffs many of those companies are experiencing, and Snapchat’s recent flat round.
Hate to state the obvious, but isn’t the definition of a successful business one that makes money? And shows black on its balance sheet? Unless there’s some special Silicon Valley Math that we don’t know about…
We hosted Alex Katz, Partner and CFO of ff venture capital at our last Investor Breakfast, who came out and said, “I see entrepreneurs too consumed with cap tables and valuations. The single most important thing is cash,” and thank you. Eyeballs are nice. Wallets/credit card information is better.
We see and hear about people agonizing over their investor decks all the time, then nervously stand up (or sit) in front of the investor as if they’re on a job interview or worse, sitting down in the dentist’s chair, about to get a tooth extraction. So as we stand here on the precipice of Q2, in what is amounting to be not a great year for Kool Aid aficionados, meaning, acolytes of the Smoke and Mirrors Economy, some things to keep in mind as you’re slaving over your deck, which you should think of as a blueprint: an outline of the points you need to cover as you’re telling your story.
Investors want to know three basic things about you/your company:
- What is the problem you are addressing?
- What is the opportunity?
- What are you going to do to get there? (which you need to translate as: how are you going to turn this into a business that’s going to make money or is such a threat to a potential competitor/corporate that they can’t easily replicate what you’re doing/the client base you’ve built and they’re going to acquire you. For a meaningful ROI)
Above all, make sure to tell a good story. Everyone loves a good story, and investors are no exception.
Speaking of ROI, no, it does not stand for Really Original Idea, which we know you know, and our point being: while you may think that you’re building/developing something that no one has ever thought of before or are doing, you’re probably wrong. You do have competitors, and while you may be in stealth mode, not a bad idea to say something about what you’re doing, as someone might know of a competitor who hasn’t hit your radar yet. Trust us, your potential investors know about them, so you’d better know, too. It’s part of knowing your space, and for the record, while Really Original Ideas are awesome Returns on Investment are key.
Lest we forget, entrepreneurs are also supposed to scrappy and plucky. People who think outside of the box. Know how Airbnb raised money, before they went to investors? Fred Wilson talks about it here: How Union Square Ventures missed it on Airbnb. According to Wilson’s post: “They bought a bulk supply of generic cheerios and made up these cereal boxes to generate seed capital for their startup. Here’s how one of the founders, Joe Gebbia, describes it: We made 500 of each (Obama O’s and Cap’n McCains). They were a numbered edition on the top of each box, and sold for $40 each. The Obama O’s sold out, netting the funds we needed to keep Airbnb alive. The Cap’n McCains… they didn’t sell quite as well, and we ended up eating them to save money on food.”
Think far enough outside the box, and you might find that you don’t even need investors after all. One of our favorite stories is how Peter Shankman financed his first company by selling tee shirts when the movie, Titanic, was initially released. The movie was a hit, and so was Shankman’s tee shirt, which read: It Sank. Get Over it. Brilliant. In fact, Shankman has started multiple companies, several of which have been successfully acquired, without ever having had to take outside investment. Ever. It can be done, what to speak of the fact that, on the subject of VC funding, successful serial entrepreneur and investor Steve Messer once said that one gets better rates from the Mafia. Just FYI.
If you are going to go the investor route, a few things to keep in mind:
- Make sure you bring your subject matter expert with you to the meeting, if that’s not you. Someone better be able to answer those questions that the investors’ subject matter expert will have.
- Be charismatic and engaging. If you want to be a CEO/leader, investors want to know that you have leadership qualities. Don’t keep them a secret.
- Make sure to show that you have hustle. Getting the funding is a beginning, not an end. That’s when the real work starts. Contrary to misconception, and we’ve witnessed this on occasion – that round of investment is not your vacation slush fund.
- And finally, make sure that your numbers are plausible. Seriously. The hospitality industry in a multi billion dollar annual industry, but Airbnb’s slice of it is not in the multiple billions, or even a billion. Not yet, anyway. And note to self: they have a revenue model. And have had since Day One.
Lest we forget, Airbnb also pivoted from offering air mattresses for travelers to crash on, to what they are today. Most startups pivot. In fact, not sure that IBM is selling many typewriters these days, last we checked.
So keep an open mind. Tell a good story. Show your product – everyone loves a good show, after all. And make sure your startup isn’t fully dependent on raising investor money. Always good to have a backup plan. We know we’ve said these things before, and we just like to remind you of these points, from time to time. We don’t know if/when the bubble will burst or if/when the Investor Winter will set in, but one thing we do know and to quote Robert Frost, nothing gold can stay. Onward and forward.