Tag Archives: VC

Beware – “Advisors” Slide

It’s instant credibility.  For the fresh entrepreneur.  For the veteran entrepreneur starting in a new area.  The Advisors slide.  I have used them.  I have been used on them.  I have made mistakes on both ends.  Some cautions…

As an entrepreneur you probably know exactly what you are building.  You have very few cycles to spare.  The last thing you are looking for is hours on end hearing from an “expert” why this or that is impossible, has been tried before, etc.

But to show VCs that you have tapped the experts in the technology, market, etc. you need a couple of advisor names.  You network to a few, meet for coffee and a chat, even send a slide deck.  You ask them to be an advisor, with some vague talk about equity.  They say “sure,” and you put them on your slide, and get on with your many other tasks.

I have learned this is a mistake.

For many entrepreneurs the threshold to agreeing to be an “Advisor” is pretty low.  I enjoy helping other entrepreneurs.  I don’t do it based on whether I believe its a $1B opportunity.  Helping someone build something new and interesting, and learning the ropes– that’s good enough for me and many others.

The problem comes when the advisor gets a reference call from a VC.  The truth is anything short of “I love the team, I love the business, I want to invest and/or work with them” on that call is bad for the company.  Even having a big name say “they seem like smart guys, not sure exactly what their current approach is” doesn’t do much for you.

I remember getting an echo of so-so feedback (through a VC) from an Advisor in my first company.  I was pissed.  But in truth I had spent little time actually talking through the business, getting advice and making him feel “heard.”

Some advice for entrepreneurs:

  • Clearly separate “advisor” from “Advisor.”  It’s great to have lots of advisors.  But list only capital-A Advisors in your slide deck/website.
  • Make the threshold for official Advisors high:
    • A certain number of hours per month; per week leading up to fundraising.
    • Make them a shareholder.
      • Preferably with cash out of pocket so they have skin in the game… and you have tested their commitment to your vision.
  • Prep Advisors well before you pitch VCs: walk through the pitch, in person, and answer questions/objections.  Either walk away agreeing it’s good, or take them off your slide.

Some advice for potential advisors:

  • Keep an open door for entrepreneurs seeking advice.  It’s good for the community.
  • Draw a clear distinction between informal advice and being an Advisor.  Before agreeing to the latter answer: would I be comfortable sitting with the team at a VC pitch?
    • If not, tell the team.  Don’t take stock.  Give them occasional advice if you have time.
    • If so, get a stake in the company.  Work with the team to really understand the business.  And get ready to take reference calls as if they were a continuation of the pitch.

Maximizing Early Stage Valuation

Rob Go wrote an instructive post yesterday titled How VC’s Value Early Stage Companies.  It’s a great, quick read for first-time entrepreneurs.  Too many times I have listened to an entrepreneur justify a particular valuation based on a financial model, with first revenues 1-2 years away and a lot of evident technical risk.  It’s OK to model it… you probably should do a quick check of the DCF in case there’s an associate charged with doing the same… just don’t bring it up in your pitch.

I have found that the process for getting a decent valuation on a business is similar to that of getting a decent price when selling a house:

  • Set a reasonable, or even attractive price– don’t look too concerned about valuation
  • List defects/shortcomings of the home up front– no exaggerations, explain the risks
  • Make sure the house is tidy– a sharp, 12-slide pitch
  • Have a well-attended, well-advertised open house– 2 week roadshow East/West Coasts
  • Let potential buyers know when other offers are coming in– let them know when others are moving – again, no exaggerating!

The goal of the exercise is to get 2+ buyers submitting term sheets.  Once you do, let me suggest one more thing:

Don’t get focused on maximizing valuation.

More on that in another post.

Pay-to-Pitch Outrage

Lately there has been a lot of virtual ink spilled on the subject of so called “pay-to-pitch” events and organizations (including several angel groups).  A lot of outrage and righteous indignation.

Paid conferences are not a great place to raise money.  VCs – even angels – like to feel like they have made a unique “discovery.”  That’s a major part of a VC’s job description, after all.  Presenting at a conference implies you have exhausted your more selective avenues.  The only time I have seen it work is when you explicitly say you are not looking for money.

But let’s reduce the controversy to its basic components: an entrepreneur is  selling stock in a company, with a marketing budget. Nothing more.

If an entrepreneur spends $18,500 showing off their product at DEMO in hopes of pushing a deal closed, should we jump to their aid? If a VP Marketing spends $25,000 on an ad buy in hopes of filling a sales funnel, should we declare “jihad” (Jason Calacanis’s words) on Google Ad Words?

Luckily the the controversy has informed hundreds of first-time entrepreneurs that paying to pitch to angels is not the norm.  There are plenty of other “service providers” out there waiting to charge them cash and equity for things that should be free!