As part of an audience that listens to VC pitches from many startup companies and different industries, I find that all have common denominators that related to putting together credible, persuasive business plans. I once read that a Hollywood film script must capture the reader within the first ten pages, or the script fails. The first ten pages for my edification must provide two major components of a presentation: the team and its domain experience with an excellent macroeconomic analysis detailing the scope and segments of the business opportunity.
I have recited the description of the macro component in an earlier blog. Basically it describes the overall size of the market if 100% of that market has been seized. Even publicly traded companies deliver that information. There is no SEC S-1 filing that does not contain that basic istatistic. And that information must be solid. Wall Street law firms require that any information contained in the S-1 therein has to be validated by respectable third party studies. Again, credibility is key here. Now I have listened to pitches telling me about market sizes and, yet, I have no idea of the origin of the report. Then one begins to suspect whether that information is correct and whether that market size is bloated.
Having had IPO experience as counsel is valuable experience to even smaller companies putting together business plans. The hurdles to put together a S-1 filing – the initial filing for an IPO– are substantial. The document requires the collaboration of scores of professionals and managers to finalize a SEC S-1 document in 6 weeks. They scour everywhere for third party statistices to include in their S-1, for The document must be bullet proof: no word, no data, nor any statistics can be fabricated. That type of discipline should roll down to a pitch deck.
Recently I listened to a telecom pitch, to provide broadband services to rural, hard to serve populations in Canada. The numbers were not there – the size of the market, population density, for a potential target not being served by broadband. True – these numbers will be difficult to find. However, the statistics are critical in understanding the size of that market and the overall potential value of the company. I am always perplexed that some startups boldly present poor statistical numbers and expect experienced investors to throw money at them.
The other side to this deliverable coin is the management team — their education and experience. Another way of saying it, do they have the ability to handle the business’ domain? Going back to the telecom startup, the senior managers had good business experience, with IT background. However, the instant business was all about telecommunications – a different animal altogether. Having had experience in the field, I immediately noted the many technical issues had not been addressed in their pitch: how to link to an Internet backbone from remote areas, how to reach out efficiently to sparsely populated areas without towers — something they dismissed. In Europe, the tallest edifices are the TV and radio transmission towers. Why? Because the height provides the maximum coverage. Virtually all telecom engineers know this fact. In other words, the team ignored backbone connectivity and tower engineering – basic facts. And these major omissions would impact the capital needed.
Domain experience is key since investors don’t want to see the management team to learn at their dime. The team’s expertise in the business speeds up the execution of the plan. That is why one first hears about the teams background and experience during the pitch. And, in many ways, the domain will determine whether they will be successful. Macro studies with valid sources provide a key ingredient to the audience to understand the scope of the opportunity and that cannot be ignored. Without these two elements, you immediately lose credibility.