Four things to have a hope of being funded
I’ve spent a lot of time reviewing business ideas and talking to entrepreneurs that want to start a company, are already in progress in pitching, or in general are looking at what they need to do in order to go down the path of getting funded.
Having the “big idea” is something that has often been talked about, so I’m going to skip that one – Mark Peter Davis of DFJ Gotham covers some of the points today in Want VC? Then Be Ready To Go Big, with his last paragraph being a good summary — “entrepreneurs should know that getting into bed with a VC typically means setting your sights on going big – very big. If you’re looking for a small lifestyle business or a small exit, venture capital is probably not right for you.”
Other than the “big idea” that you think you can execute on, here are the 4 items that every startup needs to complete if they want to get funded.
1) A Co Founder
Doing a startup all by yourself is hard, especially your first one. Unless you’re a very well rounded individual, being able to balance technical, marketing, and business skills in one head is going to be a lot to handle. More practically, a second person whose “day job” is the startup means that they’re investing their sweat equity, meaning you can ideally get your company that much farther along.
A lot of the founders I talk to really want to have someone who fills in a technical, marketing, or business hole in their own skillset. Now, that doesn’t mean that each founder needs to narrowly fit into one role — the fact is that you will be wearing many hats and need to have some familiarity with everything.
Finding the perfect second person (or third … more than three and it starts getting messy) can be the defining moment for a startup: things gel, many hands make light work, and you’ve got the personal networks of multiple people to get things done.
2) Executive Summary
You should have this. It’s arguably more important than a business plan filled with some meaningless spreadsheets with made up numbers that you can’t prove you can execute on.
The way I like to think about an executive summary is that it’s a prose-based description of the direction you intend to take your company in. You can refer to it whenever you are reviewing new opportunity — client X is asking you to customize the system to add feature Y, or to do a white label version — what does your executive summary say? Does it fit with the direction that you are planning to grow the company?
What needs to go in an executive summary? Well, this is a written document, so it’s pretty flexible. Talk about the problem you are addressing, your particular solution, how you’re going to make money (including how you’re going to make a lot of it, which will actually warrant that funding you’re looking for), your competition, etc. Here’s an executive summary template to get you started — feel free to use it to get you started (it’s not perfect by any means — feedback welcome!).
Writing an effective executive summary and tuning the wording and messaging is more than just one blog post. Get a start on it, as it’s the first piece of documentation that will actually let you share some information about your business.
3) Pitch deck
AKA the Powerpoint presentation. Some people are going to be better at presentations than at more written documents like an executive summary, or vice versa. Regardless, at some point you are going to be at Angel Forum, VANTEC, New Ventures BC, or some other forum where you’re giving an investor presentation.
The key to the presentation is that it needs *some* information that is directly consumable without you presenting (e.g. some financial projections), but the bulk of the material is going to really sing when you stand up there and tell the story of your company. The executive summary can cover the more extensive written material that can stand on its own without you explaining / talking to it.
I’m a big fan of the story model of presentations. Tell us the story of the problem, how you came up with the solution, and then the details of your company. As soon as possible, clearly and concisely make it easy for people watching you present understand what you do and why they should care. I find the model of telling a story or real world use cases make it easiest for listeners to put themselves in the mind of an actual customer or user of your product.
Of course, an investor focused presentation is going to need to then focus on the business fundamentals of your company: at the end of the day, neat technology that doesn’t have an investment story isn’t going to work. Technically minded founders will often spend too much time on the gee whiz bits. Investors care about the technology to a degree, but really, they want to know if there is potential to make money, including how *you* can execute to make this work.
I don’t have a good template for pitches per se, but another piece of material from Mark Peter Davis is useful — his recent presentation is in our favourites in the Bootup Labs Slideshare group. Slide 7 covers what materials do you need.
Recall that Bootup Labs works with technology startups that work on “digital delivery” of products or services. More narrowly, that means consumer internet, mobile, casual gaming, or enterprise internet. In this space, you *can* build an alpha/beta/prototype/whatever of your company. Even if the founding team aren’t developer types themselves, it is possible to work with a firm or contract developer to get something live. In fact, it’s a nice benchmark that proves you can execute — whether directly in terms of code, or indirectly in funding and managing a development process.
Mockups, Flash, or Powerpoint “prototypes” all have their place, especially in terms of sharing ideas or vetting markets. But, this should happen early in the life of your startup, when it really just is an idea or three in your head. Get out there and register that killer domain, throw up some code, and get going. You expect someone else to give you money when you haven’t built *anything*? And you don’t even have a blog up?! (Remind me to tell you the story of why Cover It Live doesn’t have a blog — the short version is that Keith McSpurren is right and I’m wrong 😛 )
I’ve been thinking of using this yardstick to at least open discussions with companies. There are exceptions to these 4 points (as there always are). But, if you can get these 4 pieces together, I believe you have a much higher chance of success. Most venues where you will be seeking funding or partnerships or some sort of business arrangement, will want this same set of materials. Putting time into this collateral will definitely be rewarded.
I don’t want people to think its hopeless if they haven’t done these things. But if you’re looking for concrete directions on what to do next to help build your idea into a startup, or to take your startup to the next level, I suggest you check these items off the list.
For the record, I finally decided to post this list because I sat down with the team from NetHooks today. I first saw them almost exactly a year ago at DemoCamp Vancouver, where they gave their first pitch ever. The peer feedback, if I recall, was pretty harsh. Now, a year later, Chris and Brenda have checked all 4 items off the list and are about to do a broader beta launch. I’m impressed with how far they’ve come, and am looking forward to “what’s next” from them.