The Framing Slide

I recommend beginning a presentation with a single slide with the following information:

• What your business is, elevator pitch: “We build faster-than-light teleportation systems”
• How far along you are: “We are building the first prototype for the scalable system”
• Who you (and your team, if any) are, by function:  “We built the first teleport prototype at NASA”
• What you’re asking for: “We’re raising $200M to finish the scalable prototype”

Maybe there’s other bullets that go on this slide, but these seem like the essential ones.

Why?  Put yourself in your audience’s shoes: they don’t know who you are or why you’re there.  They need a framework to put the rest of your presentation into perspective.  Who What and Why supplies this framework (basically the same advice given to news story writers; get it into the first paragraph).

I can’t tell you how unusual it is for a presentation to have such a slide.  Of all the deals I’ve seen at Valhalla, I think maybe 5 or 6 had something like this.  The presenters who had framing slides tended to be return entrepreneurs (although it was by no means the case that every returning entrepreneur used them).

How do most presentations begin?  A slide with our name, the name of the company, and a relatively non-specific tag line.

So in this case it would be:

• Valhalla Partners
• Regent Teleportation
• “Journeys Simplified”

This does nothing to help frame the presentation.  I get it that you’re talking to me, but it’s actually not really news.  If your name has to do with what you do, that’s a bit helpful, but not as helpful as saying what you do (and in today’s world, most startups have names that tell you very little about what they do; to be fair, most investor groups don’t have such names either).  And the tag line may be useful in some context, but is not helpful here.

Or the first slide will have a handsome graphic and plunge right into the market problem.

In this case, the first slide would show commuters waiting for a crowded subway train, and say

• 100 billion commutes take longer than they should

You get the idea.

I think a framing slide stands out (since there are so few of them) and shows respect for your audience (since you show that you understand what they’re thinking at the beginning of the pitch).

What’s not to like?

The World of the VC Investor: More on Fear and Greed

Of all investors, you would think VCs and angels would be people in whom, temperamentally or by design, Greed would massively overwhelm Fear.

It seems things are not that simple.

It’s not that Greed is so much stronger in us that it overwhelms our Fear.  It just happens that we have a particular bag of tricks for quieting our Fear.  To wit:

1. Control (or the illusion of control).  By having the power to overrule the founder and/or exec team of a startup, we believe we are hedging the risks of investing in them.  That, of course, presupposes that our ideas of what to do with the company are better for the company than his or hers (or at least that our ideas are better for our interests than his or hers).
2. Dribs and Drabs.  By doling out our capital in smaller tranches or rounds, we believe we are hedging the risks by tying infusions of capital to company accomplishments (aka milestones).
3. Due Diligence.  By studying the risks in detail before each investment, we believe we are hedging risk by understanding it.  Trading in “unknown unknowns” for “known unknowns”, in the words of that sometime investor Don Rumsfeld.

This may make more sense for investors – whether angels or VCs – who have some operating experience in the businesses and marketplaces they invest in.  Unfortunately, this is seldom so, and even if so, is seldom helpful.

Why?

Even if I made my bundle in enterprise software, the enterprise software of today doesn’t have that much to do with the enterprise software of yesteryear.  Things like SaaS, open source, BYOD, and “the SolarWinds sales model” have completely changed the playing field.  Oh, there are some verities, like “Buy Low, Sell High” or “Keep It Simple Stupid”, but any clown who’s read the digest of a couple of business books knows those things.

And even when an investor knows something about the area he/she invests in, it’s not clear how helpful their advice is.  Why?  Because people are seldom capable of accounting for their own success.  Ask a billionaire how he got there, and he will say, “never drink coffee” or “never make more than 2 decisions in an hour.”  Either these are pablum verities a la “operating experience” above, or they are quirky beliefs that probably don’t have much correlation with the success of the business.

So get an opinionated investor with a lot of pablum ideas with control of your company and you have a recipe, not for hedging risk, but for constantly diverting the company from its focus with boneheaded “try this” nostrums.

We VCs and angels get this, and so we are not less Fearful about our investments.  We may be even more so.

The World of the Investor (for Presenters)

Again, I feel a bit odd even going into this material, but perhaps it’ll just be repetition for some while being news for others…

The Investor (let us give him or her a capital “I” for a generic proper name) oscillates between Fear and Greed:

• Fear that they will lose their money on your project.  Suspicion is the BFF of Fear.
• Greed that they will miss out on opportunity to make a killing.  Manic Haste is the BFF of Greed.

And it doesn’t take much to flip an Investor from one to the other (there is no middle ground).  In fact one and the same statement in a presentation can do it:

“Google has shown that the user base for online documents is huge”

Investor: OMG, what if you could make $2.50 for each Google Docs user [Greed], but OMG why couldn’t Google just take over this market [Fear]?

You can’t win with a bipolar audience like this; the best you can do is inflame their imagination.

It’s safe to say that the Investor will be in a state of Fear going into the presentation unless you’re a returning demi-god entrepreneur or their best buddy has just invested in you (if their best buddy is merely recommending you, that excites Suspicious Fear: “if it’s so good, why didn’t X invest in it?”).

It would seem that Job 1 is to flip the Investor into Greed, but this would be a big mistake because any attempt to do so will simply excite more Suspicious Fear (“why is she telling me all this pie-in-the-sky stuff; what gotcha am I missing”).

No, Job 1 is to return the Investor to the neutral state (which, paradoxically, will probably tip them over into Greed in any case).

The presenter does this by carefully framing the opportunity so that the Investor can hold it all in mind at once:

“I’m Entrepreneur Jones.  I’m asking for $2 million to prototype a teleportation service that will inaugurate in the U.S. in four years.  I’m partnering with two rocket scientists from Berkeley Teleportation Labs, the team that teleported a couple of hamsters to Titan last year.”

Why does this work?  Because the facts soothe Investor’s fears.  If Investor doesn’t know who Presenter is or how much money Presenter wants or how good the team is, or (briefly!!) what problem they are aiming to solve, Investor’s imagination can run rampant.  In a state of Suspicious Fearfulness, this means a spate of Fears going in.  A bad way to start.

The facts at least inhibit the Fear rush, and may even tip the Investor over into Greed.

Competition and the Hammacher-Schlemer Promise

Hammacher Schlemer, catalog seller of gadgets and gizmos, claims to be the “oldest continuously published catalog in the United States”.

But if you look at the catalog, none of the items in the catalog is billed as the “oldest” or the “first.”  Reason?  That’s not a valid competitive differentiation.

If you tell me your company was the first to make widgets, you get points for innovation, perhaps.  If you tell me you are the oldest widget maker, I guess you get points for doing something right, although sheer longevity is not an indication of that necessarily (think of the Postal Service).

Every item in the H-S catalog is either the best or the only in its category.

And that does make for competitive differentiation.  The only other superlative that differentiates would be “cheapest”.

I have challenged some of the companies Valhalla Partners – my firm – invests in to come up with a “Hammacher Schlemer” promise of their own:

We are the <best-or-only> <maker> who makes <widgets> for <benefit>.

Some examples:

• We are the best social network for staying in touch with your friends (Facebook?)
• We are the only web retail site with all the books in the world (Amazon?)
• We are the best word processor for making sure your doc will be readable by someone you send it to (Microsoft Word?)

There are some finer points here.

First of all, an “only” promise is significantly better, but harder, than a “best” promise.  “Best” is debatable.  “Only” may be false, but it’s not debatable in the same way.

Second of all, a promise is as much a challenge or an aspiration as a statement of fact.  Are there some books you can’t get on Amazon?  Undoubtedly.  Do you have a better chance of getting a book there than elsewhere on line.  I think so; that’s where I head first.

Third of all, an “Amazon-style” promise – a promise that, if you come to my site you will find all of something – is a very powerful promise.  New York Times: “all the news that fits the print”.  Visa: every merchant, not just (like Amex) some.  Etc.

When you present an investment idea – a company or a service or a charity or a new business line – your listeners will want to hear 1) a respectful treatment of your competition and 2) a Hammacher-Schlemer promise about how you’re going to get the better of them.

The Importance of Respecting Your Competition

It’s pretty common in pitches I see for the entrepreneur to give short shrift to competition or to ignore them altogether.

Unfortunately, competition is usually a big deal to the audience of potential investors.  And how the entrepreneur treats the competition is an important element in sizing him or her up.

The basic rule: Be respectful of your competitors.

There are several aspects to this:

• Take their competitive threats seriously.  It’s a real turn-off to hear an entrepreneur say that Competitor A is “no threat”.  Every competitor is a threat.  We want to understand how you think of them, what you say about them, and, most importantly, how you go against them.  “No threat” = “No thought” in the investor’s mind.
• Know them as thoroughly as you can.  A big confidence-builder in a presentation is an entrepreneur who can speak knowledgeably about their competitors.
• Don’t just count immediate competitors.  Usually the stiffest competition is not the other startups that do just what you do, but the gorilla with a product that’s “good enough” or the newcomer with an inferior product which, however, has disruptive potential.  Entrepreneurs who say they have no “real” competition (and who aren’t just talking through their hat) generally mean they have no direct clone competitor.  They are not taking account of – or at least not sharing their views on – the more serious competition that can come from a gorilla or a disruptor.
• Articulate a competitive differentiation.  I want to say more about this in a subsequent blog post.

Nothing in “respectful” means you should cave in the face of competition.  But it does mean you go into battle with them with a plan instead of a blustering sneer.  And it does mean that you share your plans with your potential investors, because it’s part of how we’re forming a judgment about your capabilities.