Ever since Bill Reichert founded Garage Technology Ventures in Silicon Valley more than 15 years ago, his firm has reviewed close to 100,000 business plans for startups from hopeful entrepreneurs. Let’s just say most of them don’t hit it out of the park.
Indeed, some of the pitches for seed money are so poorly presented that there was a time when Reichert found himself moaning under his breath when a friend called to recruit him to serve as a judge in a pitch competition. “These pitches — they are always so bad,” he recalls telling her. Call it self-preservation, but Reichert started on a quest for ways to help entrepreneurs craft more succinct and compelling stories.
“It is not good enough to tell a good enough story,” he says. “You have to get beyond good enough and get to ‘wow.’”
Before he started his venture investment firm in 1998, Reichert assumed that venture capitalists applied some brilliant “rate-of-return calculus” to determine which ideas would succeed. But when he jumped to the other side of the table, he found that investors used formulas less often than he imagined.
“Venture capitalists do not invest with their brains," Reichert told a group of students from the Stanford Venture Studio during a visit to Stanford Graduate School of Business in July. “They invest with their hearts,” said Reichert, who has a Stanford MBA. Would-be Mark Zuckerbergs do need facts and numbers to back up their concepts, but first they must make investors “fall in love” with them, he said.
Here are 10 tips for getting some VC love:
1. Bring your passion.
If you have to practice this, then you should rethink your career choice. “You shouldn’t have to fake passion,” Reichert says.
2. A minute is too long.
“In the real world, you basically have 20 seconds to get someone engaged or you might as well go home," says Reichert. Whether you are chatting via Skype with a potential investor or talking with one at a party, you need to be able to explain your idea quickly and succinctly, before he or she tunes out. Why is it compelling, and why are you the best person to carry it out? This elevator/napkin/handshake pitch will also be useful down the entrepreneurial road when you’re writing press releases, conducting employee training, and crafting marketing collateral.
3. Don’t linger on the obvious.
Reichert’s firm sometimes invests in clean-tech projects, which means he has seen far too many photographs of the smog and traffic in L.A. and Beijing. "Almost everyone puts up essentially the same slide" and then recites a lengthy explanation of why pollution is an issue. “It’s so easy for entrepreneurs to talk about ‘the problem’ [that] they spend too much time on it,” he says. You don’t need to present a long list of statistics about the number of people in the world who have mobile phones, for example, when you are pitching an app that helps people locate their lost phones.
4. Bring out the big guns first.
“If you’ve got something big to tell us, tell us up front,” says Reichert. If a well-known company or person is using your app or has invested in a service that is being pitched, it lends credibility that will grab the attention of investors. “If you have a really big name you can drop, then drop that really big name,” he says. But make sure that name truly is big and recognizable to your audience.
5. Use an analogy.
Explain your product by using references and products your audience can relate to. A dated example: “We are going to be the TV Guide for Internet video.” Today’s iteration: “We are going to be the Netflix for e-books.”
6. Stay out of the weeds.
Engineers, in particular, often describe their ideas and products using technical jargon that the layperson does not understand. VCs hear this as “blah, blah, blah,” says Reichert. “When someone wants to know what you do, he or she wants to know what value you create for your customers."
7. Avoid following a formula.
Pitch coaches create templates for entrepreneurs to follow when they are making their pleas to investors. “At the best case, that’s just a start," says Reichert. “Whatever template you use will be wrong for your company.” Instead, use a template as a checklist, and let it guide you to find your own way to present your pitch.
8. Find the compelling reason.
If venture capitalists are going to invest in something, they need to know why they should choose your team and your product. Is it cheaper than the competition? Is it faster? Articulate that compelling reason, and then give the metric to add credibility to the claim.
9. Tread lightly on the competition.
Dissing a well-established, successful company such as Microsoft can come across as naive; referencing a competitor and how your company differentiates itself can be helpful.
10. Create a vision.
“Sometimes we fall in love with a vision of a team that wants to change the world, and we think the can make a dent,” says Reichert. “At the end of the day, I am in investing in the dream.” When d.light — a venture launched from a 2006 Stanford class by two MBA students — pitched its idea for replacing kerosene lanterns with rechargeable solar ones in developing countries that lack reliable electricity, Reichert’s company initially replied that they don't invest in social innovation projects. Immediately, says Reichert, “they came across the table at us: ‘You don’t get it. We are not about charity here.’” They explained that while their lanterns would certainly help people, theirs was a for-profit social enterprise. And so Reichert’s firm became one of the investors in the company.