Event Review: SVASE StartupU SF: Executive Summaries 12 Jul 2007
After a long hiatus of, well, everything, I’m back. Thursday, I went to the SVASE StartupU event in San Francisco. This month’s round table was to discuss Executive Summaries. The panel was Will Price of Hummer Winblad and Jim Long of Gabriel Ventures. Both Jim and Will have been on the entrepreneurs side as well as the investors side of the fund raising process.
Like most of the other StartupU events, this one was very much a round table rather than a lecture or question and answer session. This event, however, was far and away the most useful so far. Both Jim and Will basically did a brain dump of what to do for executive summaries, financial models, etc. Jim recommended two books – the first, the classic by Porter about researching competition, the second, Presenting to Win: The Art of Telling Your Story, by Jerry Weissman.
Takeaways include:
- 6 months. Six months
is
the minimum
amount of time
required to
fully bake your proposalSix months is the minimum amount of time required to fully bake your proposal – pitch, summary, business plan, etc. It takes that long to make sure that the story is crisp, and to get enough feedback and time to ensure that pitch delivery is rock-solid. - The top goal of talking to VCs is getting to a quick no. [This led to an quick side discussion - VCs are usually bad about saying no (covered by Brad Feld, among others). Will and Jim maintain that this is because they don't want to burn a bridge on what may be a killer deal. The other issue is, as Will put it, they don't want to get into a point-counterpoint discussion of the reasons for the no.] The idea for the quick no is to ensure that, if it’s a no, you don’t waste either party’s time, and you move on to more worthwhile prospects.
- The executive summary is a sales pitch. In fact, everything is a sales pitch.
- The executive summary is an invitation fora conversation – a teaser. The sole goal is to get to the next stage.
- A corollary is that handling rejection is important. You have to learn without being defensive.
- Will’s preferred Executive Summary format includes a left side panel with key facts (team, technology, financial snapshot/summary, amount of investment required). Right side is text of executive summary, including business & product description, technology, market, distribution, competition, cap table summary, etc. Emphasis on problem you’re solving. Frame the deal for investors, and help to get to a quick no. Show how you get to profitability.
- Mine fields of the executive summary:bad financial projections, and not using the right semantics for market segments, etc. (ex: SaaS today, vs. ASP yesterday). You should assume most investors are current on the market, trends, etc.
- Competition is a good thing – it validates the market, product, idea, etc.
- Understanding competition (e.g., Porter’s Analysis) is critical. Also understanding the value chain and ecosystem.
- Financial model should be a 3 year model, with a bottom-up approach to revenue (see Will’s posts on the subject).
- You need to understand your revenue model – direct sales, channel, etc. Tom says he might even ask for the financial model spreadsheet.
- You can no longer be a Veritas with a 9-month sales cycle. Need to be able to explain why you will have an effective sales cycle.
- Gabriel Ventures looks for Capital Efficiency – if you can get to positive cash flow with less than $10M financing, that’s efficient.
- Absurdly high profit margins allow you to weather issues – non-materializing revenue, markets, etc.
- To develop your revenue projections look at the first few years of 20-30 comparable public companies.
- Develop your key assumptions – especially for what it takes you to reach $1M in revenue – average order size/ASP, time to close sale, %probability of closing random prospect… Build this in to data tables in excel for sensitivity analysis.
- One way to model a market is that the market size is essentially fixed, but you’re moving the dollars from an old technology to a new technology – TV to Video over the net. Advertising from print/tv/radio to the net.
- Demos and/or links to URLs in the executive summary are good (and allow you to track, etc.) You can put in links to your product, or press about the market, competition, etc.
- Demos are not a requirement – the potential investors can visualize the product.
- Don’t go to investors too early. You only get a few chances at that first impression.
- Raising money is a numbers game – Will visited over 60 VCs; Cisco, Intuit 50+, etc.
- Keep the investment pitch process going, even after you’ve signed a term sheet – until the money’s in the bank, it’s not a done deal.
- Lawyers make mistakes (as well as everyone else) – check the cap tables, term sheets, etc.
- Argue over what matters – $/share and # shares. Pre/post valuation, etc. are not as important.
- Series A valuation is a function of the target ownership and the amount of funds being raised. Typically $4 – $6M pre.
- In a syndicated deal, target 40 – 60% ownership after 1st round. E. g., 20% employee pool, 40% investors, 40% founders (high side). Typical employee option pool is 20%, and comes out of founders’ shares. So, founders will have 0.80 ^ (#rounds) when all is said and done.
- Forecast out your cap table in addition to your financials. Should probably include options for advisers.
- A round is to get to a B round. What are your key measurable milestones? A round typically lasts 18 – 24 months. Be concrete and focus on first 6 months.
- Adding value is about knocking down risk. Don’t become a ‘tweener’ company – where you’ve burned through your A money, but haven’t reduced your risk, so can’t raise B money.
- Don’t do the exit math. Stock (flippant) answer to exit strategy is ‘we’re building value here, and the exit will take care of itself. (Although Will did note that the IPO window has opened up a little bit recently.)
Wow! That’s a lot of stuff we covered in a little over an hour. Like I said – a brain dump – it felt like the first day back at school after a very long vacation. In a way, that’s what it really was.
Tags: Event Review