Perhaps the efforts of the true poets, founders,
religious, literatures, all ages, have been...to bring people
back from their persistent strayings and sickly abstractions, to
the costless, average, divine, original concrete.
– Walt Whitman
A few years ago, I worked for a start-up called Rogue Research. We were doing something very cutting edge and revolutionary; building an entirely new model of application development and deployment. The problem was that we were having a hard time raising large chunks of money from venture capitalists. Instead, we had to spend much more time talking to angel investors and raising more, smaller chunks of money from them. While this financing strategy ultimately worked, it made things a little more exciting than they needed to be. This led to some disruptive turnover as a few people were forced to take jobs that were less risky.
Over the years, I have spent a non-trivial amount of time trying to figure out why we had such a hard time attracting the attention of venture capitalists. Recently, I came to understand that the problem wasn’t just with who we were but with how we were presenting ourselves to venture capitalists and other professional investors.
HOW PROFESSIONAL INVESTORS THINK
Professional investors –- and venture capitalists in particular
-– do not like two things...
When it comes to waiting, the reality is that professional investors generally cannot afford to invest in ventures that do not offer at least the hope of paying out in 3 to 5 years. As a result, they usually will not back a product or service that is more than 12 months away from being launched.
Professional investors also, and contrary to many peoples’ perceptions, generally don’t like risk. Sure, they are in the business of placing bets, but by and large those are calculated bets. Instead, professional investors only invest in ventures where the risks can be managed.
AN INCOMPATIBLE MESSAGE
A year or so ago I came to realize that the problem that we ran into at Rogue Research was that the way we were presenting ourselves to venture capitalists was almost the exact opposite of what we needed to do to get their attention. That is because the message we were putting forth made us look anything but concrete.
First, the name of the company included the word “research.” While the CEO had very valid reasons for liking this name, the reality was that the word “research,” rather than making us look concrete and business-like, instead made us look a little too academic (and thus more risky). The problem is that pure research companies often don’t make anything. Instead, they tend to make their money by licensing their technology. While this can be a very profitable business model (think Dolby Labs), it can also take a very long time for the cash to start flowing.
Second, most of the people on the team had a very technical bent and were more focused on what was going on deep inside the product, rather than the surface of the product. The result was that it took us a long time to come up with a truly compelling demonstration –- or “demo” –- of the product. Instead, our demo wasn’t visual enough, relied too much on the assumed technical knowledge of the audience, and left too much up to the imagination. Consequently, while our demo did its job in some ways, it did not do as much as it could to help us raise money.
THINGS THAT HELP YOU LOOK CONCRETE
As a result of my experience at Rogue Research and a series of other startups, I have come to believe that if you want to improve your ability to secure financial and/or other backing for your Solution, your elevator pitch must make it clear that your Solution is concrete; that it can be turned into a real product or service in a relatively short period of time.
In other words, you must make it clear that you are more than just a couple of people with a good idea.
Listed below are some things you can do that will help communicate to the audience that what you are doing is concrete, rather than abstract and academic.
Talk About Products, Not Technologies
One way to send the message that you are concrete is to use terms like “product” and “service” and avoid terms like “idea” and “technology.” By speaking –- and thinking –- in these more concrete terms, you will make it clear to potential backers that you understand the need to deliver value in a relatively short period of time.
If all you have is an idea or a raw technology, you must focus your efforts on turning it into a tangible product or service; something that somebody would want to buy right now (or fairly soon) and not something that somebody might want to buy at some point in the future.
That also means that if you are still years away from having something that can be commercialized, you shouldn’t waste your time talking to venture capitalists. Instead, you should target friends, family, angel investors, and others who are more patient and more willing to take a risk.
Develop a Good Demo
One of the things that really helped sell SalesLogix to investors, business partners, and customers was that we focused on making sure that our product was demoable at a very early stage in the process. Instead of building the product from the inside out, and putting the initial focus on the inner workings of the product, we instead built the product from the outside-in. That meant that from the beginning of the process we spent a tremendous amount of time nailing down things like the product’s user interface. As a result, very early on in the process of building SalesLogix we were able to give people a reasonable sense of how the product was going to look and work, which made it much easier to sell.
Discuss Demonstrable Accomplishments
There is nothing more concrete than actually getting things done. As a result, your pitch should mention anything that you have accomplished. This includes things like raising angel money or shipping early versions of your product.
Recruit an Experienced Management Team
Venture capitalists generally prefer to back good teams more than good ideas. This is because they know that in many cases the initial version of the idea will not pan out and the team must shift its focus and find a different problem to solve.
Sign Up Alpha or Beta Customers
The sooner you can get Ordinary People using and testing out your Solution, the better. As a result, when developing their products, software companies usually do both Alpha and Beta release. An Alpha release is a version of the product that is known to be very buggy but that still demonstrates the basic functionality of the system. Once most of the major features have been implemented, software companies then start releasing Beta versions of their product, which help people start to get familiar with the product (and to do some free testing).
One way to make your Solution look concrete is to be specific. Instead of just talking about general trends like how the population is aging or people are getting fatter, you should instead talk about the specific problems of specific products and how they fail to meet the needs of specific customers.
The more specific and quantifiable you can be about the benefits of your Solution, the better. That means being specific and quantifiable about how you are faster, better, and/or cheaper. That also means talking about benefits in terms of things like time, money, or lives saved.
Focus Your Efforts
One of the biggest mistakes people make when selling an idea for a new product or service is not being focused. Instead of trying to solve one problem that is affecting a specific group of people, they try to sell multiple products to multiple, and very different, audiences. The problem is that it is extremely difficult, if not impossible, for a new team to solve multiple problems of different customers at once. As a result, lack of focus is one thing that will tend to scare off professional investors.