Thursday, July 14, 2005

Commandment #4: Know Your Audience

Commandment #4: Know Your Audience

So…you’ve obeyed the first three Commandments:

· Commandment #1: you’ve contacted the right partner in the VC firm,

· Commandment #2: you’ve arrived early to make sure you’re ready to roll when the VC (who will usually be late) shows up, and

· Commandment #3: you’ve tried your best to carefully crafted your pitch so that it “teases, but doesn’t overwhelm”.

Now, you’re about to start….but, who are all these people?

Typically, your initial meeting with a VC firm will have 1-3 people in attendance (see more below). But even if the only person there is the partner whom you originally contacted, make sure that you spend a minute or two at the beginning of the meeting understanding how his background relates to your startup idea. At the very least (Commandment #10), you should have read the partner’s description on the firm’s web site, and googled him or her.

Here are a few suggestions:

· Ask how any of his relevant portfolio companies relate to your startup idea (and make sure that you’ve visited the web sites of those relevant portfolio companies).

· Ask what other startup deals in this space has he looked at,

· Where does his interest in the space come from,

· What does he see as the major problems facing any startup in this area, etc.

. Listening carefully to the answers to these types of “range-finding” questions will help you make sure you don’t inadvertently head off in the wrong direction – which many entrepreneurs, believe it or not, do.

VC’s will often have other people attend even the initial meeting (BTW, it’s always a good idea to contact the VC’s admin prior to the meeting to find out who else will be there – in which case you can read about the other attendees on the VC firm’s web site (if formally affiliated with the VC firm) or find out about them through Google or a service like Linked In).

These other people usually fall into one of the following categories:

· Domain experts: No matter how hard one tries, the VC cannot know as much as the entrepreneur about the specifics of the entrepreneur’s business (Note: I did not say that the VC realizes or recognizes this…..only that it’s true). So, all successful VC’s have developed networks of friends with domain expertise in areas of mutual interest. It’s quite common for a VC to invite one or more domain experts to sit in on the initial (or a subsequent) meeting.

· Venture Partners: Venture Partner (“VP”) is a category sort of like “Other”. A non-exhaustive listing of categories of “Venture Partner” includes:

· someone whom the VC’s would like to have as a general partner, but who wants to, for whatever reason, maintain more of an independent role (or not commit to full-time work with a VC firm);

a “friend” of the firm who has some domain expertise (or a business contacts network) that is of ongoing interest to the firm’s investment strategy (e.g., an electrical enginerring professor with an expertise in, say, the CAE area or materials science who helps a firm look at semiconductor startups); and

· someone who used to be a General Partner and is cutting back on their workload

· EIR’s: “EIR” usually stands for either “Entrepreneur-in-Residence” or “Executive-in-Residence”. An Entrepreneur-in-Residence is usually someone who has previously started a successful company with the VC firm, and who is using an office at the VC firm while exploring company ideas for his next startup. But there are a range of variations on this theme. Executives-in-Residence usually, but not always, are operating executives who are “on call” for a VC firm to step into a role at a portfolio company when a management role needs to be temporarily filled. But again, roles with this title vary greatly.

· Associate: How VC firms treat the title of “Associate” varies widely. In some firms, it is the first step on the “tenure track” to becoming a General Partner. In others, it’s much like the job in an investment bank: two years after college or a job to learn something about the venture business, but at the conclusion of which the person moves on to something else.

Unless you know the people in the room already, (or know “of” them in detail), it can help your cause to spend 1-2 minutes on each person finding out about their background and the perspective from which they’ll view your startup idea. This can help you “tune” your presentation so it presents the appropriate information, and anticipates areas of probable concern.

As you do this, take notes (unless you have a perfect memory). This will help you, as you go through the presentation, refer back to comments made, or concerns voiced in the beginning of the meeting. To the extent you have material in the presentation that pre-emptively addresses concerns articulated in the early part of the meeting, you look more on top of things – and that can increase your chances for success.