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Session 1, Part 2: Refining and Presenting Your Venture Idea


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visit MIT OpenCourseWare at ocw.mit.edu. STEPHEN PEARSE: How
many of you guys in here think you might want to one
day run your own company or begin a startup? The vast majority of you. Good. Remember that, because at
the end of my presentation, I’m going to give you guys
an opportunity to begin that process. My name is Steve Pearse and
my background, let’s see. Former CEO, entrepreneur,
I am an angel investor. I work with venture capital
companies as a litmus test. If I like it, they
might like it too. And I advise CEOs and startups. I live in Colorado, Florida,
I used to live here full-time, now I just come and visit. So my specialty and background,
primarily telecommunications, IT, and as of late, the last
10 years or so, health science. I’ve bought companies,
I have sold companies. I have raised over $250
million over six rounds, and my background is kind
of up through the ranks. AT&T, then I became
chief engineer at Sprint, ran operations and started
Time Warner Telecom, I ran a wireless company, was an
executive vice president at Bay Networks, merged into
Nortel in a successful sale for $7 billion. And then I did my own
startup in Silicon Valley, and that was cool. That, I came in when we
were valued at $18 million, and we sold for $2.7 billion
less than a year and a half-ish later. Those were the days. You might think
that was a bubble. Guess what? There’s always a bubble. There’s always a bubble. Look what’s happening now with
Twitter and social networking. There’s always a bubble. Your challenge is to find
how can I make my own bubble, or where is the next
bubble going to be. Your challenge is to
be a hockey player and skate to where the
puck is going to be, not where it is now,
because you’re too late. Where do you think that next
big event is going to happen? That’s your challenge. The startup. And these statistics
are about right. Some might say
I’m over-generous, but out of every 10 startups,
maybe one will succeed. Kawasaki will say one out of 20. But one out of 10 will succeed. What’s a success? Success is, if
you’re an investor, you make at least 10x. The investor really
wants 100x, and they’re going to gun for that,
but they’ll take 10x. They want something that’s
going to make– it’s called, hey this company, thanks,
Steve, you made the fund. What does that mean,
I made the fund? They’ve got a fund, they have
a lot of private investors give them their money,
they invest that money, and they want all that
money back, plus more to the investors. If you have a $100
million fund, you’ve got to give that $100 million
back or you’re a failure. You really want to give $200
million back, $400 million back. You want to give
much, much, much more, and as a venture
capitalist, you get to pocket an even
bigger percentage than your limited partners
or investors will take. So they want a 10x company
that makes the fund. So 10 companies, they want one
to be a factor of 10 better. Three out of 10-ish might
yield a moderate return. What’s a moderate return? Maybe 2 to 4x in
four to seven years. And you really want
to be shutting down the fund in about seven years. Sometimes it happens,
sometimes it doesn’t. And then six are failures,
completely shut down. So that’s the odds
you’re facing here. You might think, oh
God, if I do this, chances are I’m not going to
be a success, a big success. That’s fine, because
investors know these odds, and if you come from a failure
or two, there’s no problem. As long as you did
a good job, you learn from the
failures or mistake. Maybe it was just the wrong
bid at the wrong time. But they’re not afraid
of reinvesting in people who have done this a few times. And look at the Valley. You have people
skip companies right and left all over the place. So long history of backgrounds. OK. Why do a startup? I mean, what’s the game here? What are you trying to play? Well, if you do a startup, and
you get money from investors, you have to be able to exit. And what is an exit? You have to either go
public or get sold. That’s an exit. Why is going public an exit? Because finally, I can
cash out the stocks that I bought from
you a long time ago. Your investors want
their money back. If you’re interested in
running a mom and pop business with a cool
idea and cool technology, no one’s going to invest
in it except family. Why? Because they’re never going
to get their money back. It’s not a liquid asset. So you have to plan on going
public or getting sold. If you’re a technology company–
and by the way, officially, the answer is always
I’m going public. I’m not going to sell. Never going to sell. I’m going to run this thing
forever, hand it off to the– why do you have to say that? Why do you have to say we’re
not going to get acquired? Because if you say I’m going to
get acquired, you’re not in it. Your heart’s not in it. You’re looking for a
trick, a magic pony, I want to sell this puppy,
I’m going to make a buck, and I don’t want to– I want
to sell it and make money and that’s it. No, no, no, no, no. You can’t say that. You say that and no one’s
going to give you a penny. So you’re always going public. But why would a company
ever want to buy you, just in case they
wanted to buy you? Bay Networks. At one time, Bay Networks
was bigger than Cisco. Bay built routers. Internet IP routers. And I ran the internet and
telecom business group. And we built blades to replace
the old technology that was maybe 10 megabits a second. We had to come out with 100
megabit a second, and then gig, and play that game. Different interfaces. And my team was a good team. We could build a blade
in about 18 months. That was pretty good. People working maybe
9:00-5:00, 9:00-6:00. Good engineers, teamwork,
meetings, stuff like that. A startup can do
that in nine months. And nine months’ delta in
a new product introduction can spell the difference
between failure and success in this business. I could not afford to
build a new blade that goes into my rack and
sell it to my customers, sometimes, if I can
only do it in 18 months. If I have another
company start advertising and have a good marketing
person and they’re telling the industry analysts
and all the industry rags, hey we got this new widget. And it’s got 100 megabits now. And we’re selling and
customers love it. I have to do a make
or buy decision. I may interrupt my development. I may say, finance,
go strike a deal. Let’s buy this company quickly. And Bay did that all the time. I bought a bunch of
startups, hot startups for internet dial-in modems. That was big time
back in the ’90s. So you had a box that was 10
times smaller, faster, cheaper, all that stuff, using
chips that just came off the line from Intel
or TI or whatever, and you can build
something in nine months, I’d buy that company. That’s a great example
of how you can go out, take the state-of-the-art
today, the latest chip sets, build it smarter
smaller, faster, all these nice characteristics,
and sell your company. And you can do it over
and over and over again. Why can you do
that as a startup? Why can’t big companies do that? Because you’re
working for stock. You’re not working
for a promotion, you’re not working
for a lot of things big companies’ people work for. A nice stable lifestyle. You’re willing to work until
midnight and bring in pizza. The CEO, when I was a CEO, I’d
bring in Chinese just to entice people, please stay
longer and work harder. Because everybody’s
working for the same thing. Everybody wants to get rich. Everybody wants stock. It’s a great unifier. It is the enticement
that makes everybody think along the same way. When I was at AT&T,
everybody wanted to make you look bad so
they might step on you and get another
$5,000 raise, or maybe run the department
with five more people. That’s big company mentality. Startups were such
a great cleanse when I left the big
corporate environment and went to the startup world. That’s what we’re
talking about here. That’s the taste of what
could be your future. OK, getting money. Signal to noise. Signal to noise. Do you know how much noise
is out there that you’re going to be fighting against,
if you want attention as a startup? If you want attention
from a VC or an angel, you’re wading through a
tremendous amount of noise. Your signal has to
be muy powerful. And we’re going
to talk about how to make your signal
very powerful, and punching through that noise. Because you’ve got to go out
and grab people by the neck, shake them, and make them
listen to your pitch. So, this is a terrible
elevator pitch, but it’s the elements of what
you want to be looking for. I’m going to paraphrase. For this huge,
great target market who really hate the
stuff they’re using now, our thermostat is a new
[? Heigelberg ?] category that provides all your solutions
you’ve been looking for. Unlike the bozos who
we’re competing against, we have assembled
incredible, groundbreaking technology that is going
to be ready in six months. Essentially, that’s kind of
what you want to be saying. You have to have all these
elements in your elevator pitch. And say it a lot better
than this format up here. That’s what you need to do. I’d like you to start
thinking about filling in the blanks for
your ideas now. Whether or not it’s a real
product or technology, or something you
think, hey, this would be cool if I
could ever do this. Think about how
you would say this. Because that’s the elevator
pitch and will determine your readiness to do a startup. Your readiness to get money. You’ve got really one shot,
because once a venture capitalist has seen your face,
and you’ve said a few words, they’re either
thinking right away, I’m going to go ahead and
listen to the rest of this, or you’re having trouble
here, and then you’re gone. Why? Too much noise. They see thousands of pitches
and thousands of people, and they have to quickly– it’s
almost neuronally implanted. They can very quickly determine
whether you’re worth it or not. So that’s why it’s important
to rehearse this stuff and get it down right. Everybody’s maybe heard this. I didn’t have time to
write you a short letter, so I wrote you a long one. What does that mean? It means you’ve got to
be super, super crisp. You’ve got to be able
to say what you’re going to say and enunciate it. Grab them– you have to hit
him over the head with a hammer with what you’re saying. It’s got to be so compelling. We’ll talk more about
that, but you really got to capture their attention. And then Jeffrey Moore. What do you mean, you
have to induce greed? Greed doesn’t sound good. Well, when you go to the store
and you see something on sale, what are you thinking? You’re thinking that’s on sale. Do I need it? I don’t know. Maybe I should buy it
now while it’s on sale. You’re inducing
spontaneous greed when you buy something for
sale, because it’s a good deal. Might not be there later. You have to induce greed on the
part of your investors venture catalysts or angel
investors, even family. You have to say I’m on
to something really big. Really, really big. This is going to be
huge, and you need to think about investing now. You have to get
that greed going, and that greed has to be started
from the very first elevator pitch. And really, a good
elevator pitch isn’t what I just said up here. A good elevator pitch
starts with a hook. And we’re going to talk about
that hook a little bit later. The pitch. Keep it simple. Keep it simple and stupid. Keep it really, really simple. No matter how simple
you think your pitch is, no matter how easy and clear
you think you are, you’re not. You’re not being clear enough. You need to really dumb it down. Like third grade. You need to be able to
explain it to a third grader. If you can explain
it to a third grader, you’re doing a good job. Don’t worry about coming
across as too simplistic. They’ll pull you up
to a different level if they need to, like, let’s
talk more about the technology, let’s get into the
weeds a little bit. But if you lose them early on
by being too technical or too complex, you’re gone. They won’t give you the chance
of explaining yourself later, because you weren’t able
to communicate effectively up front. This hook is kind of like a pain
point, or a statement of greed. You have to say something
that is so exciting, they’re going to stop what they’re doing
and continue to listen to you, because I’ve never
heard of that. How is that possible? Think about your
target audience. Is your target
audience technical? Is your target audience
a lay consumer? Is it the financial analysts
who don’t know anything about technology, they want to
hear about money and numbers. You need to really understand
who your target audience is. If the eyes start to
glaze over, you failed. You didn’t do your homework. You didn’t understand
who your audience was. Talk to them on their level. That makes them excited. Everybody’s listening to
you, greedy for something. Give them what they want. And if you’re in a room
of different people, change your pitch to the
lowest common denominator You might have a room full of
VCs and a couple of junior VCs. If one of the
partners in the room is not from this
industry at all, you need to lower it down
to that person’s level, because if you lose
that person, they’re going to blackball you later. They’re going to
say, they lost me. They weren’t able to
communicate with me. I don’t like them. So be sure, when you’re
scanning the room, or before you even
walk into the room, get a list of who
the VCs may attend, what their backgrounds are,
what companies they work for. If you can connect
with any of them by their past history
with a person or a company that you’re familiar
with, bring it in. Say, by the way, I happen to
know you were from Nortel. Did you know so and so? Try to engage that person. But bring it down to the
lowest common denominator. The whizzes in the room will
try to bring you back up, but always try to
remember there’s one or two people who
may not understand what you’re talking about. Joe’s already
covered 10, 20, 30. But really, 20 minutes. 20 minutes? They gave me an hour. Why do I need to make
this a 20-minute pitch? Well, for two reasons. One, they’re going
to have trouble– you’re going to have trouble
getting your presentation to work with the AV equipment. That’s going to
eat up some time. But realistically, you’re
going to be interrupted over and over and over again. People will drag you
into minutia and detail. You need to fight
that and resist that, but you’ll be stopped. And you’ll never get through
your 20-minute pitch. That hour will go
just like that. So you really have to make it,
if you’re pitching it alone in a room, no more
than 20 minutes. It will expand to the full hour. Use pictures. Seriously, use pictures. There’s nothing more boring
than this right here. There’s always
somebody in the room, whether it’s angels or a
venture capital partnership, someone in the room who
wants to show off they know more than you do. That’s not going to work. We did that three years ago. It was a failure. Or, wait a minute. The neural resistance,
I thought was going to be higher than that. You need to defend that. You’re always going to be
teased into a rat hole. Here, follow me
into this rat hole, let’s run around,
waste everybody’s time, and then you’re going
to be asked to leave. Don’t fall for that. You have two options. You either firmly and with a
nice, reasonable answer, say, nope that’s not the
case, and this is why, but I’ll get back to that
later if you want to. Or you say, good point, I’m
not familiar with that point you just made. I’ll get back to you later. Don’t let them continue
that conversation. You’ve got to know how to
shut off the questions, shut off the
spigot, and move on, because you have an
agenda to get to asking for money at the very end. If you don’t get to
that, then it was a nice, thank you for the
information, there’s the door. You have to be able
to get to that. So as important as
anything I’ve talked about is the need for you to
be a competent presenter. You need to show passion,
you have to show confidence, and you have to
engage the audience. Not easy to do, and it takes,
sometimes, years and years to learn how to do that. It’s very difficult. If I
were to grab any one of you down here and say, please give
a presentation on whatever your most passionate
thing is, you’re going to be kind
of hard-pressed, you’re going to want to kind
of recite things from memory, and forget about the engagement. You’re going to speak too fast. It’s almost impossible
to speak too slowly, especially if you’re from
a technical background. Slow the pace down. Make sure everybody’s
keeping up with you. See if you’ve lost eye contact. If you have, focus on the person
who you lost eye contact with and say, I must
be confusing you. Can I answer any
question you’ve got? You’ve got to pull people out. You’ve got to get everybody
in the room along with you nodding their heads, because
the more they nod their head and agreeing with you, the
more likely at the end, and all I want is $25
million, and I’m going to give you 10% of my company. It’s a great deal. So seriously, that’s
like sales 101. Get them nodding their heads. Look at everybody in the eye. Be bold, be confident, use
passion, change your pitch and elevation, do whatever
you have to do– histrionics, get their attention. Focus them on what
you’re saying. So Joe has basically
covered the elements. And this isn’t the right order. This isn’t maybe Joe’s order
fir a business plan or even a pitch, but basically, you
want to have these things. You want to have the hook. The hook as to be an
exciting statement. You know, hey, I
think we did fusion. It’s in my basement. What? Then talk about it. Then you need to
have your solution. Your solution is, we
have a great product. It’s using this technology,
using all these things in the elevator pitch. Not everybody will
agree with my order, but this is the order I like. What’s your magic? Don’t wait to talk about the
technology at the very end, and don’t do it right up front. Hey, we solved
this implant issue. Talk about why it’s
exciting, what’s the market, what problem
are you going to solve, and we did it with
this unbelievably great new technology,
fresh out of the labs. Or wherever it came from. Or a new chip or whatever it is. Talk about the magic
and technology, so the technologists can get
excited and go, yes, what are you going to do with it now? Then go into the
business model, and then more detail, the
marketing and sales issue. You really have to
have a credible way to sell what you’ve got. You’ve got to have a credible
way to channel it or retail it into the customer’s hands. How are you going to
be successful at that? There’s a lot of great
products that need to be sold through Home Depot. And Home Depot has thousands
of these ideas coming in, and then they, one by one,
nope, no time for you, go away. Nope, no, and then what
are you going to do, with all of your channel
strategies closed off? Have a credible
solution for that. Talk about the competition. If it’s a new product,
never been sold before, well, that could
be nice, but you’ve got to spend a huge
amount of money and time and your personal capital
creating a new niche, or a new market for this. You don’t know how hard that is. It’s going to be really hard. If nobody’s buying
this sort of thing now, you have to– look
at Dean Kamen. The Segway. Remember everybody
got all excited? I mean, my home in Boulder,
we had activists saying, we don’t want Segways
riding down my sidewalk. And they had protests. Dean didn’t realize
how hard it was to create a whole new market
where the whole country stops driving and uses Segways. It didn’t work at all that way. He was trying to create a whole
new approach towards travel. Very difficult. If it’s a
substitution, then who are we substituting against
and why are you better? Because we’re 10 times cheaper,
faster, better, smaller. All those sorts of things. And I have management
here, not at the top. Why? Because I don’t care who
you are unless I really am excited about
your ideas, and then I want to know who you are. Where’d you were
to come from, how do I know you’ve got to take
my money and spend it wisely? Have you done this before? Then give me all
your credentials, but not until I’m
greedy, because I want some of your stock,
please, and now, who are you and what’s your team? | at that point it’s credible. If you hit them too soon
with here I am an all that, without knowing whether
they’re excited or greedy yet, they’re going to
not listen to it. I won’t listen to it
I’m going to skip it. Then go over your financials. What are you going to do
with the money that you get? How are you going to spend it? Is it a credible timeline you
have for spending that money, or are you going to
run out of money? Which is a problem,
because then you have to stop what you’re doing
and go raise money sooner, than later, and
stop the company. Then go over your status
and your timeline. Have you built anything yet? Do you have any prototypes? When are you going
to have it done? How do you know you’re
going to have it done? Is it a credible timeline? What people have you lined
up to build this thing? Status and timeline. And then don’t forget– a
lot of people forget this, at the very end, the offer. You have to make the offer. What is that offer? And for all this cool
stuff, and the $100 million we’re going to make
over the next five years with this product,
I’m going to give you 10% of my company
for $25 million. And we’re looking at
closing in the next 60 days, and oh, by the way, we’re
talking to four other venture capitalists and three of
them are quite interested. Love to hear back from you. Make the request, which is the
offer of your stock for money. A little bit about the hook. When you very first
meet somebody, you’ve got about seven
seconds to engage, to make them excited about
hearing the rest of what you have to say. So that hook could be
whatever the cool part of your technology or
product is going to be. The hook could be– imagine
a safe rubber coding that conducts electricity. Wait a minute, why would I
need– well, before I say, but how do you–
OK, keep talking. So that’s a hook. An example of a hook. Have you ever felt threatened? Wow, what kind of a question–
yes, of course I have. Are you threatening me? No, we have a solution for you. Our box is 10 times smaller,
faster, cheaper, better than this. Oh, cool, the next
generation of that. People will want that. Anyway, that’s kind of a hook. So think about
what is your hook? What is your bold
statement that’s going to wake me up and stop
what I’m doing and listening to you, whether it’s an elevator
or the beginning of a pitch. So no geek speak. No geek speak. What does that mean? I’ve had lots and
lots of pitches, and they start off
with technical jargon. And that’s the
wrong thing to do, because then my job is
now, pull out of you, why am I greedy about that? You need to explain it simply. This is a real example. “Our technology is the first
integrated automatic book scanner that will scan and
digitize bound documents at a speed of 1,200 pages
per minute at a fraction of the cost of
existing solutions, based on destructive digital
imaging technology initially developed at Bell Labs”– Bell
Labs isn’t around anymore– “and protected by 12 patents.” That’s the wrong way to start a
pitch about what you’re doing. A better approach is, we enable
massive knowledge sharing. We’re going to digitize
all the physical libraries at an incredibly low cost,
and there’s people lined up who want this technology. So that’s what I
mean by geek speak. Focus of the pitch. So again, it’s really tempting
to talk about the technology improvements, or
the technology that is going into your product,
and how exciting it is, but you’ve got to convert that
into something that customers really will care about. So talk about the
customer benefits, not the tech benefits. The tech benefits– if you
talk about the tech benefits, it’s a so what? Why do I care about this
next generation of thing that you’re building
or producing? It has to have benefits
for the customer. If it’s telecom improved
network utilization, this is scalable and adaptable. It integrates well,
seamless integration. The figures of merit that
a buyer are interested in, not just the fact that this
is a cool next generation technology. And then you’ve got to talk
about the business benefits. And the business benefit–
every business has pain, and you have to find
what the pain point is. You’re in pain. I can heal your pain. I have something that’s going
to make things better for you. And it usually has to
boil down to a dollar. You have pain that’s costing you
$700,000 a year in something, and my product, my
device, my process, whatever you’re selling
can cut that in half, and I can prove it to you. So that’s a pain point. Increase revenues
or decrease costs. Everything’s got to
boil down to a dollar. A dollar. Your technology
is not important. It’s what that can do for a
business or a customer that can reduce their pain, and
that’s usually evidenced by costing them money. And you’re either going to make
them money or save them money. Style. If you’re making a
pitch, either you’ve got to be the best
presenter of your team, or find the best
presenter of your team and let that person do it. It’s best if the founder
or the CEO does it. I haven’t seen a
whole lot of companies that aren’t led by the founder
or the CEO making the pitch. So between the two of you,
unless you’re the same person, get good at making the pitch. Be the best presenter. If you’re not the
egghead, have the egghead in the room on a
really short leash. Because they’re going to
get into the rat holes. They love rat holes. I love a rat hole. I have to sometimes wake up and
go, stop talking about that. You’re excited about
it, nobody else is. But be prepared to ask the
one-off technical question. Exactly what frequency
will that resonate? Tell them. [LAUGHTER] I said this earlier. Give firm answers, even if
you don’t have the answer. Don’t sound hesitant, like,
oh we hadn’t thought of that. Crushing defeat. If you don’t have an answer,
say, let me get back to you. I’ll get back to
you in 24 hours. I think I know the answer. Or the answer is, yes of course,
we’ve always been that way and we always will, or
no, that’s not a problem, and here is why. Be firm in your
answer, smile, I mean, don’t get angry, smile, and
say yes or no, but be firm. Have the presence
to be confident, because you’re asking
for their money, and they want to
give it to people who are firm and confident
and all those nice things. I talked about looking
at everybody in the room. Try to grab their eyeballs. Practice that. By the way, if you’ve
never given a speech in front of a large
audience, the best confidence builder before you start the
speech is, look at everybody in the room beforehand, at the
bottom or wherever you are, look at everybody in
the room, and pretend like they’re an old buddy. They’re an old friend. And you won’t any trouble
with confidence or locking up or things like that. Try it. Do your homework,
like I said earlier. Know who you’re talking to. And practice your pitch. Practice it. Have all the points
at your fingertips. Be ready to go over
them at any time. And then pull questions
out of the quiet people. Even if, you can tell, this
person does not like me or what I’m doing or anybody
that I brought up here, still, pull them out. Ask questions. Because if nothing
else, you will learn what they don’t like about you. They might say, well, I
don’t understand that. You said that, I
don’t believe it. You may not be able to
convince that person, but make sure
everybody in the room has been able to say
something, or ask them a question of these
venture capitalists. OK, here’s some pitch examples. You saw some earlier from
Joe, here are some more. Good and bad. Name are changed to
protect the innocent. This was a pitch made to me,
I think, in 2003 or 2004. don’t do what they did. So here’s a company,
CyberEx LLP. Here’s the executive summary. Remember, the year
is, I think, 2004. The year was 2004. What they’re
telling me, in 2005, we’ll have customers, and in
2007 $60 million in sales. How about that. 2007, investor IRR
greater than 200%, you all are going
to get money back and the investors are
going to be happy. What a terrible, terrible pitch. It’s insulting. You’re telling me this is
what’s going to happen. You haven’t even told
me what you do yet, and you’re telling me how much
money I’m going to make on it. Please. And here’s the people– the next
slide is, here’s who we are. I don’t know what you do, but
you’re telling me who you are. So we got Aunt May, Peter
Parker, Doctor Octopus, and here’s our advisory board. Great. I see all the backgrounds, is
it relevant to what you do? I don’t know yet. I don’t know what you do. So, now maybe they’re going
to get to what they do now. Let’s see. Sentinel eStrand technology. What does that mean. “Dynamically adjusts
to block emerging”– what kind of threats? Emerging threats, holy cow! DNA, I see DNA. They’re a medical
product company. There’s DNA there. Special ISTAT– is
that like a statin? ISTAT detects mutation–
oh, that sounds terrible. Mutations,
immunization of– spam? Spam. There’s a DNA, Powerful
[INAUDIBLE] Identify Spam. Don’t do that. And then CyberEx
technology benefits. “The sentinel technology
provides complete cyber messaging”– this
is a lot of words. This isn’t 30 point font, is it? No, not exactly. So, OK. This meeting ended really fast. This is a good example
of an on-the-spot pitch made by somebody in a company
I helped start up in Boulder. Everybody’s heard of
the internet of things? You have the [? Hue ?]
light bulb and shades and the lights that you
can control in your house, and the Nest thermostat,
all that sort of thing. The house is being
filled up with smart, intelligent,
IP-addressable, programmable objects. It’s really cool. But if you have
15 things that are programmable in your home
that do things automatically, you need 15 apps to do it. So we have a company
in Boulder that’s integrating all these
addressable things, programmable so things
can talk to each other. This is an example of
a fairly decent pitch. [VIDEO PLAYBACK] -Brought to you by Toyota. –[INAUDIBLE] CES 2014 at Digital
Experience is the [INAUDIBLE] And I found Mike from Revolve. Hi, Mike, how are you? -Good, Sharon, how are you? -Doing great, thank you. Now Revolve, I hear
that this is going to make my life so much easier. I’m excited. Please, tell me how this
makes my life easier. -Well, Revolve is essentially a
smart home automation solution, focused on taking those
premium devices like Philips Hue, [INAUDIBLE]
Nest, and Sonos, bringing them all together
under a single application and then allowing you to
automate them in ways that you can’t do with just a single
native application that comes with those. -Oh, that’s excellent. I have like 10 of these
apps sitting around at home because I have the
Hue, I have Sonos, and It drives me nuts that
I have to skip from one app to another. So is this easy for consumers? -It’s really easy, and
actually, again, it’s direct to consumer play. So, if you want, I’ll walk
you through how easy it is. We pride ourselves
on 60-second setup, and you’ll be up and running,
discovering your devices and being able to control them. -OK, I’m counting. Do it. -All right. So here we set the app here. And the first thing
that you’ll see is that we essentially
allow you to just plug in the hub in a central
location in the home. You’re not tied to
your router, is often in the basement or
some obscure place. And the reason was we
wanted to get the best signal to talk to all the
devices that you have. So the key, though
is getting this onto your local Wi-Fi network. And what we’ve done is created
a proprietary technology that essentially takes
your Wi-Fi credentials that you that you have
on your iPhone or iPad and then transmits that
optically to the hub. So if you just enter
our password, hit done, replace the iPad right
onto the hub and optically, it’s transmitting the data to
the hub, and within 30 seconds, we’ll get notification
that the hub is now on your local WiFi network. And as soon as it does,
it’ll automatically start discovering
these great devices like Sonos, Nest, Phillips Hue. [END PLAYBACK] STEPHEN PEARSE: It goes on
for another minute or so. [INAUDIBLE] kind of cool. I like that show. So that’s an example
of how you get to the point, talk about why do
I care about your technology? If you have things
in your home that needs to be controlled
or automated, but they don’t
talk to each other because they’re from
different manufacturers, that’s the solution. And he gets to
the point quickly. Here’s another example of
a presentation or a pitch that we did in the year 2000
to telecommunications company. We built a box that was 10
times faster, smarter, smaller, better, than the Nortel
box, where I had just left. And this is an
example of how you might want to use
pictures and clearly talk about the superlatives
of what you’re trying to sell. So talk about a big,
total addressable market. Now, remember, this
was a long time ago. In 2008, the prediction
was, this kind of technology was going to be huge. So therefore, we need a
product in that space. And why is the stuff that you’re
competing against terrible? Talk about why things
are terrible today. And then talk about
why what you’re selling is being purchased,
and people want it, but they want it faster,
cheaper, smaller, better. And then talk about the
evolution of how your product– and how the history of
the technology, inevitably is going to lead to what
you’re trying to sell. So you want to show a nice
picture showing things getting better and faster,
and more products later on. And then in our case, we’re
simplifying the telephone central office, so we show how
complicated things are now, and how the picture gets
a little simpler when you buy our product. Keeping it simple. Now, all these things were
technical, kind of jargony, but the audience
we were pitching to knew it intimately,
because that was the big bubble at that time. Fiber optics and
telecommunications. And everybody knew
a lot about it. But I try to keep it even
simpler than what they might– they were being given
pitches of terribly complex, brand new protocols, new-wave
division– experimental stuff. We kept it simple. And I think that’s
one of the reasons why we had lots of customers
and we had lots of money coming in, because we
made our value proposition compelling, simple, and easy. I’ll talk about that later. When do you want to raise money? So you always, always,
always, always get money when you do not need money. Why? What if I just had a round not
too long ago, I got $2 million in the bank, and I’m good
for another nine months, a year, now’s a good time to
start raising money again, because people who
have money don’t want to give it to you under duress. If you’re going to run out of
money in six months, and it takes six months
to close a deal. And assume it’s going to
take six months for you to start your campaign
and close a round. If that’s the case, then
by the time you close, you’re going to be
almost out of money, and if somebody holds up the
deal or bargain or whatever, your company’s done, or
you start laying people off and you lose all your momentum. So always start raising
your money and plan to close around at least six
months before you really need it. How do you raise money? Let’s go to this VC,
oh, they said no. Let’s go to that
VC, oh they said no. Do you do it serially
or in parallel? You not only have to
do it in parallel, but you have to
orchestrate it in parallel, because this is important. If you go to one or two VCs and
spend a month or so with them, and they’re kind of
dragging their heels, and then you go
to the next ones, and the next ones
are saying, well, what did the first one say? Well, they’re thinking about it. How long did– OK. They see hesitancy on some other
people, some other investors’ part, they’re going
to make them hesitant, and all of a
sudden, everything’s being strong along. Everybody’s waiting
to see, well, why didn’t they– if you do
everybody at the same time, nobody knows what hand
is being dealt where, what potential partners might
be thinking, because you often don’t get money from
just one person. You get it from several
venture capitalists, and they want to
team and partner. You want to create this feeding
frenzy all at the same time. Hey, did you get a
pitch by this company? They’re going to
do you next week? Let’s talk about them
right afterwards. They’ll talk, they’ll
compare notes, and you’re just more
likely to end up with a really successful
high valuation if you orchestrate your pitch. Don’t dribble it out. Do it all at once
at the same time, get all the feedback at the
same time, and hit it hard. Again, assume it’s going to take
six months to close a round. Signal to noise. Why should they pay
attention to you? You have a nice,
pretty business plan and a pitch deck, why won’t
they return your calls? Because they don’t know you. And most pitches come
across their desks and they throw it away. So you really need to
have a differentiator. You need to be introduced or
have somebody do something that gets their attention. Or maybe an article in
a newspaper or something like that, to get
their attention. Think about what
signal you’re going to punch through the noise
that they’re hearing every day, If you can be introduced
because so-and-so knows somebody in this
venture capital partnership, that’s the best way. So hand out a lot of
cards, meet people go to social
networking functions where VCs and angels
are going to be. An angel is a great way to
get introduced to big money, to the venture capitalists. Because chances
are, the good ones have worked with
them before, too. Oh, you’ve got two good offers
from two venture capital companies. Yay! One is better than the other. One is better than the other. What should you think
about when you decide whose money should I take? Does it matter? One’s a better offer. One is going to give you $25
million for 10% of the company. The other is going to
give you $25 million for 15% of the company. Hey, that’s my company
you’re taking there. I want that. What do you think about? Go for the best offer? It really depends. If one is a mid-level, not
so well-known venture capital company, and the other
is a super top-tier, NEA or one with a great track
record and history of getting their companies acquired,
you should probably go with the name brand because
they can make deals happen. They can bring in money
for the next round. They have a cachet. That’s hard to compete with. That’s my belief. And don’t focus too much
on the equity dilution, because chances are,
founders and CEOs, even if you have a
highly diluted round, they don’t want you to
walk away or lose interest. They’re going to
re-up your percentage. So good management tends to
keep a big hunk of the company, no matter how many
rounds you go through. So don’t focus too
much about dilution. It’s important to focus
on it, but not too much, Anybody know what this means? C-F-I-M-I-T-Y-M. There’s usually
someone who knows what that means. Cash Is More Important
Than Your Mother. Ever heard that term? Finance people use
it all the time. Cash is really,
really important. Cash flow. The fastest way to
kill your company is not pay attention
to cash flow. Wait a minute– we have
orders pouring in like crazy. Everything’s going great. What do you mean, we’re dead? We have to shut the doors? Because you can go bankrupt
if you’re not paying attention to cash flow, and you
need emergency debt, and you scared off the
investors from giving you a bridge loan because you
weren’t paying attention to the business. So if you don’t
want to hire a CFO, have a good rental– and a lot
of startups just rent a CFO, but make sure they’re
paying attention to it. Flexibility and pivots. You’re not going
to end up selling the product you think you are. In fact, the company
probably is not going to be the company
you think you’re building. A very large percentage, and
no one has the data statistics, but I think most startups end
up, at some point, pivoting. Pivoting a little
bit, pivoting a lot. We were going to build– this
company, Revolve in Boulder. They came to me
and said, we want to build an internet-addressable
irrigation system. Well, OK, that’s interesting. Nest is building the
thermostat, and now they’re building fire alarms and
stuff, and maybe irrigation is important, too. But we talked, and
I convinced them that there is a bigger problem. And you can be the one. The ring that rules all
devices in the home. You can build this product,
because you guys are all [? ex-Amber ?] people, and
you know how to do wireless, and we have seven radios in
the box and can control every protocol in the universe. You can do it! And they went and built it. They pivoted. They were building
this irrigation system. So you might end up having to do
that once or maybe even twice. Don’t be afraid
of being flexible. Don’t be afraid of taking
rapid customer feedback. Use the lean, Eric Ries’
lean startup methodology. Do a lot of prototypes. Show it to customers. What do you think about that? Well, I don’t like the color,
or I don’t like that button. Whatever it is, take
that feedback quickly, build more prototypes,
and don’t be afraid to change course
in what you’re building. A few more success factors. So intellectual property. I have five patents. I really don’t care,
because patents have never successfully, in my experience,
or most VCs I’ve talked to, has never successfully
defended anything. In fact, most of
the patents that startups pull out
of universities end up being handed back later,
either because the terms are too onerous, from
the university, I want so much thousands
of dollars a year. Well, I’m going to
figure out a way how not to have to give that to you. But anyway, IP is good
and it’s important, and some people who
might buy your company may say, thank you, I
would like that patent as part of my war chest
to defend this or that. It could be important. But speed is far more
important than patents. Outrun your competitors. Even if everybody
steals your idea and they’re building
it right away, and they’re stealing all
your intellectual property, if you beat them to the
market, first mover will win. Just be first, be
fast, be the best. So focus more on speed
than intellectual property. Think about the mission. What is the mission? Well, isn’t the
mission in the pitch? No, it’s really not. The mission is when you
sit down with your team and go, what are we
trying to do here? Oh, well, we want to build this
box, we want to sell a million of them. No, what are we really
trying to do here? What are we doing? Well, we want to change
the way people think about this whole field, or we
want to change the way people interface with their
home, or what is it you’re really trying to do? And you’re using a technology
for right now to do it, but later on you may
move on to other things. But what are you
really trying to do? Figure out your mission
statement, word for word. Figure it out. How am I doing on time? Am I out? I’m out? I’m good? OK, all right. The team. The team. Really, venture capitalists
do look at the team, and a lot of them say, yeah,
the most important thing is the team and we’re
betting on the team. Well, really, they
want your idea to make them a lot of money. That’s the most important thing. But the team can pivot or be
flexible and have the integrity to be able to handle
shocks, whether it’s a money shock or a technology shock. Or we just came to market and
so did three other companies. What do we do now? Do we buckle or are we tough? Is this team going
to stick with it? Are we going to work
whatever we have to? The team is really important. Think about that as
you’re assembling it. Make sure the chemistry works. There will be the
time when you’ll have founder versus CEO issues. Who’s really running this
company, or this is my baby, or whatever. Or you’ll have hires of
people who you really like, but they’re
not working out, and what do we do with them? These things have to be
thought out well in advance. You have to be able to
make the tough decisions. And part of that
toughness has to be displayed to the
venture capitalists, to the people giving you money. Yet you have to have
good answers for when people– what would
you do if this were to happen with the team? Have that thought out. How much money will it
cost to build a company? That’s part of
the business plan. And how much money
you will you make us? Also goes into your final exit
strategy when you go public. Think about what
happens when you go– have a credible
story when you go public. Even if you end up
getting acquired, always plan on going public. Just a few more real quick. One of the things
about startups, if you don’t have
any experience, it’s really, really tough
to convince money people that you know what you’re doing. So you have to surround
yourself with people who compensate for your weaknesses. If you want to be
the CEO of a company but you don’t have any
experience in finance or sales, whatever, this is my
team, and everybody rounds each other out. You have to make sure you
answer that issue of, are you really ready for
this startup, based on your experience level? We talked about trying to
do it again after a failure. Failure is not bad. In Silicon Valley,
it’s a mark of courage. Speed and execution
are personality traits. They really are. If you don’t come
across as high energy, I’m going to be a
hard time believing that you have this as
a personality trait, that you are going to get this
product done fast when you say it’s going to be done. You’re willing to put in the
late midnight oil, burning that to get this thing out the door. Try to convey that you’re
capable of these things. Focus, focus, focus. The worst thing that
can happen to a startup is, OK we started
out building this, but oh, here’s a shiny, pretty
little thing over there. And I’m going to start
going build that. Oh, wait a minute. I just read about
that, it’s cool, too. That’s losing focus. Sometimes you’re going to be
forced to pivot because there’s a major block that you
didn’t expect thrown up in front of you, and you
need to get around it. You need to pivot around it and
move on to something similar, but you don’t want to give
up one perfectly good thing that you spent six months doing
just because something else nicer and prettier came along. So focus. You have to stay focused. If somebody says, hey
boss, look at this. They just came out with that. Shouldn’t we be building that? Focus. We’re getting this done now. We’re going to work
on it and that’s that. We talked about stock
dilution and control, and not to worry
too much about that. And then finally, take
help from your investors. But investors probably aren’t
going to be very helpful. You might think they are,
they might tell you they are, they’re going to say
we’re your buddies, I love what you’re doing, I
love you, I’m going to help you, I’m going to roll up my
sleeves, and it’s all BS. They can’t. They’re doing too
many companies. They’re sitting
on too many boards They know people. Use the network and
use their connections. At the next round,
have them help you. Who you’re partnering with now,
can we parade in front of them as well? But they’re not going
to help you that much. Angel investors are more
likely to roll their sleeves up because sometimes they’re
retirees like me who want to have fun and play with
gadgets and stuff like that, and they could help. But in general, the kind
of help from your investors is more who they know. Customers and
networks and partners. OK, so the bottom line is,
this all really boils down to leadership. Whether it’s technology
leadership, CEO leadership, team management, you want to be
the leader in whatever you do. So leadership wins. In order to be a leader,
you’ve got to show passion, you’ve got to be confident,
and you have to engage. You have to do
those three things. You need to have
a call to action. I’m going to go do this. Do you want to be a part of it? I can give you a
piece of my company. Love to have you
on board, but we’re going to change the world. You need to make
that pitch and then you win the war, even if
you don’t win that battle, even if you don’t get that VC. The word will get out,
what you’re trying to do, and you’re going to do fine. [APPLAUSE] MODERATOR: Thank you, Steve. STEPHEN PEARSE: Thanks, Joe. Thank you, guys. And by the way, all of you can
be the next Tony Stark or Betty Stark. We need another Tony
Stark, a female Tony Stark, captain of industry. So good luck, OK? Thank you very much. [APPLAUSE]

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