Pitching to VCs and The Entrepreneurial Bible to Venture Capital

By SUSAN LAHEY
Reporter with Silicon Hills News

If you, as an entrepreneur, email a VC firm, it’s a crapshoot whether they’ll even open it, much less read it. If you’ve got some heavy hitter, celebrity entrepreneur or investor making the introduction for you, your chances improve astronomically. So start making friends with the right people. That was one of the key takeaways from a panel of venture capitalists, led by Andrew Romans, general partner at Silicon Valley’s Georgetown Angels and author of the book: The Entrepreneurial Bible to Venture Capital: Inside Secrets from Leaders in the Startup Game.
The venture capital roundtable book event was hosted by Romans at the offices of DLA Piper. Panelists included Krishna Srinivasan of LiveOak Venture Partners, Pat Noonan of Austin Ventures, Lou Marchetti of Vista Equity Partners and Eric Garcia of Harvest Growth Capital.
In researching his book, Romans tapped his huge network of VCs, Angels, CEOs, and attorneys and wound up with dozens of contributors. The main point he raised Tuesday night was that entrepreneurs need to seek advisors with clout who can connect them with investors and help them understand what they need to know to make a solid pitch.
“The network around your company is your company’s best asset,” Romans said. It’s preferable if an advisor has some skin in the game in terms of cash or equity. But the most important thing is that they love the founders and are willing to open doors. Noonan of Austin Ventures agreed that the best route to getting a meeting was an introduction from someone they know and trust.
The right advisor, VCs added, will ensure that an entrepreneur doesn’t go into a meeting with gaping holes in his or her information.
“You’ve got to make sure you know your numbers,” Romans said. “If someone asks what’s your revenue and you stutter on that one, that’s a no-no. You’ve been there since the beginning you should know…if you don’t know what pre-money valuation is and you’re going to run into trouble it’s the advisor’s job to get you out of the meeting before that happens.”
Srinivasan of LiveOak Partners, though, said his company was happy to be contacted by entrepreneurs without a formal introduction. LiveOak is still new enough that it doesn’t have much of a legacy portfolio. And since theirs is a geographical strategy for Central Texas, they’re not too focused on themes either.
“We’re delighted to receive emails and are trying to be as helpful as possible and as responsive as possible. It feels like part of giving back to the market to raise institutional money…. We’re looking for smart guys who are hard working who want to work with us…. Other people who have these giant maps are looking for something specific—bitcoin meets gaming segments—we’re looking for something with recurring revenues and high growth segments, motherhood and apple pie stuff.”
“It’s hard to do thesis driven investing in a state like Texas,” said Noonan. “You’re at the mercy of the entrepreneurs.” AV, he said, is beginning to invest in oil and gas, since the technology component has become so much more crucial to the industry’s future. Health care and big data are other areas they’re dabbling in.
Garcia of Harvest Growth Capital said that company often helps founders of companies with $20 million to $30 million in revenues who haven’t arrived at an exit point yet and struggle with liquidity.
“The time to liquidity has gotten longer and longer,” he said. “It used to be four-to-five years. Now it’s north of 10 years…. A lot can change in that time; kids go to college, divorce, and taxes…. We can shorten that time to liquidity. We underwrite to two-to-three times money for a two-to-three year window.”
Two interesting dynamics have emerged in recent years, roundtable participants said. The quality of companies and ideas has gotten steadily stronger; and the amount needed to startup a company has gotten steadily smaller. In Austin, the number of big exits is growing, but still small. So VCs are being careful where they put their money, but there are few hard and fast rules about who will walk away with funding.
“We have funded companies pre-revenue, pre-product where they found the right market fit, some of our companies have revenue,” said Noonan. “It’s hard to pin down the exact magical formula. Every investor will target a different thing: ‘We invest in markets; we invest in people.’ You can make a mediocre idea truly exceptional with the best execution. All the time we get questions like ‘I’ve got an app, how many downloads do I need and how many active users? If you’re not growing 10 percent week over week, you’re doing something wrong. You need some kind of stickiness or growth. If on the enterprise side, you need customers to validate you.”
One approach Romans took, as an entrepreneur was to have a team sign an employment contract contingent on getting a specific investment. That way, he could present a sterling team to investors without anyone having to quit his job until the money was available.
Srinivasan said, from LiveOak’s perspective, companies needed to be able to articulate, “what is the next hill they want to take? What is the next inflection point for this company?”
In the end, Noonan said, “a lot of it comes down to gut feel.”