DOLLARS AND SENSE
They say when it comes to pitching an idea to an investor, it’s all about the dollars and the sense. Is that true? Personality must come into it, no matter how sweet the deal.– Rubbing the wrong way, Ponsonby
From what I’ve seen most investors will put the team first, with the economics a close, yet definite, second. Even the very best ideas aren’t going to fly unless the investors can trust the team with their money, so the founders need to be able to prove that they have the necessary skills and character to deliver.
Smart investors will look for good character, but they’ll also watch out for the must-haves, which for me are integrity, coachability, and not being a psychopath.
Integrity is about living by a consistent set of principles, with a core of honesty. While Paul Graham from yCombinator likes to invest in companies that hack the system, there’s a big difference between being clever by bending the rules and deliberately breaking the law.
Graham also likes founders who scare him. While “scary smart” and “scary ambitious” are good, founders also need to be coachable and grounded in reality. Investors want to be sure that founders will seek out, listen and react appropriately to good, reasoned advice, and one way to test that is to actually give advice and observe what happens. A defensive attitude in a conversation can be acceptable if the conversation is robust, but defending your 1990s website design and then refusing to change it in the face of consistent advice is a clear no-no. Investors also want to be sure that they are not dealing with psychopaths; I highly recommend The Psychopath Test by Jon Ronson. Elements of psychopathic behaviour can be useful in hustling, but will ultimately cause pain and suffering.
Watch out for lack of remorse or empathy, lying, grandiose sense of self-worth, and being manipulative. I’ve overheard people describe themselves as “hustlers”, but while that can mean a go-getter, the other definition is “a prostitute”. To me, hustler is a negative word attached to people who are looking to do one- off, win-lose deals. Turning tricks, however lucrative, is not a sign of lasting business success.
LIFE'S A PITCH
What’s your take on elevator pitches? If someone chases you into a lift of the men’s room and breathlessly blurts out their concept and the rewards it could offer you, do you really take them seriously? And does that ever even happen, or only in movies? – Dignified, Mt Maunganui
The elevator pitch is a quick, clear answer to a general question, such as “what do you do?”, or “how is your start-up or project going?” They don’t really happen in elevators, or bathrooms, but you should be prepared to offer your pitch at any time. The trick for me was to start with “well there are three things ...”, and funnily enough there always were three things, although perhaps sometimes that only became clear as you were talking.
With start-ups, always have a succinct description of what you do and why. If you find it difficult to explain your company’s purpose and plans in a sentence or two, it’s a sign you don’t really know. The story should be consistent, no matter who they talk to, be it potential investors, employees, or friends. Maintaining consistency means word will get out. The founders will also get better and better at delivery, eventually being able to deliver that crisp answer when they find themselves stuck in the proverbial elevator with a venture capitalist.
An elevator pitch is just the outline of the story, and it should reflect a considerable body of work. Expect probing questions on the business approach, and be able to say what you know and have a plan for learning what you don’t.
Investors will hopefully want to know how much you want, what you will do with it and their potential return. You need a specific answer, for example: “We need $500,000 to hire five sales staff and move one developer to full-time so we can ramp up our sales in Australia and the USA. We expect to increase our sales to over $5 million by the end of 2012, and we will be profitable well before then.”
That’s enough information to pique interest without giving the game away for your desired valuation. The investor can start asking questions about your customers, approach, team, underlying assumptions and expectations of value. You should have consistent answers to all of these. A sharp elevator pitch is tough but so is business. Make sure you can walk it from the elevator into the boardroom and out to the market.
WAY TO GO
How’s our cable coming along? And can you please fix our public transport system? Or do something about our hospitals ... – Fed up, Mt Albert
Pacific Fibre has captured the imagination of many, and it relates back to a strong sense of purpose and goals aligned with carriers and end users.
Chief executive Mark Rushworth recently announced the TE SubCom would deliver a cable with ultimate capacity of over double the base case, while the RIANNZ commitment was valued at $91 million. There’s a long way to go before the cable is live in 2014, and the telecommunication, submarine cable, legal and financial professionals inside and outside the company are getting it done.
I’m playing a bit role these days, but the team is focused on delivering the promised cable, and I’m confident it will happen.
While I’m sure we’d all love to fix hospitals and public transport, let’s focus on the first result. The next big challenge I see out there for many is in education – how can students, teachers and schools take advantage of the UFB and REANNZ capacity to transform the way we deliver and receive education?