If I had a nickel…
By Ron Weissman
Why do some first-time CEOs find it hard to get to first base with investors? The product storythat CEOs want to tell has often little to do with the business story that investors need to hear before they will invest. Product or engineering-driven CEOs new to the VC world plea: “Please let me demo my product! It will change the world. For $500K you will own a piece of the next Facebook.”
But the story that investors need to hear is different. “How does your business work? How will you scale to become a profitable market leader? Is this the kind of business that meets my investors’ financial objectives?”
Unfortunately, the conversation goes like this:
“Why will you succeed in a competitive market?” asks the VC.
“Because my network routing algorithm is better,” answers the CEO.
“But there are lots of players, including Cisco, in your market. How will you gain market share from entrenched leaders?”
“Because my routing algorithm prevents more collisions,” says the CEO, only this time, louder.
“How will my fund make money?”
“By backing my company, which has the best routing algorithms in the industry,” the CEO hollers insistently, now getting red in the face and pointing to a stack of scatter diagrams that the VC studiously ignores.
“You don’t get it,” says the VC, thinking, “Oh, God, another propeller head with zero business savvy.”
“Arrogant, ignorant VC,” mutters the entrepreneur, walking away, angry at yet another rejection from a soulless MBA.
How sad! Another lost opportunity to do good and do well. What happened? The entrepreneur had no idea what kind of story VCs need to hear. And the VC, seeing that, assumed the entrepreneur was too naive or too caught up in a science project to be fundable. Return to this spot next week to learn the five rules for telling the story investors must hear before they can fund your business.
Takeaways
- Think of your audience first. What they want to hear is more important than what you want to say.
- VCs are motivated by many considerations. Your product is only one of them.
- Did you watch the video link in the first sentence? You really want to…pure gold from 1946.
Image copyright: Thank you to punditleague.us
