An interesting phenomenon has been noticed in startup presentations over the past few weeks. Founders have come up with innovative ways of showing large numbers that have nothing to do with what counts as revenues to the startup.
Let me share
An interesting phenomenon has been noticed in startup presentations over the past few weeks. Founders have come up with innovative ways of showing large numbers that have nothing to do with what counts as revenues to the startup.
Let me share a few examples with the explanations as provided.
Gross Transactional Value: this the value of the transaction that is taking place because of the service provided by delivering the service. Therefore, a simple example would be that if a truck delivers 5 MT of steel the GTV is the value of the 5 MT of steel which has no correlation to the revenues of the trucking company since that is dependent on the route or no of kms
AUM (Assets Under Management): the value of the videos that have been uploaded to sell to customers. This has no correlation to the revenues as they are made on a pay per click model. How the videos are being valued and by whom – I have honestly no idea
MRP Sold: the sticker prices of the items that were sold. These were very different from actual revenues as there were coupons and discounts that were given. So, if I stick the price tag of a Mercedes on a Maruti the MRP sold would be ginormous but the actual number would be a fraction. These MRP’s are set by me so MRP sold is also in my hands. Do you feel fooled just yet?
Do founders really want to attract investors that are awed by such numbers? Of what use will those investors be who themselves don’t understand that these numbers are useless?
My sincere request to founders is to have the courage to tell me the real numbers. They may not be as awesome as the fluff metrics, but I’ll respect you for your honesty and I’ll work with you until your actual metrics look like the fluff metrics that your peers are showing me.
Just remember this immortal quote attributed to Abraham Lincoln: 24/2018
Imagine that you have been invited for a stand-up comedy show of a well-known comic. You are excited about the show, arrive well dressed with a date in arm, get your favorite drink and are sitting in the front row with bated breath. Then your comic comes on stage, everyone starts clapping (including you), the atmosphere is full of excitement and anticipation. Just as the comedian begins to speak, you realize that his act is in Russian, Spanish or Klingon i.e. whatever language is completely foreign to you and the audience. For the first 3-5 minutes, you try hard to understand what he is saying then look around to see a similar look of bewilderment on everyone’s faces. Some people leave almost immediately, and the remaining make heckling sounds, the artist looks bemused but act continues, rooms starts emptying out and finally you, who has checked out mentally a while ago, decide that it had been enough and join the beeline to the exit. How inclined are you to attend a show with that comic in the line-up the next time around?
Unfortunately, several founders are guilty of being that incomprehensible comic. Using acronyms or words that only your peer group understand may give the smart founder several accolades at startup events but leave investors (like myself) flummoxed about what the business really does. In fact, I feel that if a founder cannot explain what they do in layman’s terms to someone who has no knowledge of the technical jargon of that industry, then the business is too complex for me to invest in. A founder may feel short-changed because as an investor, I am supposed to be “in the know” but the truth of the matter is that I am not supposed to be the knowledgeable person in the room about their industry, the founder is!
This video from the show Silicon Valley aptly explains what I fear as an investor
A founder that is unable to explain what their business does to me in terms that I understand, is running a business that most customers won’t understand. To educate a customer entails a long sales cycle, and I find it is best to avoid such long-tail plays. However, when a founder is able to explain a complex model in simple terms, it gives me immense confidence in the fact that prospective customers will understand it too and therefore not hesitate to adopt it. Not only that but also the founder will easily be able to train lay people on selling his/her product or service and achieve targeted sales without hiring expensive talent. For the investor to have such confidence has tremendous value.
Here are some of the tools that founders can use to explain complex business models:
Paint a picture of what their target customer currently does to solve the problem and how their product/service will change their life
Dumb things down by using simple everyday terms that anyone can understand
Use check-backs like does that make sense? to ensure that your audience hasn’t lost you
There are many other techniques that founders could use to present an impressive but comprehensible pitch. The best way to test a pitch is to present to the most challenging audience i.e. people that wouldn’t understand their business at all. These unfriendly audiences will force you to KISS (Keep It Simple Stupid) for the investor, which is exactly what we are looking for!
So, don’t try to challenge the intelligence of the mere mortal investor and just KISS for us! 23/2018
At a personally & professionally challenging time in the 2nd quarter of 2016, I went out and stayed at Damodar Farms in Vapi for a short while. The serene setting of a farm, farm-fresh vegetables, raw milk and Mahatma Gandhi’s The
At a personally & professionally challenging time in the 2nd quarter of 2016, I went out and stayed at Damodar Farms in Vapi for a short while. The serene setting of a farm, farm-fresh vegetables, raw milk and Mahatma Gandhi’s The Story of My Experiments with Truth allowed me to cleanse my soul and reset internally.
In addition, the farm stay made me realize that what I eat, and drink plays an important role in determining how I feel. That awesome feeling got me hooked on an idea. Those who experience the joy of eating high-quality nutritious food will not want to go back consuming the “dumb” calories provided by chemically sprayed, industrially produced or genetically modified food.
Months after returning from the farm, I continued to eat only farm fresh produce. I was so motivated to get the freshest produce that I embarked on a quest to buy farmland, rear cows for milk, grow vegetables and supply the produce to my family, possibly making this my side business. I scoured the internet and my WhatsApp groups to seek advice on where I should buy land and what the infrastructure and setup costs to run a dairy & fresh produce farm would be. The deeper I got into this play, the more I realized that this couldn’t be managed remotely, at least not by me.
What I required was a group of individuals who had farming experience, strong motivation, excellent organizational skills, marketing, and branding experience to educate the audience about the benefits of buying fresh produce. My part would involve investing the capital to buy land and equipment, aid marketing & sales strategies and put together a solid team who would run and scale the business.
However, there was a major glitch in my utopian plan. The growth of the team was directly proportional to the amount of money that I could invest every year and therefore made it necessary to weigh in the team’s aspirations. Since putting a lid on expectations wouldn’t work, I started looking for startups who do farming as a service. The business offering is simple – the venture will identify the land, provide an in-depth ROI analysis and facilitate the investment. The abundance of liquidity in the market coupled with the idea of purchasing profitable real estate would bring onboard many HNI’s with both money to spend and willingness to pay a service fee based on returns.
Nikunj Thakkar from our team is in charge of finding me a startup who does farming as a service startup to invest in. If you know someone that is pursuing this (or you are the one) email us on prospects@artha.vc attn: Nikunj Thakkar. 20/2018
Recently, I was on a conference call with experienced investors where our objective was to decide if a startup is fit for further evaluation. The startups get 10 minutes to pitch to us and then there's a Q&A session before
Recently, I was on a conference call with experienced investors where our objective was to decide if a startup is fit for further evaluation. The startups get 10 minutes to pitch to us and then there’s a Q&A session before the board decides whether a Startup is fit for further evaluation.
Sitting through 8-10 pitches one could decipher which Startups’ founders were better prepared. In fact, it was quite easy – the pitchers that could confidently & directly answer questions were easily the better ones.
One prime example of a weak pitcher was a founder that kept dodging around a simple question regarding the quality assurance process in his Startup. Instead of directly informing us that there was no process, he wasted precious minutes using every available tactic in the book to wriggle out of a net of his own creation. Honestly, if the founder had just owned up to the fact that they didn’t have enough money to assure quality at this point, or they didn’t have the expertise to do the same, I would have let him off the hook.
However, that didn’t happen, I caught the founder in a lie and he had to own up to what he could have done upfront – do you think we decided to allow further investment?
I find it imperative to jot down my advice on how to engage with investors when pitching your Startup to them. The idea behind this write up is to cover the following critical issues:
How to prepare for questions
How to answer a question
What not to do when you have to answer questions
The importance of answering questions with confidence (and how that confidence is built)
When it comes to the kind of investor, it’s quite clear that you want your investor to be smart, savvy and intelligent. If he is not either of those things, you have picked an investor that you will have to carry and not one that will carry you.
Contrary to popular belief, raising money is not as tough as raising money from a smart and savvy investor. To get smart investors on board, you have to make yourself acceptable to those investors. This means that you have to invest your time in doing the preparation work for your demo/presentation in front of investors.
One of the ways to do that, is to present to your friends and family and ask them to grill you with questions that come to their mind during the presentation.
If your captive audience is asking the same questions you can either, make changes to your presentation to answer those questions in advance i.e. before the investor asks it or, you can prepare an answer for those questions that rolls off your tongue like your own name and get back into the presentation.
Later, when you are presenting to investors you should try to video or voice record your presentation so that the investor questions and your responses to them can be reviewed by you and core team for improvements to the presentation, or to better prepare an answer to that question.
Time and again, you will have questions that completely stumps you. It is absolutely acceptable that you accept that you don’t know the answer right away but, (very important) that you will get back to that investor or investment group with the answer in a week or so.
However, don’t do two of these most often used tactics that were employed by the Startup we rejected
Make up an answer using fancy terms
Beat around the bush expecting the investor to lose momentum and get out of a tricky situation
In both situations, you will get caught by smart and savvy investors. They will either demolish your fancy answer in front of all investors, or demolish your prospect to other investors when you have left the room.
The tactics above never have, nor will end well for any pitching for investment (or even for businesses in general)
In terms of gaining confidence, it is an often used term that “Practice makes perfect” and one can keep practising the same presentation and answers again and again to gain confidence.
However, that approach (though better than doing nothing at all) is only good for winning half your battles because it is-
“Perfect practice that makes perfect”.
After each pitch review the recordings, make the necessary edits to answer questions and get comfortable answering questions. In fact, get comfortable telling investors you don’t know the answer and through planning, practice and performing you will get better.
My mentor during my sales career days made me memorise these 7 P’s for these situations and that you too can use as a mantra for your own success.
