On Tuesday, November 26th, we had a grade-A panel that discussed the finer points of marketing to different types of investors. The panelists were:
- Joe Piper from Point B Capital, a Venture Capital group in the Puget Sound area. Joe has more than 15 years of venture capital experience and prior to joining Point B co-founded Diversified Health Services, a company he sold to ServiceMaster in the early 1990s. Joe knows the ins and outs of healthcare investments and transactions and tells it as it is when it comes to negotiating for venture capital.
- Nathan McDonald, President of Keiretsu Forum Northwest. Nathan is a Husky alumni and is the current president of the University of Washington Entrepreneurship Alumni Network. Under his leadership, the Keiretsu Forum has become one of the fastest growing angel investment groups in the nation, facilitating over $110m in funding for over 180 companies. Nathan is well plugged in the Northwest entrepreneurship community and has extensive experience conducting due diligence research on startup enterprises.
- To represent the entrepreneurial view on financing, we had Adam Tratt, founder and CEO of Haiku Deck (seriously, call him, they are hiring!). Adam cut his teeth in Microsoft and Cranium before rolling up his sleeves and, after many pivots, starting Haiku Deck. Adam knows how to tell a good story and firmly believes that any entrepreneur that wants to convince other people to invest in his/her business needs to be able to tell a convincing, inspiring tale.
Blog posts cannot do justice to the wonderful dynamic we had between all three panelists. Friendly jabs and jokes were just the icing on the cake. Ultimately, all three panelists stayed true to their principles and did not spare any details. Some high level points from each of our guest speakers included:
On what inspires VC investors – VCs are interested in the problem you are solving, not just the technical details of the product itself. They want to be inspired. What is your target market? What is the secret sauce that makes you stand out?
On VC vs. Angel funding (you know we had to ask that one!) – People that get VC funds have proven their model, already have customers and need more capital to execute. Either that, or they already have a track record of successful deals. If you are not that person you need to build up credibility first before approaching VC funds. You should be extremely professional and organized when it comes to all your business paperwork – that leaves a good impression and means you will also be an organized manager. Finally, VCs don’t want to run companies; they don’t want to make deals that will strain the relationship with the entrepreneur.
On post-funding VC involvement – VCs need to stay at the policy, strategy and governance level. They should not be involved in the day-to-day business decisions, but rather, make sure the entrepreneur is thinking of the strategy properly and has enough capital for execution. The relationship between both parties needs to be one of trust.
On what inspires Angel investors – In addition to a good story, angel investors are very concerned about capital and dilution. They are concerned about a more controlled growth path and preservation of their original capitalization. Angels need to be convinced why they need to be involved in your company. This is usually a long-term relationship, so, there should be a good connection between the entrepreneur and the angel investor. Finally, angel investors help you build and establish that crucial track record that VC investors are looking for.
Causes of failure for many startups – Nathan shared an important lesson – usually the companies that bet everything on the one big client or big market are the ones that ultimately go bust. That incessant chase usually turns into an enormous cash burn. His advice was for companies to establish their reputation one small client at a time and not bet the house on a big lottery number.
Angels post-funding involvement – Angels are interested in continuous communication. If the entrepreneur communicates with them often, keeps them updated on what is happening and what help he/she might need, the chances of success are that much greater.
On how to inspire investors – Adam pointed out that engineers are usually very excited about WHAT they built and not WHY they built it. You should have a belief in your product, know its purpose and evangelize it.
On his experience with VC and Angel investors funding – From Adam’s personal experience, angel investors tend to be more communication-demanding than VCs since they are investing their own money. VCs usually have a set structured process an entrepreneur that applies for financing has to go through. Hybrid deals involving both sides are really complicated and may demand A LOT of time from the budding entrepreneur to keep both sides happy.
On red flags to look out for with potential investors – An entrepreneur shouldn’t do business with someone they are feeling uncomfortable doing business with. Adam’s advice is to immerse yourself in the entrepreneurial community of your region. People talk and you can usually quickly find out who the solid and reliable investors are.
This is just a small snippet of the great insights we received from Joe, Nathan and Adam. We are very thankful for their time and sincerely hope they visit PACCAR Hall again very soon.