The Next Web conference that I am moderating in Amsterdam just kicked off, and the first speaker was Adeo Ressi, the founder of TheFunded, the invite-only community for venture-funded CEOs to compare notes about building startups and bitch about VCs. (VCs are not allowed on the site, which inspired a mock site, the Unfunded, for them to bitch about entrepreneurs). I met him last night at a dinner for the keynote speakers (he’s the tall one in the photo). Ressi is a font of knowledge about the startup world.
Despite the broader economic rumblings, it’ s never been cheaper to start a company and there’s still a ton of venture money out there. In fact, Ressi told me that there is so much money out there for startups that VCs are now offering to partially buy out founders’ personal stakes to get deals. In effect, they are paying off the founders to pick them. Below is some of his advice for entrepreneurs from his presentation that he just finished onstage:
The only time your lawyers will be honest with you in the venture raising process is when you interview them. After that don’t trust anything they say because their motivation is to close the deal and get the fee.
Everyone needs to go and pitch a VC first and expect it to fail. That first pitch will suck no matter what. Bring a business partner who is silent. Have him or her watch the interaction. Every time the VC falls asleep or makes a derogatory statement, your partner writes that down, and you go and fix it.
All you need is a PowerPoint. Make it 20 minutes. Do not throw in detailed financial statements. You are basically throwing a giant hunk of steak into a lion’s den and rolling around in it. Numbers is their business. They will tear you apart.
VCs talk amongst themselves. Most entrepreneurs fall into the classic mistake of pitching serially. There is no such thing as confidentiality. Your materials will be seen by dozens of VCs the second you pitch. It gets worse, if a VC likes you, they will tell the other VCs that you suck. You want to hit as many funds as you can,. I recommend trying to hit 30 funds in two weeks. Typically, you will get one term sheet per 10 pitches.
I guarantee you your first term sheet will be bad. They will lowball you, then they will pressure you to sign it quickly. Hold off. Your goal now is to get the second or third term sheet. Without other offers there is no market.
VCs say we will co-invest. They are trying to share the offer. Tell them, “No. Why don’t you make me an offer? I will evaluate the offer separately.” Do not let them syndicate the deal or merge the term sheets.
There is no confidentiality. Everything you send out will be seen by your competitors.
Some good advice. If readers have more to add, please tell us in comments.
(Photo by Ernst-Jan).