PRESENTING THE DEAL
Extracted from Managing
Technology for Profit,
A Small Business Guide
© Robert Muir
Unless we’re one of the fortunate few of independent means, sooner
or later we’re going to have to present "the deal" to raise money to
develop our technology and/or provide financing for our company. Shock! Be prepared for
culture shock, skeptical nonbelievers, irascible vulture capitalists, and an introduction
to the golden rule—"he who owns the gold makes the rules."
When it comes to technology, we can’t let ourselves be seduced by
its beauty or our own visions (read dreams) of widespread market acceptance. Capitalism is
the key driver of international commerce and any potential partner, investor, or
management team member wants to make money. Capturing market share means we must take it
away from someone else—and we can be sure that is not going to happen easily and
without a fight. History is littered with cases of the best technology not winning the
sweepstakes: Beta, Apple, etc.
In the current economic climate of prosperity, yes there is a lot of
money available, but it is chasing the oh so few good deals. With the average banker or
venture capitalist seeing 1,000 deals a year, all desktop published with graphics, all
promising spectacular returns, how do we get our deal to stand out above the crowd and at
least get a hearing? Or, if we’re one of the 10 lucky ones selected to present at a
venture forum, how do we make a pitch?
At the outset, we can increase our chances of at least getting a
hearing by following two simple rules of marketing: (1) qualify our targets to identify
our better prospects, and (2) develop a simple "elevator" speech to excite our
prospects. There is a tried and true adage in this game that says "you should only
invest in deals that you can reasonably evaluate." Whether we’re approaching
corporate partners, such as Fluor Daniel, or venture capital firms, such as Kleiner
Perkins, we’ll quickly find they have an appetite for technologies in specific
industries. Corporate partners are interested in technologies that are strategic to their
core businesses—good news for us because they can add value through their industry
reputation, networking, distribution, as well as financing. On the other hand, venture
capitalists typically build portfolios of like or similar technologies where they can
build on previous strengths—such as the experience of their partners and the
management teams they previously invested in. Unfortunately, many VCs often only consider
referral deals in well defined geographic areas—so brush up your network; read more
on this later. We can save ourselves a lot of grief and time if we obtain information on
their respective portfolio interests by calling them, checking out their web sites, or
doing a little market research.
The Wow Factor. I coined this term sometime ago to describe my
desired reaction when a deal is first presented to me. Human nature being as it is, first
impressions do count! If we can’t tell them a simple story to "wow" them in
those first several minutes, it’s going to be tough. In this business, they’re
investing in people—for several years—and they need to know we have passion to
go along with our vision. More importantly, we can articulate a deal that an ordinary
person can relate to, one that solves a known problem or creates an opportunity that
didn’t exist before. I know from first hand experience that the skeptics and
"well-meaners" will reject our vision at the outset. Paraphrasing Machiavelli,
"those that would change the future, have friends in neither camp."
In fact, I often feign initial rejection as a means of qualifying the
more serious opportunities. If the would-be entrepreneur dies on the vine, so to speak,
when I feign rejection of his or her deal, I pretty much will pass there—particularly
if he or she wants the president’s slot. Conversely, if the passion barks back at me
loud and clear, yet politely, I feel more comfortable that we at least have a good
prospect—but we still may be reluctant to offer him or her the top slot. Before one
cries foul, let me explain. Most often, the technology derives from the science or
engineering side of the house. Forming a business requires experience and a very different
set of tools and skills.
What, in fact, is the "money-person" looking for? In
evaluating any deal, the potential partner/money person typically looks at 5 main yet
simple factors: management, management, management, market, and money. I hope my point
about management being key is clear. Good management with a mediocre idea will make a
successful business more often than not; the reverse is not true. Let’s look in a
little more detail at each factor.
Management. Are we capable of successfully growing the business? Do
we have a detailed marketing plan? Have we done it before at any time in our career? Do we
have experience in the industry? Have we identified our key management positions—and
filled them? Is our business strategy sound? Do we exhibit profit-mindedness?
Market. Does our technology work? Is our technology fully developed
and ready for market? Are our products unique? What intellectual property do we have,
where? What value does our product create for the buyer? Can we create significant
barriers to entry during the early days to keep our competition at bay? Is our potential
market large enough to ensure a profit? Do we know specifically who our customers will
be—do we have a list and/or a best and worst customer profile? Do we have evidence of
the need, that customers will buy, and of the price they might be willing to pay? Can we
articulate the unique sales features as to why our customers will choose our product over
the competition? Do we have a communications plan to get our message across to our target
audience? Do we understand the sales cycle—including potential lag times?
Money. How much do we require, when, and how will we use it? How
long will the money last? What exit strategies are possible for our investors and
partners? Can we clearly outline the proposed deal? Have we identified, and mitigated, the
risks? Do our projections show reasonable growth and cost estimates? What company
benchmarks have we compared ourselves too?
So we’ve successfully jumped these initial hurdles and have been
invited to make a presentation to a venture forum and/or a group of senior executives at a
potential corporate partner. What should our presentation contain? In what order? Where
should we start? What elements should we emphasize?
A typical presentation will be up to 20 minutes with additional time
for questions and answers—if we get that far. Now I can speak from experience with
entrepreneurs who have cried foul at being "limited" to 20 minutes. "How
can I possibly tell you what I need to in such a short time?" they lament. There are
three points to make here. First, if we can’t articulate our deal in this amount of
time, either we, our deal, or both, are too complex. Second, this is the first
meeting—of many that we hope will take place in the future to flesh out the deal.
Third, take a leaf out of Covey’s book: "Seek first to understand before
being understood." Take a minute to turn the situation around. The people we’re
presenting to typically are looking at many deals each week. They are looking for that
"special" deal that meets their criteria. We don’t need to panic if
we’re rejected—the odds are typically that 3 deals in a 100 will appeal at first
blush! Some of the better deals are massaged and "shopped" for several years
before they are finally funded. We need to get some coaching and feedback to continuously
refine our deal as we do the circuit. Remember, I said to qualify the audience, and their
interests, to increase our chances of success. And, don’t forget to ask for a
referral when we don’t fit.
In our brief presentation, we should cover the following areas in some
detail:
-
Our vision—what business we want to be or are (provide short history)
-
Our defined market opportunity—the drivers for the problem we are solving or the
opportunity we are creating
-
Key technology advantages—where’s the innovation and its features and benefits
-
Our business strategy—how we are going to get there
-
Our marketing plan—how we plan to create market awareness and sales leads,
potential customers, and competitors
-
Our management team—who is going to do it, why, and with appropriate pedigrees and
experience
-
Our financial projections—how big will our business grow and how much is it going
to cost to get there including use of funding proceeds
-
Our potential investment returns—what ROIs and IRRs can an investor expect
-
Potential exit strategies and investment recovery—how our investors and partners
get their money (and hopefully profits) out of the deal
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