Telling your startup story with .xls vs. ppt

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Troy Henikoff is the managing director of TechStars Chicago.  I recently saw him do a great talk outlining the tools and strategies around building your financial models.  Lucky for you, the Techstars team in NYC, where Troy spoke, videotaped the whole thing, but I thought I would pull out a few key points and add a bit of my perspective too.

As entrepreneurs, we all make PPT slides to tell our stories, which is basically required.  These slides get the broad story across and should be used to get prospective investors engaged in the business.  But, the smart investors will quickly want to understand how you plan to run the business, what choices you need to make when and what impact these choices will have on the core metrics of the business.  These choices are best examined and communicated in a set of financial models and they are critical if you are to impress good investors and run a successful business.  Time to study up!

Troy does a masterful job of showing you, through a presentation and example spreadsheets, how to build the models, what assumptions to make, how to challenge these assumptions inside your team and then with investors.

A few key tips;

  • Use Excel vs. Google Spreadsheets.  Excel is more powerful, will allow you to take real snapshots and is “the language of a professional financial world.”

  • Use simple, clear “labels” on your spreadsheets.  This makes is easier for everyone to understand what you are talking about as you move around different sheets.

  • Build the models yourself – you need to understand your business, how the model works, what are key assumptions, when you need more cash…you can get help in structure so it meets standards, but know your own model.

  • The most important number on the model — revenue.  To create long-term sustainability, you must be growing revenue, preferably quickly.

  • Know how to take an investor through your model in a way that is concise, clear and methodical.  This will instill confidence and build a solid foundation for working together.

  • The one thing you know about your model is that it’s wrong, you’re just not sure where, yet. Your job is to make it and then find the things that are incorrect as you keep running the business by comparing the model to actual, usually on a monthly basis.

Troy does such a good job on the slides and the presentation, I won’t try and cover all the points, but I highly encourage you to download the docs and watch the full video.  It will be worth it.

Full video is here – https://techstars.wistia.com/medias/qqh2rt9v7w (multiple segments, so keep watching)

Copy of presentation and sample docs are here – https://www.dropbox.com/sh/wyvknlpf0i2myzw/AABH4wDZD1qeq2rtPzxaSKina?dl=0

Changing context creates new learning

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Last week, I participated in The Meeting in Aspen, CO.  I was invited by my good friend Christopher Jerard who is former editor of Freeskier Magazine, Rival IQ customer and all-around good dude working with some amazing clients in action sports.  The event, held annually for the last 10 years, is about getting smart people from the ski and snow sports industry together to compare notes, learn from each other and plot a course for the future.

The event was fun for me because I don’t know the industry, the players or the issues despite an occasional trip up a chairlift.  I did a talk about “Learning from your Competition” which included my background in sailing, the 2013 America’s Cup, current work in marketing analytics and some future scenarios around quantified self.   It was fun to try and bring a fresh perspective and at the same time make my experience relevant considering my affinity for the liquid vs. crystalline form of H2O. I hope the group took a few things away from the talk including the ideas around “build– measure — learn” and measuring “me vs. me, me vs. the competition and me vs. best in class”.

After my talk, I had the chance to meet lots of great and inspiring people including Chris Davenport who, after doing some amazing skiing is working on climate change with Protect Our Winters and Jeremy Jones (also involved with POW) who was showing off his latest movie Higher.  These guys were seriously inspiring on so many levels and I was blown away by their accomplishments.

I also had the chance to talk with Chris and Rob from Outside about their recent work and was especially excited about their upcoming Volvo Ocean Race coverage.  Chatted with guys from X Games, GoPro and other major brands to learn how they are producing and promoting such amazing content across lots of different channels.  We also hang out with Troy and his group from Resqwater (very cool chemistry lesson) which might just end up being the next drink sensation!  Finally, Deric and the crew at Aspen Snowmass organized a great mountain bike ride on the new trails up behind the airport.  Let’s just say that living at sea level vs. altitude creates a disadvantage and I got totally smoked on all the climbs but it was beautiful and fun.

I learned a lot, made a set of connections that challenged my thinking and gave me new perspective on many things including the limits of human performance.  I hope I get more invites to unexpected places to keep learning from smart and inspiring people.  Thanks for having me!

Your best team is a blend of fit, skills and domain expertise (in that order)

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Finding the right team members (2)

Building your startup team is the most important thing you’ll do in the life of your company.  The team includes the people who work on it every day as well as your advisors, investors and in certain cases, partners.  At Rival IQ, we are hiring for a marketing leader and another developer to add to our team, so I have been thinking about the best approach and I believe it’s a blend of fit, skills and experience, in that order.

Fit – Doing a startup is hard with tons of stress, long hours and a million decisions. Finding people who have similar value systems, approaches to living and problem solving is critical.  There are no absolute right answers on fit.   Different people fit into different situations and many great people will not fit your culture.   I suggest creating 3-5 statements or philosophies about the company that attempt to define you and your culture and therefore better assess fit.  My friend, Rand Fishkin, at Moz has created this Tagfee, which pretty clearly articulates what they care about.  Bart Lorang at Full Contact openly expresses things they value, some of it illustrated in his post about “paid, paid vacation“. At Rival IQ, we are developing our own culture using phrases like “freedom with responsibility” (self-motivated),  “data drives decisions” (analytical and specific), “everyone has a voice”(respectful and opinionated), “a team that works out, works out” (healthy) and “it takes a village” (family, friends and community matter) and correspondingly we can approach “fit” for new people. As a founding team, you should also determine bigger issues like “what does success look like” (lots of impact, lots of money, building a big company, building a fun company…) as this will determine fit for potential team members and drive much of your ongoing decisions.  Write it down, evolve it (I suggest quarterly or with a funding milestone) and test your culture with people you think you want to hire and make sure they fit while at the same time really understanding your own company.

Skills – Every company has a set of goals and tactics they need to employ to achieve them.  Skills are how you get shit done.  Time also usually equates to more skill as people get better as they practice.  Think hard about what needs to be done and what critical skills are required.  Hire for these.  Also, hire for people who can demonstrate the acquisition of new skills (learners).  “What did you learn over the last year?” “What do you want to learn in the next 6 or 12 months?” are good questions to test for this.  The best people come with demonstrated, quantifiable skills but are very good acquiring new ones.  Map your skills into the business needs for the next 3-12 months and fit it into the puzzle of what you already have on the existing team and don’t overweight into one category.  Skills, of which learning is one, are second to fit in importance.

Domain experience – Most valuable industries are moving fast so deep industry knowledge can be as much a curse (these are all the ways this won’t work) as they are a blessing (here’s how we can work the system to our advantage). The key is to find people who don’t overweigh their domain experience and take from it the opportunities to lead and re-invent. Also, as you move more toward B2B or complex selling or PR/marketing where industry connections and relationships are important and take a long time to foster, the value of domain experience is higher, but still falls behind fit and skills.  If you are hiring someone for experience, work hard to see how their connections translate directly to the things you need to achieve (usually customers, partners or other people).  If the line is not clear, run away.

This approach of blending fit, skills and domain experience applies to your advisors (I recommend 2-3) and investors too.   Some investors want you to be frugal, others spend like crazy.  Some want you to focus on people and systems, others not so much.  Some care more about the technology, some the customers, some the growth.  Some are happy with an early exit; most want only a home run.  Some will want you to work 100 hours/week while others think it’s a long haul and you need to stay fresh, happy and rested.  Like fit, there are no “right” answers here, just different ones, but if you end up with mis-matched values and expectations you will spend more time fighting than building the business.  Brad Feld and Steve Hall were investors in my last company and we all really “fit” so building the business together was fun, rewarding, stimulating and very productive.

Hiring and building a team is an art and takes time.  Start hiring early, before you need people, by defining your values and finding the people who fit, who have the core skills to do what needs to get done.  Focus on fit, skills and domain, in that order!

 

The startup fundraising cookbook (8 steps to raising a solid round)

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I do a significant amount of startup mentoring and I’m often asked about fundraising. Like many things, I’ve tried to develop a process and decision-making criteria. There will always be exceptions to every rule and the odd startup that can raise a round without much preparation, but the vast majority will require focus and discipline to get it done. Here’s what I recommend.

1. Pick the right time – In my opinion, there are only 2 good times of the year to raise money, spring (February-June) and fall (September-November). For the other times of the year, most people who have money (angels and VCs) are off vacationing in fancy places, and getting them to make decisions or coming to consensus is really hard. So, decide when you will be ready to raise money. Your story and pitch should be ready in early February or September depending on which window you’re targeting.  Redpoint’s Tomasz Tunguz has some data to support this and suggest the fall is the best window.  Work your plan backwards from this timeframe.

2. Pick the right amount – early stage funding tends to come in 3 flavors: angel, seed or Series A. Angel rounds tend to be $250-500k, seed 500k-1M and Series A 2-5M. There is some variance depending on the stage of the company and the specific investor, but for plannings sake, decide on an amount. How much you should raise depends on a few key things: what you need to take the business to the next level (usually 12-18 months runway) and your overall progress compared to all the other things the investors can fund.  You can also check out Tomasz’s  post (can you see I am a fan of his) which describes the right amount to prepare you for a Series A. Most good angel or seed stage companies have some working product, a small, but growing amount of users, maybe some revenue, a solid founding team… and if you don’t have these, it will be hard to raise a round.

3. Find the right investors (before you need to raise money) – once you’ve picked a timeframe and a general amount, you can start building a list of prospective investors. Focus on; a) Geography – Depending on where you’re based, there are likely investors in your geography who are active (at least 4 investments/year). Look at other companies in your area that have recently been funded (at the same stage) and who invested in them. b) Domain – every company has a “category” they’re working in and it can often be expanded to fit into two or three categories. For example, Rival IQ, which provides competitive analysis for companies (my current company) is a b2b company focused on “marketing tools”, “analytics”, “social media” ,“business intelligence” and “competitive intelligence”. With the categories, start listing all the companies who’ve been funded and by whom (investors). Crunchbase and AngelList (which share data) are great for this work. You should end up with a list of companies, their current investors, locations of the investor, amounts invested, and timing of the investments. Combine the lists (geography, category, comparables),  and you will end up with a solid list of investors who are likely to invest in your space, in your area and at your stage. Rank them by who you like best, who has best success and/or where you have connections or history with the particular firm or partner. Separate into “A” (guys you really want) and “B”(people would be fine, but not the best).  The B list will be your pitch practice guinea pigs. I tend to have groups of 10-15 investors in A and B.

4. Understand the marketplace – this involves knowing the competition and market comparables. I tend to use a combination of Rival IQ  (quick and easy competitive analysis on positioning, seo, social stats…), a MindMap and a spreadsheet for this work. I basically want to compare a) who’s in the space that directly competes with me, b) who might as we grow and c) who might if we get really big (or who would buy us or the competitors along the way).  This will give you another list of companies and investors and start to arm you with; “we are similar to X (recently acquired company where investor did well), but unique in these ways…” Investors are great at pattern matching and you need to illuminate the relevant pattern that you fit in. This list will also inform you of the level of acquisition and metrics you might need to move from level to level. Below is a snapshot of a MindMap I did for my recent Rival IQ fundraising.RivalIQ fundraising mind map

5. Draft your “story” – considering the timing, the amount, the investors, the marketspace and your own plan of what and how you want to attack the market, you can determine what kind of story you might want to tell. There are various levels and different kinds of progress that can support an investment, and different investors will care about different things in these early days depending on the kind of business you have. For example, when I was raising money for Gist (my last company), we had some investors who were deeply interested in the product (Brad Feld/Foundry), and some others who were more interested in our monetization, and still others more interested in our viral growth of users. All of these are reasonable, just different, and would have required a different story (and proof) of our progress. For Rival IQ, we wanted to tell a story about “validated customer demand” so we targeted >30 paying customers by Sept 15. We also wanted to keep showing customer growth and breadth in demand (verticals, geography…) and, while our story included a strong team, a big market, a cool product, we led with “validated customers” with reasonable $ and $/customer and targeted people who liked that story. Pick your own story and start building supporting data, metrics, comparables… to support it.

6. Connect and test, refine, test – start making connections with funded founders (who know investors) and with the targeted investors (from your list), and testing your story/hypothesis. Unfortunately, this is the hard work of finding ways to get introduced by people who know the investors and will vouch for you. This is a major value of accelerators like Techstars. I would start with the “B” group  and test the story. Get short meetings with something like “I am doing X, plan to raise money in the (fall) and wanted to start building a relationship with you now. Given that you have so much experience in this space having invested in A, B and C, I wanted to get your take on Z (very succinct problem you are wrestling with).”  Be very tight, very narrow on your questions and listen. What did you think of the response? Was it helpful, specific, logical…and did it help you make a hard decision? If you like the feedback, say thanks and ask if they want to receive updates on your progress. If not (and you will get lots of weak and non-specific answers or advice), say “thanks, that’s valuable input and I will consider that as we move forward” (whether you will or not). In any case, try to limit the first meetings to 30 minutes and let them ask you to stay longer, otherwise you both can get back to your email. If there is strong interest, ask what specific kinds of progress (metrics, growth, product, team…) they have seen from their last 2-3 similar investments at your stage. Try to quantify what you should look like in the future and then you know what to work towards and how likely it is to achieve.

Side note: good investors will not likely invest in you if they are already invested in one of the other players in the space.   If you contact them, be very upfront if you think there might be a conflict.

7. Send regular updates – I suggest sending a monthly investor (or prospective) investor update. Bcc people on the list. This is likely to be about one page long (email) and include key items like major wins, product updates, key metrics growth, team additions… It should also provide simple ways for these investors to help, like “looking for an intro to X guy at Twitter” or “looking for great blog posts on SaaS metrics or growth hacking…” Good investors want to help, but you need to make it really easy for them at this stage. Listen and respond quickly if/when they engage. Keep doing these even when you think nobody is listening as it shows commitment, communication skills, ability to build a tribe… You can send these to advisors you meet along the way too as they will often be your conduit to investors. I get about 15 of these every month from companies I’m helping.

8. Assemble the investor puzzle – when you are finally ready to raise the round, you should have a good idea of the potential investors. This may include the skills or domain expertise you really need to help the business get to the next level, and/or the people who have added lots of value along the way. Focus first on getting a lead investor, who will likely take 25-50% of the round. You can gather the followers later, but focus more on the lead as they will dictate terms, structure, timing…and you don’t want to need to go back to the followers over and over as things change. Secure the lead, collect a few followers and target 75% of the full round you want to raise. With this in hand, outline the specific areas where you are still lacking. For example, at Rival IQ we had our VC lead (Vulcan), our solid seed/CEO people (who can help us better run a SaaS company) (David Cohen, Startup Studio) and some people representing our customers (social marketers like Jay Baer and TerraLever) – that got us to about 85% of the round. We wanted more social platform players so we got someone from Facebook and then added the founder of Hootsuite, who has a trifecta of deep Twitter understanding, deep social and SaaS experience and agency background.  Boom!! We have 2-3 small spots left and we are being very targeted about who we want and why. The latter investors often come quickly once the leads are in place and fill out the overall puzzle for a great round.

Generally speaking, the round will take you 3-4 months if all goes well and will take the CEO 50-75% of his time. If done well you will end up with a collection of people who complement the business and the founding team. From there, your job is inform and activate them to help grow the business. Good luck.  And, once you get a live one, here are few things you might need to be prepared – http://www.tamccann.com/raising-startup-funding-7-things-you-need-to-be-prepared/

I also love this post, which is very specific and tactical
http://firstround.com/review/the-fundraising-wisdom-that-helped-our-founders-raise-18b-in-follow-on-capital/?ct=t(How_Does_Your_Leadership_Team_Rate_12_3_2015)