Wednesday, May 30, 2012

Fingernails on a Chalkboard: “Pivot” and Other Lame Business Expression Fads

            As a venture capitalist, I am exposed to all the latest fads in business expressions. When a word or phrase is hot, I get to hear it over and over again in pitch sessions, at board meetings and at conferences. No matter where I am, the latest fad expression seems to pop up everywhere. Whether a particular phrase really applies to a situation or not, most people think it’s cool to use the latest lingo. For those of us who hear these expressions frequently, it starts to sound like fingernails on a chalkboard—especially when they are so obviously used just for the sake of using them. So, plug your ears and let’s scroll through some of the worst business expression fads over the past decade or so. It will be fingernail-screeching fun!
            In the late 90s the word “synergy” was all the rage. Everything was synergistic. One plus one was always greater than two. There were synergistic businesses, synergistic people, synergistic policies, synergistic politicians (Does that mean we’ll have more of them?). I even had one employee talk to me about the synergistic relationship between himself and his spouse. I almost asked him if this type of synergy was akin to polygamy.
            After synergy came “coopetition.” It was no longer good enough simply to compete or cooperate—you should do both at the same time. Coopetition didn’t just apply to the relationship between one company and another. There was coopetition between departments in companies, coopetition between co-workers, coopetition between neighbors, and coopetition with my sparring partner when I was practicing karate. Can’t I just focus on winning, please? Sometimes it’s just wrong when competitors don’t simply compete.
            From there we all got ill with a virus: Everything was going “viral.” Most marketing plans I saw included a component described as viral. Yet few understood what the term really means. A truly viral business spreads rapidly because customers will often introduce others to the product or service during the action of using it for themselves. Examples of actual viral companies include Hotmail, Dropbox and Survey Monkey. It was so tiring being told for the umpteenth time that a business would have a highly viral affect of happy customers wanting to spread the word about its product or service. But that isn’t viral…that is just good old word-of-mouth! One thing was sure, I felt a bit under the weather after every outbreak of viral verbiage.
            More recently, I found a rapid emergence of people saying “then a light bulb went off” to describe when they or someone else came up with an idea. This one is a particular pet peeve for me, because it’s just downright stupid. Since when has the little cartoon of the person getting a bright idea been drawn showing a light bulb over their head with the light off? I even heard the famous physicist Michio Kaku say this on a tribute show to Steve Jobs! I am almost certain that when Steve Jobs came up with his many brilliant ideas, it was like a light bulb turning on. Maybe this is part of the cleantech explosion representing our desire for increased energy efficiency? Come on, we have LED light bulbs now—turn the damn light on when you get a bright idea, will you?
            And now we come to the latest business fad word: “pivot”. If a business hasn’t made a pivot, then it must not be up with the times, because they all seem to be pivoting!  The word “pivot” is most commonly used by entrepreneurs to show that they have learned from their mistakes and adjusted the company’s direction as a result. But a pivot is, by definition, a fixed point on which a mechanism turns. So, when an entrepreneur proudly says that they have “made their pivot,” have they now stuck themselves in position never again to move forward? Are they rotating endlessly in a new direction? (We call those the “living dead” in the VC world—yikes, another fad expression!)  If they break out of their pivot and move forward will they be penalized for traveling? Pivot shmivot! Why wouldn’t one just say that they had “redirected” their business … meaning that they are still moving forward but in a different direction? Because, using the word “redirected” isn’t cool or hip enough – it’s the latest fad.
            Soon the pivot fad will fade to be replaced by the next hot expression. But each hot expression leaves a residual footprint that never completely goes away. So, if you come to pitch your company to me and you explain the great synergy amongst your management team, the coopetition you’ve demonstrated through your strategic alliance with a key competitor, your great word-of-mouth viral marketing, how a light bulb went off when you got your great idea or your beautifully executed pivot, I hope you will understand why I may be wincing a bit. All I will hear are fingernails on a chalkboard.

Tuesday, May 1, 2012

Top Questions to Ask a Venture Capitalist in the First Pitch

            You landed your first pitch at a venture capitalist’s (VC) office. You’ve practiced the pitch and have your laptop fired up to deliver. So, like a sprinter at the sound of the gunshot, you dive in hard and heavy to make sure you get through the deck. After all, you might only have one chance to excite them with your company’s story. Inevitably, with all the questions the VC throws at you, time expires before you even think about asking questions of your audience.
            Don’t let that happen to you.  The more you learn about your prospective investor and where you stand with them, the more productive your meeting will be.  Start off by asking questions. You may be very surprised at how many VCs are willing to spend time answering them. And be sure to watch the clock and leave time at the end to ask key closing questions. Presuming you’ve already asked the questions from my last post, Top Questions to Ask a Venture Capitalist in the First Five Minutes, here are some of the questions you should consider asking as part of the pitch session.

Question to ask before the pitch:

Tell me about yourself and how you got into venture capital?
            If you have done your homework, you should already know something about the attendees in your meeting. Check the firm’s website, LinkedIn page and other sources to learn more about them. If you already have the information, why ask this question? First, asking this question helps to create touch points with your audience. Maybe you went to the same university, had the same major, worked a similar job in the past or know someone who may have worked with them. You may have already identified the touch points from your research, so asking this question gives you the opportunity to talk about those connections. Second, the more you know about what motivates your audience, how they think and what makes them tick, the better you can tailor your story to include things that will resonate with them most.

On what percent of your investments were you the lead investor?
            The journey of raising venture capital has a required starting point: finding a lead investor. Some funds lead many investments, while others are designed to be followers. That doesn’t mean that the meeting is a waste of time if the fund usually follows. Followers can be valuable, but you are looking for different things out of them. An interested follower can be leveraged to help you find or close your lead investor. A lead investor can deliver you a term sheet.

How often do you co-invest with others and how many different funds have you syndicated with in the past?
            In forming your syndicate of potential investors, it is important to understand which investors may prefer to invest alone, and which would want co-investors. The number of funds that a firm has co-invested with is an indicator of how well connected they are in the venture capital world.  A well-connected firm is usually more helpful  in bringing in additional co-investors. This is usually true no matter if  they are a lead investor or a follower.

Questions to ask after the pitch:

If I call the CEOs of your portfolio companies, what will they tell me about your fund?
            Raising investment capital is like marriage without the option of divorce. It is critically important to understand what it would be like to work with your prospective investor.. Good investors respect entrepreneurs that are as concerned about that relationship as they are about the money coming into the bank.

Where do you see the strengths and weaknesses in our management team?
            In a venture investment, little is more important than discussions about the roles of the management team. Would you really want to take investment capital from a firm that has a starkly different view of your management team than you? The earlier you start to understand your alignment on this issue the better.

How high is your interest in our company compared to your other investment opportunities?
            Entrepreneurs often make the classic mistake of presuming that funding will follow once they convince the venture fund that their business, team, market, technology and plan are exciting. But venture capital is a relative sport. No firm can do unlimited investments during any given time frame. So, which companies get selected for investment is relative to the other deals in the fund’s pipeline. It is better to know in a first pitch that the venture’s interest is tepid than to falsely believe there is high interest. The key measuring stick of their interest is understanding how their attraction to your company compares to others. .

What are the key things you need to be convinced of to commit to visiting us?
            One of the classic tenants of a good sales process is “always be closing.” Yet, so many entrepreneurs deliver their first pitch and leave the meeting with enormous ambiguity about whether there will be any next steps. You can be certain that no fund is going to get to a term sheet without visiting your company. So, this is a key milestone you need to focus on achieving after the first pitch. Venture capitalists can suck you dry with information requests. Understanding what hurdles you need to get through in order to get them to commit to such a visit provides focus for the next steps you need to take.

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