Jeffrey Bussgang, General Partner of Flybridge Capital Partner and Senior Lecturer at Harvard Business School, talks about how to become a successful entrepreneur. He talks about how he got started in venture capital.
In his first PowerPoint slide, he says that, “As an entrepreneur, I found venture capital to be a black box. As a VC, I now…understand how to enhance and build great companies.” He explains that he often sees other VCs raising money that is not a good fit for their companies. He lists why it is important to raise capital from VCs:
- Deep Pockets – High-risk tolerance and additional funding for follow-on rounds.
- Experience Matters – VCs have “seen the movie” over and over again, and can help avoid pitfalls to find the path to success.
- Value-Add – VCs provide domain experience, industry contacts, and strategic planning.
- Swing Big – VCs do not invest in niches, they invest in transformative ideas that can build large companies.
He goes on to explain that VCs and Angels look for different things in business. He says that, “VCs are very focused controlling their capital. They’ll demand some element of control…” He says that an angel is does not demand control. He says that typically, angels do not get paid for their work.
Bussgang explains that often entrepreneurs do not do their research on VCs. Before you walk into a meeting with a VC, there are certain things you must look for:
- Scope out the firm – size matters, as does the individual.
- Arrange for a warm introduction
- Prepare, be brief (VCs blink)
- Do not downplay risks
- Mutual due diligence is fair play
He says that, “Different firms have different philosophies,” when it comes to investing. He says that VCs typically see about three to five hundred companies a year. They make quick decisions and you need to your company needs to stand out. He talks about how investors make decisions.
He goes on to explain pitching and the elements of a good pitch:
- Intro – who are you, why are you here, and why are you special?
- Problem – What is the customer pain?
- Solution – What is your disruptive, breakthrough compelling solution? Is the “Gain vs. Pain” ratio 10x?
- Opportunity/Market size – top down, bottoms up
- Competitive Advantage – What is your unique differentiation? What is your “competitive moat”?
- Go to market plan – How are you going to reach the customer?
- Business Model – How are you going to make money?
- Financials – What is the bottom line? What are your key assumptions? How are we going to make ME money?
- They ask – How much do you want? How long will it last you? How much will you achieve?
Next, he talks about what investors look for in a meeting. He says that investors tend to invest in people that they like. They want to know that you are personable. They want to hear your story. There is only a short amount of time to pitch, so you have to keep it simple and to the point. You must also know what you are talking about.
He also mentions three things to avoid during a meeting. You should not exaggerate, boast too much about yourself, or name drop. He talks about certain criteria that investors look, such as a well thought out business model and “an ability to recruit and retain a good team.”
Bussgang goes on to explain what you should do after the meeting. This includes everything from fundraising to staying connected. You should also expect more due diligence and providing the VC with the important information for your business.
In closing, he talks about milestones you should keep in mind, during the initial funding period. This may include, team building or technical progress and development. He advises that you should talk to the investor before you start your next round, to know what you can expect.