Archive for the ‘Presentations’ Category

Does The Concept of Addressable Market Matter?

Q: Can you please address the issue of estimating Addressable Market when the product or service is trying to solve an emerging problem and opportunity that is about to hit in the near future.  For example, FeedBurner raised money long before bloggers were convinced that feed management could use some professional help and long before VCs saw that an advertising and paid model would emerge at some point. In other words, Dick Costello was not taking out an incumbent or providing a better solution than the market offered for a given problem. He raised capital on the belief that a market was about to emerge and FeedBurner wanted to be the first to address it. In this scenario how does one estimate addressable market (other than assumptions and forecasts) or in such cases can you be light on addressable market numbers.

A: (Brad) There are two schools of thought on this one: (1) measuring addressable market (or "TAM" – "total addressable market") matters or (2) measuring TAM doesn’t matter at all.

I’m in the "measuring TAM doesn’t matter at all" camp, especially in an early stage company in an emerging market.  Almost every presentation I’ve seen has a market size section.  Almost every market sizing presentation is incorrect – by a lot. Enough to make it irrelevant.

Most of the companies I invest in are in markets that are early in their life.  I can assure you that if you are in year two of an emerging market, there is a slide somewhere at Gartner or Forrester projecting a $1.5 billion market in year 7 that compounds 75% year over year after that indefinitely (or at least until the X-axis runs out of room).  Whatever.

Now, there’s definitely value in trying to articulate how the market you are playing in will develop.  I’m usually more interested in understanding “proxy markets” (are there markets out there that are good proxies for what you are going after?) and “market drivers” (what has to happen for the market to grow big, and quickly?)  While you can wrestle this information into a spreadsheet or a bottoms up powerpoint slide with a pretty triangle in it somewhere, anytime I see any number with two decimal points of precision, you’ll probably lose credibility with me.

Remember, at the beginning I mentioned that there are two schools of thought and I land firmly in one of them.  There are plenty of VCs in the other (e.g. measuring TAM matters). This just reinforces a point we’ve made many times on this blog – make sure you know who your audience is and what they care about.

Ask the VC Live (Update) and Start Up Drinks

As previous posted, I’m presenting at the University of Colorado a 1.5 hour "crash course" lecture on the VC industry.

There are two updates:

1. The program is February 24th (not 25th, as originally posted) at 5:15 at the CU law school.  You can find more information here

2. Several folks are getting together and re-creating "Boulder Start-up Drinks" after my presentation.  This was a good event that I was sorry to see fade away, so I’m glad that it’s found new life. 

I am still working on getting the presentation recorded in some fashion, as there has been a fair deal of interest.

Ask the VC Live (Update) and Start Up Drinks

As previous posted, I’m presenting at the University of Colorado a 1.5 hour "crash course" lecture on the VC industry.

There are two updates:

1. The program is February 24th (not 25th, as originally posted) at 5:15 at the CU law school.  You can find more information here

2. Several folks are getting together and re-creating "Boulder Start-up Drinks" after my presentation.  This was a good event that I was sorry to see fade away, so I’m glad that it’s found new life. 

I am still working on getting the presentation recorded in some fashion, as there has been a fair deal of interest.

How Did We Get Our Idea For Our Startup?

Q:  We just started looking for venture funding and I have a question. Why do VC’s ask us how our idea came about? Are they looking for an emotional and inspiring story or are they worried that we may have taken our idea from someone else or, what I believe is the case, do they want to see if we were driven by an opening in the market that we observed? Of course, if we are giving our answer in a way that addresses one or two of these issues then you are probably missing the third.  Please help!

A: (Jason)  Without sounding too glib the answer is "all of the above and maybe more, probably."  Your guesses as to why are probably accurate and it, of course depends on to whom you are speaking with.  I’ll address each of your guesses individually.

1.  "Emotionally and Inspiring Story" -  Without getting all Sally Struthers-like, it is nice to see engaged and passionate entrepreneurs.  Building a successful startup is really, really tough.  If you aren’t in love with the company going in, it will not turn out well for you or your investors.  That being said, don’t put on an act.

2. "Taken Our Idea from someone else" – This is a big one.  If you come and pitch a next-generation social networking site and previously worked at Facebook, we are going to have an in-depth discussion.  Maybe you didn’t steal it, but maybe your former employer will have a claim on the intellectual property developed while you were employed. 

3. "Driven by a new market" – This also might be part of the question.  Whatever VC you speak to, you should know more about your market than they do.  I, personally, ask many questions and rely on them as part of my education.  Maybe you really have found an "unscratched itch."

One other potential reason is to see how you sell the vision and product.  You are going to get this question often from potential customers and this is a way to see you sell and see how efficiently you can answer a potentially complicated question. 

Or, perhaps it is just a trite icebreaker and the VCs are just asking you this so they’ll have time to answer emails on their blackberry while you wax poetically. 

What’s The Best Material for the Pre-Pitch Introduction to a VC

Q: What do you expect to see from an entrepreneur whom you don’t know or have a casual introduction to before scheduling time to listen to a pitch? A one-pager? A complete powerpoint? A classic business plan or a casual one?

A: (Brad) While everyone is a little different, I’m pretty simple.  Optimally, I’d like something to play around with (e.g. a simple web site or software demo / prototype.)  If the company is pre-web site / demo, then a short executive summary is always better than a ppt for me – I’d rather read what the person thinks, than try to interpret it from a ppt. However, I’m happy to get a ppt of any length since I’ll just page through it quickly.  I’m also happy to just get a couple of paragraphs describing the business and the background of the people involved as I can usually decide from there whether it’s something I would be interested in spending more time on.

I have no interest in seeing a business plan or a financial model for an early stage company pre first pitch.

Are Watermarks On Presentations Useful?

Q: What is your stance regarding watermarks on presentations?  I’m thinking something subtle, transparent text diagonally across the face of the slides that says, Prepared for Foundry-Do Not Distribute.  Do VCs feel offended that an entrepreneur takes that step or is this pretty typical especially for first communications?  And finally, does this even accomplish anything or will a VC still share a presentation with a possible competitor in their portfolio or maybe soon to be in their portfolio?

A: (Brad): I don’t think I can answer this one generically, but I can answer it personally.  I would never be offended by a watermark like this and I would respect it.  When I see something that could be construed as competitive with a company in my portfolio, I generally mention this to the entrepreneur approaching me right away and give them control over whether or not they want to send me any other information.  I don’t keep any email or presentations so the half life of this in my "data store" is typically very short.

I know plenty of VCs that behave the way I do and plenty that don’t.  My best advice for entrepreneurs that are concerned about this is to do their research in advance and only approach VCs that you think are relevant for what you are doing, have a reputation for fair dealing, and are transparent about their portfolios. 

Also – remember that it’s rarely the idea that matters – it’s the execution of the idea.  So – even if your presentation gets passed by a VC you approach to a potential competitor that is in their portfolio, it probably doesn’t matter much beyond the notion that a potential competitor is now aware of what you are thinking about.  You will still have to execute – as will they – to be successful.